Annual Report 2005-06 by Keith DSilva

ANNUAL REPORT 2005 - 06

Video conferencing

Video telephony

High speed gaming

Fiber to every Home

Contents

Highlights 2005-06

Our Global Market

Financial Overview 2001 - 2005

Board of Directors

CEO’s Message

Management Discussion & Analysis Report

Directors’ Report

Corporate Governance Report

Auditor’s Report

Balance Sheet

Profit & Loss Account

Cash Flow Statement

Schedules to Accounts

Balance Sheet Abstract

Consolidated Accounts Auditor’s Report

Balance Sheet

Profit & Loss Account

Cash Flow Statement

Schedules to Accounts

Highlights 2005 - 06

Revenue up by 68%, EBITDA & PAT increased by 76% and 299% respectively over the last fiscal EPS Rs. 7.27 (each share of face value of Rs.5) 15 patents filed for product and process innovations 6 new products launched for Access, Premise & Fiber-to-the-Home applications New business segment evolved, focusing on Access products and solutions

Sterlite Optical Technologies Ltd

Annual Report 2005 - 06

Winner of the â&#x20AC;&#x2DC;Deloitte Technology Fast 500 Asia Pacific Award 2005â&#x20AC;&#x2122;

Our Global Market Supplies of Fiber Optic Products to over 30 countries

Exports to over 30 countries across the globe YoY increase in export revenues by 147% Product approvals & accreditations received in over 10 countries across Europe and Asia

A Solution For Every Customer

Long Haul & Regional Network

Metropolitan & Local Access Network

Premise Network

Complete range of Terrestrial

Plenum Cables / Fiber Cables /

Fiber Cables to the Desk /

Fiber Optic Cables

Drop Cables

Customer Premise Equipment

Complete range of G.652 &

Copper Cables: Foam Skin &

Structured Cabling Solutions:

G.655 Optical Fibers

Solid PE Insulated

Cat 3, Cat 5e, Cat 6

US$ in million

2005 - 06

2004 - 05

2003 - 04

2002 - 03

Financial Overview 2001 - 2005

Financial Overview 2001 - 2005 2001 - 02

Revenues (Gross)

140.90

82.46

22.49

27.27

146.72

Revenues (Net)

123.61

72.72

20.02

25.05

130.28

EBITDA

18.81

10.53

4.24

(6.93)

34.60

Interest

3.64

2.32

2.81

5.14

3.13

15.16

8.22

1.42

(12.07)

31.47

Depreciation

6.55

5.93

6.13

5.72

4.49

PBT

8.64

2.28

(4.71)

(17.79)

26.98

8000

Tax

(0.59)

0.01

(0.58)

5.98

7000

PAT

9.21

2.27

(4.12)

(17.79)

21.00

6000

EPS

0.16

0.04

(0.07)

(0.32)

0.38

127.71

93.15

96.42

126.36

119.47

Capital Employed

Gross Turnover

Rs. in Million

PBDT

5000 4000 3000 2000

Rs. In million

1000

1,032.95

1,319.84

6,997.78

% Growth

68.32

258.85

(21.74)

(81.14)

5,473.72

3,268.76

919.23

1,212.46

6,213.49

67.46

255.60

(24.18)

(80.49)

832.84

473.40

194.54

(335.47)

1,649.99

% Growth

75.93

143.34

(157.99)

(120.33)

% to Net sales

15.22

14.48

21.16

(27.67)

26.55

Turnover (Net) % Growth EBITDA

Interest

161.36

104.12

129.16

248.78

149.21

PBDT

671.49

369.28

65.38

(584.25)

1,500.78

% to Net sales

12.27

11.30

7.11

(48.19)

24.15

Depreciation

289.92

266.76

281.66

276.90

214.05

PBT

381.57

102.52

(216.28)

(861.15)

1,286.73

% to Net sales

6.97

3.14

(23.53)

(71.03)

20.71

Tax

(26.10)

0.32

(26.85)

284.98

PAT

407.66

102.20

(189.43)

(861.15)

1,001.75

7.45

3.13

(20.61)

(71.03)

16.12

5,830.11

-02 -03 -04 -05 -06 01 02 03 04 05

EBITDA 2000

1500

1000

500

% to Net sales

Capital Employed

5,696.95

4,075.28

4,183.71

6,002.03

Return on Capital employed %

9.53

5.07

(2.08)

(10.20)

24.63

Interest Coverage ratio

5.16

4.55

1.51

(1.35)

11.06

Working Capital Ratio

2.91

1.64

2.06

2.86

2.24

Debt Equity Ratio

0.72

0.56

0.67

0.95

0.47

EPS

7.27

1.83

-3.38

-15.38

17.86

0 -500

-02 -03 -04 -05 -06 01 02 03 04 05

Annual Report 2005 - 06

3,706.74

Sterlite Optical Technologies Ltd

6,239.33

Rs. in Million

Turnover

Board of Directors Mr. Navin Agarwal - Non-Executive Director Mr. Navin Agarwal has been overseeing the Sterlite Group's operations in India for many years. He has over 20 years of experience of general management and commercial matters, having been involved in Sterlite since its inception.

Mr. Arun Todarwal - Non-Executive & Independent Director Mr. Arun Todarwal, Partner of Todarwal & Todarwal, a firm of Chartered Accountants based in Mumbai, holds a Bachelors Degree in Commerce and is a member of The Institute of Chartered Accountants of India. Mr. Todarwal has rich and varied experience spanning over two decades in Finance and Audit.

Mr. Haigreve Khaitan - Non-Executive & Independent Director Mr. Haigreve Khaitan, Partner of Khaitan & Co, a firm of Lawyers based in Mumbai, holds a Bachelors Degree in Legislative Laws. Mr. Khaitan has varied experience spanning over 8 years in Commercial and Corporate laws, Tax laws, Mergers and Acquisitions, Restructuring, Foreign Collaboration, Licensing etc. He is also a member of the Board of various reputed companies.

Mr. Pravin Agarwal - Non-Executive Director Mr. Pravin Agarwal holds a Bachelors Degree in Commerce. Mr. Pravin Agarwal has rich experience in the Industry spanning over 25 years. Mr. Agarwal is a Whole time Director of The Madras Aluminium Company Limited. Mr. Pravin Agarwal has been overseeing

the Sterlite Group's

operations in India for many years and he is actively involved in the operations of Sterlite's Transmission Business Division. Dr. Anand Agarwal - CEO & Whole time Director Dr. Anand Agarwal is responsible for Sterlite's range of Telecom Products; which include Optical Fiber, Fiber Optic Cables, Copper Telecommunication Cables, LAN Cables, Access Products and Solutions. Anand joined Sterlite in 1995 and has held various positions including manufacturing, quality assurance and business development. Prior to joining the Sterlite Group, Anand worked with Siemens. Anand holds a Bachelor of Technology degree in Metallurgical Engineering from the Indian Institute of Technology (IIT Kanpur); and his Master's degree and PhD in Materials Engineering from the Rensselaer Polytechnic Institute, USA.

During the year, our technology development team has filed 15 patent applications for innovations in our products and processes.

Your Company’s revenues increased by 68% to Rs. 6,239 million in 2005-06 compared with Rs. 3,707 million in 2004-05. The net profit was Rs. 408 million as compared to a net profit of Rs. 102 million in the last fiscal. Through the year, we continued with our focus on leveraging on our strategic differentiator of being the only integrated manufacturer of optical fiber in India. We also continued our focus on increasing the market size and consolidating our market share for Telecom Cables in India. Additionally, to cater to the unfulfilled and huge market gap of last-mile connectivity solution providers and customer premise equipment providers in India, we evolved a new business segment focussing on access products and solutions. Structured Cabling Solutions, Fiber to the Curb/Home and last mile connectivity integration were new product initiatives, apart from the ongoing technological and operational improvements in the Company. Based on customer inputs and the evolution of global market requirements, we strive to develop products & integrated solutions to meet telecommunication and broadband network requirements. During the year we have launched 2 new optical fiber products: BEND-LITE™ & DOF-LITE™ (Metro), designed for Fiber-to-the-Home (FTTH) and Access networks respectively. We also launched 4 unique cabling solutions: Hybrid cable with power cable, Micro DUCT-LITE™ Fiber Optic Cable, RG59 with CAT 5e & Duplex Fiber Optic Combo Cable and Cat 5e Drop Cable for application in Access and Premise networks.

Today, we have a footprint in international markets like China, the African continent, Middle East and Europe. Our cables division received repeat orders for supply of Copper Telecom Cables to Africa and significant orders for our Fiber Optic Cables from SAARC countries. We exported to more than 30 countries in 2005-06 and Siemens - Germany nominated us 'Preferred Suppliers' for fiber optic cables for their turnkey projects. We expect the seeds sown in international markets over the past years, to continue to reap results in the forthcoming years. The Company received the 'Deloitte Technology Fast 500 Asia Pacific Award 2005, 'Deloitte Technology Fast 50 India Award 2005', 'Amity Corporate Excellence Award 2005' and the 'V&D 100 Top Telecom Cables Company Award 2005'. With recovery at hand, we intend to sustain this momentum and are using innovative partnerships to increase our global presence. The Management Committee and I remain as confident as ever that we would continue with the same relentless focus along our path towards long-term growth; based on the strength of our culture of continuous improvement in all our business processes, the strength of our leadership team and the strength of our core value system. I take this opportunity to thank you, our shareholders, for your confidence in the company and we look forward to continuing our service to you. Sincerely,

Dr. Anand Agarwal Chief Executive Officer

Annual Report 2005 - 06

The past year has proved to be a transition year for Sterlite Optical Technologies Ltd - the year in which we believe we have proven our ability to transform and to position ourselves for future growth while staying committed to our core valuesExcellence, Creativity, Integrity, Responsibility and Respect.

Sterlite's optical fiber facility was audited by BVQi and certified for the ISO 14001:2004 Environment Management System. Our strategy of evolving cost structures has enabled us to become one of the lowest cost producers of Optical Fiber worldwide. The demand generation for our products in high-growth markets globally and the consolidation of our market share in India, has borne significant results.

Sterlite Optical Technologies Ltd

We are glad to present the Annual Report for the Year 2005-06.

CEO’s Message

Management Discussion & Analysis Report

for enterprises as well as for consumers.

newfound success of the service sector. Parallel to this has

Subscriber Numbers 8000

A wave of Strategic Alliances and M&A activity also punctuated

120

5000

100

4000

3000

2000

1000

20 Dec-05

capital markets are now mirroring the real economy.

140

Mar-06

also improved from 0.65 to 1.02 a representation of how the

160

Telephony

Sep-05

unknown barriers, the Market-capitalisation to GDP ratio has

Internet

6000

Mar-00

realistic 7.5 - 8%. With the market indices scaling hitherto

Broadband

7000

Voice ( in millions)

GDP growth projection for the year 2006-07 is pegged at a

Data & Video ( in ooo)

8% growth being maintained in 05-06.

Mar-01

been the steady performance of the Industrial sector with the

Jun-05

wealth of India Inc. has grown significantly across all sectors, buoyed by the strength of agricultural richness and the

India's GDP by this sector was one percent, demonstrating the growing significance of bridging the geographical divide, both

Mar-05

consistent bullishness of the Indian economy in 2005-06. The

Rs. 900 Billion (US$ 20 billion). This year, the contribution to

Mar-04

Among the top stories globally, is the resurgence and

The Telecom Service Industry is growing annually at a rate of 30% and is now having cumulative revenues of over

Mar-03

India Rising

India Calling

Mar-02

Industry Dynamics

the year with sectors like Pharmaceuticals and IT leading the charge globally as well as others like Retail and Telecom

Source: TRAI, Industry figures

having an influx of major players announcing their domestic plans.

Subscriber numbers for voice connectivity have swelled to

Political stability, financial potency, and a thrust towards Public-Private Partnerships encouraged connectivity by air, rail, road and telecommunication. This has helped in increasing productivity and efficiency by reducing transit time and bringing the hard-working rural India in closer contact with the managerial India.

line users by a factor of 1.8. These 90 million cellular

140 million with mobile subscribers now outnumbering fixed subscribers alongwith the 50 million wireline users have catapulted India's tele-density to 12.73. However, the ruralurban divide is quite evident with 2 rural users for every 31 urban connections. Another major milestone crossed this year was a total Infrastructure projects with realistic deadlines, better communication facilities, easy availability of finance with convenient payment options and above all, an aware and demanding end-user provide all indications that trends of 2005-06 will continue in the coming years. With the strength and stability of the fundamentals in place, and a proportionate contribution by each sector, the Indian success juggernaut should continue to roll in 06-07 as it did in 05-06.

subscriber base of 1 million broadband users. With Internet penetration growing steadily to 6.7 million (end-Dec. â&#x20AC;&#x2DC;05), and broadband users touching 1.3 million by March 2006, the only roadblocks seem to be the low PC penetration and gradually changing regulatory scenario. Incumbents like BSNL and MTNL are providing Broadband services at Rs. 200 per month, and private telecom service

Distribution of Global Demand for Optical Fibers in 2005

feasibility plans for FTTx (Fiber to the Home/Premise/Node) / DSL deployments are other major reasons for telecom

N America

equipment manufacturers to look at India as an important

28%

element in their business plans. 48%

TRAI has already initiated discussions on Next Generation Networks, 3G Deployments, and Convergence scenarios. This

15% 3%

has given added impetus for equipment majors to bring in the

W Europe E Europe Asia

Management Discussion & Analysis Report

providers have started to realise the importance of installing their own infrastructure. Wireless network rollouts and

Emerging

latest technologies, as well as opportunities for application and content developers to push in data-intensive, bandwidth

Source: CRU International, UK - May 2006

hungry services. With e-governance, e-learning, e-medicine and e-banking expected to take off this year, the m- (mobile) phase of similar ventures is already being spoken and written about.

Western Europe, as well as stronger backbone deployments in Eastern Europe, Middle East and Africa. There is a significant push to offer higher-bandwidth services both by wire-line and wireless operators in the mature

All this has added up to a large requirement for optical fiber

markets. Rapidly growing industry segments such as

and telecom cables. Also, demand has grown for other CPE

Broadband, Voice over Internet Protocol (VoIP), Streaming

like ADSL modems and Set Top Boxes and the revolution is

Media, technological innovations in fiber optics, DWDM and

looking to take its next step with broadband connectivity up to

WDM have contributed to the growth in demand in the

the user's doorstep.

developed economies. The increase in emerging-market backbone deployments

The year 2005 experienced an impressive revival in global demand for Fiber Optics as reported by CRU International - a

resulted from deregulation or â&#x20AC;&#x153;liberalizingâ&#x20AC;? market developments, investment in new infrastructure to compete with incumbents, and deployments in developing economies by utilities that have extensive rights-of-way.

research agency in the United Kingdom, in its year-end

North America showed the strongest 2005 growth with 30%

summary of the Fiber Optic Industry. The global demand for

growth, followed by Asian Markets, Western Europe, and

Fiber Optic Products increased to 75.7 million-km compared

Eastern Europe with 21%, 14% and 8% growth respectively. In

with 62.5 million-km in 2004, translating to a Y-o-Y growth of

the emerging Markets, which comprise of Middle East, Africa

21%. CRU has also tracked the global price trends for Fiber

& Latin America, consolidated demand grew by 15%.

Optic and has reported that the prices have stabilized over the past twelve business quarters.

In 2005, the Asian Markets continued to constitute the largest demand at 48% of the total global demand. The

The growth of demand for Fiber Optic Cables was due to

markets of North America and Western Europe comprised

stronger FTTx related deployments in North America and

43% of the global demand.

Annual Report 2005 - 06

Global Fiber Optic Industry

Sterlite Optical Technologies Ltd

Telecom Cables Industry in 2005-06

Indian Fiber Optic Market in 2005-06 (Mn-km)

With the formulation of the Broadband Policy in October 2004 and the subsequent race to build networks that are capable of

Government (BSNL + MTNL + Railways + PSUs + e-Governance)

0.13

Private Telecom

meeting the broadband subscriber targets laid down by the IT & Telecommunications Ministry, there was a healthy demand growth. There is also an increasing adoption of fiber-based

0.70

Cellular + CATV + MSOs + Others

1.50

networks by the Cable TV Segment, Multi-Service Operators (MSOs) and

e-Governance State Initiatives.

In FY 2005-06, the Indian market is estimated to have (Compiled from Industry Sources)

consumed between 170 LCKM of Copper Telecom Cables of

Segmental Distribution of Optic Cables in India

which BSNL and MTNL, who are the major buyers of Copper Telecom Cables collectively purchased about 130 LCKM. The

1.25 mn-fkm 2.01mn-fkm 2.33mn-fkm

balance demand was from Indian Private Telecom players.

100% 90%

Cellular + CATV + MSOs + Others

80% 70%

Private Telecom

60%

Operational Performance, Segmental Performance and Financial Analysis

50%

Government (BSNL + MTNL + Railways + PSUs + e-Governance)

40%

Operational Performance:

30% 20% 10% 0%

2005-06 has been an impressive year for the Company 3-0 200

200

4-0

6 5-0 20 0

especially with the expectations of continuing with the sterling

(Compiled from Industry Sources)

performance it had displayed last year and of holding on to its

Indian Telecom Cables Industry

domestic market share while at the same time expanding its global footprint. The Company has been able to perform both

Based on market information and published sources, the fiber

these roles admirably which has resulted in significant

optic industry in India showed an increase in demand in

increases in both revenues and net profits. The Company's

2005-06 to about 2.33mn-KM of cabled optical fiber. This

revenue

represents a CAGR of about 36% from FY 2002-03 to

Rs. 3,706.7 million in the previous year. Earnings before

aggregated Rs. 6,239.3 million compared to

FY 2005-06.

interest, depreciation, tax and provision for contingencies

The Government incumbents like BSNL, MTNL and RailTel

aggregated Rs. 832.8 million compared to a profit of

continued to be the largest buyers of fiber optic cables, closely

Rs. 473.4 million in the previous year.

followed by the Indian Private Telecom Incumbents.

After providing Rs. 161.4 million for interest, Rs. 289.9 million

The Indian Government as a buyer of Fiber Optic Cables

for depreciation, the net profit after tax aggregated Rs. 407.7

through the Telecom Incumbents & Public Sector

million as compared to net profit after tax of Rs. 102.2 million

Undertakings such as the Oil and Gas Sector, Power Sector,

in the previous year.

etc. cumulatively constituted about 65% of the total

The Company has been able to achieve major goals that it had

purchases of Fiber Optic Cables in India in FY 2005-06.

set for itself. The continuing improvement in the Company's

pressures and help in increasing margins for the coming years.

Company's market share in India, success in sales to overseas

Production of optical fiber during the year was 2,729,892

markets and significant cost reductions achieved by the

kilometers (KM) compared to 1,861,056 KM in the previous

Company.

year. Production of optical fiber cables aggregated 1,082,510

A snapshot of salient features of Company's performance during the year: Ranked amongst the Deloitte Technology Fast 50

fiber kilometers (FKM) compared to 719,507 FKM in the previous year.

The Company continues to be the largest

manufacturer of Optical Fiber products in India with the share for Optical Fiber Products in India of about 60%. The Company

India and Fast 500 Asia-Pacific companies in

has achieved a significant market share in China for its

2005

uncabled Optical Fiber.

15 patents filed for product and process innovations Launch of 6 new products for Access, Premise and FTTx applications Exports to over 30 countries across the globe

Management Discussion & Analysis Report

performance has been supplemented with the ongoing resurrection in demand by the industry, consolidation of the

Sales of Optical Fiber during the year was 2,181,774 kilometers (KM) compared to 1,171,387 KM in the previous year. Sales of Fiber Optic cables aggregated 1,066,659 fiber kilometers. (FKM) compared to 732,433 FKM in the previous year.

the year in the SAARC region. The Company has also been able

Awarded a 'Preferred Supplier' for fiber optic cables

to garner 51% of fiber optic cable market share in the Indian

by Siemens, Germany

Private Telecom segment. Product innovations have seen a

86% increase in total sales volumes of uncabled

host of specialty fibers being launched for the FTTx segment

Optical Fiber, compared with total sales volumes in

as well as multimode requirements of customers.

FY 2004-05

Access Business

Winner of the Voice & Data 2005 award as ‘Top

It is extremely important to be technically savvy in the highly dynamic industrial and economical scenario prevailing currently. With high speed, data intensive requirements increasing for businesses and residents alike, the Company realises the need to become a solution-oriented company while maintaining its leadership in the product space. Also, to cater to the unfulfilled and huge market gap of last-mile connectivity solution providers and customer premise equipment providers, the Company has evolved a new business segment focussing on Access products and solutions.

Telecom Cables Company’ and ‘Amity Corporate Excellence Award’.

Segmental Performance Optical Fiber Business The Company is the only integrated manufacturer of optical fiber in the country with a manufacturing capacity of 4 million kilometer (KM) and has a strong focus on improvement of productivity and reduction in cost. This has provided the Company with a competitive cost advantage compared to other players in the global market. With decreasing differentiators, the company has decided to increase its R&D and develop a strong product portfolio. This will reduce pricing

Structured Cabling and Solutions, Fiber to the Curb/Home, Wireless last mile connectivity integration and supply of CPE

Sterlite Optical Technologies Ltd

Siemens. The Company won important contracts throughout

in more than 10 countries across Europe and Asia

Annual Report 2005 - 06

The Company was awarded ‘Preferred supplier’ status by Received product approvals and accreditations received

Repeat orders from almost all customers of previous years in the Copper Telecom Cable business has been an important feature of this year's performance. Total sales of Copper Telecom in the year were 38.12 LCKM compared to 25.21 LCKM in last year . This was primarily to BSNL and MTNL, with a significant share this year also to Private operators and SAARC countries. The Company's estimated market share for Copper Telecom Cables in India is 23%.

Financial Analysis Capital Structure: As approved by shareholders the company made preferential allotment of 2,800,000 Equity shares and 5,600,000 Warrants convertible into Equity Shares to the Promoter's Group Company. As a result, the paid up share capital of the company has increased to Rs. 294.0 million. Total shareholderâ&#x20AC;&#x2122;s fund as at March 31, 2006 aggregated Rs.3,319.5 million including total reserves of Rs. 2,969.5 million. Loan Profile: The Company's long term debt decreased from Rs. 400 million to Rs. 200 million while working capital borrowings increased by Rs. 1,375.7 million to Rs. 2,033.2 million. During the year the Company has made repayment of sales tax deferred loan of Rs. 285.48 million and gain of Rs. 146.6 million on account of this prepayment of loan has been included in other income. The debt equity ratio of the Company as at March 31, 2006 was 0.72 compared to 0.56 in the previous year-end. The average cost of debt funds outstanding as at March 31, 2006 was about 7 %. The total capital employed by the Company increased by Rs. 162.2 million to Rs. 5,697.0 million Gross Block and Investments: The Gross Block including capital work in progress increased by Rs. 37.7 million to Rs. 5,721.4 miilion mainly on account of addition of routine capital expenditure. Inventory and Debtors: Increase in inventories as at March 31, 2006 by Rs. 85.1 million was due to increase in business and a strong order book. Debtors have increased in absolute

terms and represent 89 days of revenue compared to 100 days in the previous year. Loans and Advances: Loans and Advances as at March 31,

2006 increased by Rs. 343.9 million mainly on account of increase in excise balance, income tax payment, MAT credit accruals and increase in advance to subsidiary company. Cash Flow: The cash flow summary for the year is as follows: Net Cash provided/(used) for:

Rs. in Million.

Operating activities

(258.0)

Investing activities

(647.2)

Financing activities

1,230.6

Future Outlook Worldwide Demand by Region, 2002 - 2010 1,20,000 1,00,000

(000) fiber-km

were new product initiatives apart from the ongoing technological and operational improvements in the telecom cables business segment.

North America

80,000

Western Europe 60,000

Eastern Europe 40,000

Asia - Pacific

20,000

Emerging Markets

0 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: KMI Research, USA - April 2006

In its April 2006 report on the Fiber Optic Industry, KMI Research a US based telecom research agency has predicted that the global market for uncabled optical fiber will increase from $1.1 billion in 2005 to $1.7 billion in 2010, a CAGR of 9.5%, which reflects both stronger demand and some price increases. KMI Research also estimates that the market for Fiber Optic cable will grow by a CAGR of 6.7% from $3.5 billion in 2005 to $4.8 billion in 2010. This increase will be borne by stronger demand, and by a slower rate of decline in Fiber Optic cable prices.

Subscriber base projections for voice telephony surpass all expectations and for data are beginning to follow a similar trajectory. New technologies and services like 3G rollouts, National Internet Backbone, e-governance, IPTV, FTTx, continued upgrades and replacements of existing infrastructure set-ups are anticipated to keep demand for telecom equipment and telecom cables at growth rates higher than those elsewhere globally.

Mn-fiber km Y-o-Y Growth %

Annual Demand for Fiber Cables (million fiber km)

3.0 2.5 2.0

33%

2.2

2.0

1.9

40% 2.5

15%

20% 9%

1.5

30%

2.3

10% 0%

1.0 0.5 0.0

14%

-10% 21%

) -02 2-03 3-04 4-05 5-06 07 (e 01 0 0 0 0 06 20 20 20 20 20 20

-20% -30%

Y-o-Y Growth in Demand for Fiber Cables (%)

Broadband will be a preferred focus area with the Central Government hiking its budget for e-governance in India, and State Governments taking the onus on themselves of implementation, favouring the rising use of online education, tele-medicine networks and connectivity for rural knowledge

Source: Cris Infac, India- January 2006

centres. Greater use of online services in commerce, industry and transportation will create a boom for broadband. The regulator has suggested a range of measures for an open-sky policy for DTH, VSAT and up linking using satellites that should

Management Discussion & Analysis Report

India is experiencing unprecedented growth in telecommunications. This growth is estimated to lead to capital expenditure of over US$ 50 billion till 2010.

Indicating the future trends in the telecom industry, in its quarterly report published in January 2006, Cris-Infac (a leading research agency in India) believes that over the period 2005 through 2010, demand for fiber optic cables is expected to grow at a CAGR of 10%. These higher off-takes of fiber optic cables will be dependent on the success of broadband services in several pilot cities, which have been initiated during 2005-06. The demand growth rate for Copper Telecom Cables has stabilized at 7%- 9% globally and this trend is expected to continue for India as well. A study carried out on the future of Copper Telecom Cables in India, by the Economic Times dated May 2005 states that the copper lines laid by telecom companies which were considered obsolete, redundant and expensive in the wireless world, have got a fresh lease of life with the launch of broadband services in the country. Broadband services have sparked off a fresh interest in landline phones with private operators pushing demand for copper telecom cables. With the tremendous impetus that the telecom industry is providing to the nation's economy and the resultant positive initiatives taken by government, regulator and industry alike, the coming few years should see the digital divide being bridged between the culturally rich demography of India. With Fiber becoming ubiquitous, and broadband becoming a utility, 2006-07 promises to be the beginning of an alwaysconnected future. Risks and Concerns Business Risks Lower volumes and prices in the domestic and global markets may have an impact on the Company's revenues and profits. However, the management is cautiously optimistic about the likely recovery in the global telecommunication space with the easing of supply side pressures, increased focus on sales into various overseas markets and demand recovery in domestic market. The Companyâ&#x20AC;&#x2122;s focus on cost reduction, which has yielded positive results, will be the critical factor in mitigating margin pressures. Further, new product launches and longterm relationships with domestic telecom companies will aid in

Annual Report 2005 - 06

This means cabled fiber demand will grow from 75 million fiber-km in 2005 to about 110 million fiber-km in 2010, which reflects the level of sustainable growth enjoyed by the telecom segment prior to the technology bubble of the late 1990s.

boost broadband.

Sterlite Optical Technologies Ltd

KMI Research has also estimated that total worldwide demand would to grow at a CAGR of about 10% from 2005 to 2010 and FTTx-related deployments will contribute to 10% annualized growth through this period.

stabilizing cash flows. Technology Risk Product obsolescence risks are inherent in the optical fiber business. The management has accorded high priority to in-house Research & Development in order to ensure continuous product development and quality improvements of existing product offerings. During the FY 2005-06, the Company launched six new products especially designed for Access and Premise Networks. DOF-LITE™ (Metro) Non-Zero Dispersion Shifted (NZDS) Optical fiber for Metropolitan Networks BEND-LITE™ Low Bend Sensitive Optical Fiber for FTTx Networks Hybrid cable with power cable that consists of both optical fiber as well as copper wires Micro DUCT-LITE™ Fiber Optic Cable for FTTx Networks Combo Cable - an RG59 with CAT 5e and Duplex Fiber Optic Cable Cat 5E Drop Cables which are self supported LAN cable suitable for outdoor application Our Research & Development team till date has filed in total 39 applications for patents for products & processes, of which one patent was granted in the US during FY2004-05. In total fifteen patent applications were filed during the FY 2005-06. We anticipate that at least five patents would be granted during FY 2006-07 and once granted these patents would be valid for the next twenty years. Additionally, the Research & Development team is at an advanced stage in the preparation of several product and process patent applications, and expect to file at least eighteen patents during FY 2006-07. Financial Risks Financial risk primarily pertains to foreign currency exposure risk. The Company has a well-defined system of hedging its foreign currency exposures, both in the capital and revenue account, after expending natural hedges from exports. Internal Control Systems and their adequacy Enterprise Resource Planning (ERP) was implemented in the

Company in the year 2000. At various stages of implementation and thereafter, steps have been taken to ensure that appropriate controls are embedded in the software and the internal audit function reviews these controls periodically. In addition, the adequacy of controls in the ERP system is reviewed periodically. In addition, the adequacy of controls in the ERP system is reviewed periodically. The Company has appointed independent audit firm, with the expertise and specialized staff to carry on the internal audit of the Company's operations. They carry on internal audit at unit level. The reports on audit findings and action taken are tabled at each Audit Committee meeting. The actions are taken on the basis of recommendations of the Audit Committee. The Company has well designed procedures, manuals and policies to execute financial transactions. Human Resources Creativity and dedication of all our employees represent the most precious assets of the Company. For the growth of the organization, the human resource function has an important role to play not only in identifying and recruiting suitable individuals but also developing and rewarding its employees. The Company has remained focused on strengthening human capital through continuous training and development and by upgrading skills of employees to meet the Company's objectives. This will enable the Company to have a common goal and vision and produce the team and leaders who drive the Company to the next level. The Company had employed about 370 persons as on March 31, 2006. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, and expectations may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's o p e r a t i o n s i n c l u d e e c o n o m i c c o n d i t i o n s a f fe c t i n g demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws, litigation, exchange rate fluctuations, interest, other cost and certain presumptions on which estimates are based and other incidental factors.

To the Members, Your Directors are pleased to present the Seventh Annual Report together with the audited accounts of the Company for the year ended

Directorsâ&#x20AC;&#x2122; Report

March 31, 2006.

Financial Results Particulars

Turnover Profit / (Loss) before Interest, Depreciation & Tax

2005-06

2004-05

(Rs. in Million)

6,239.33

3,706.74

832.84

473.40

Less: Interest

161.36

104.12

Less: Depreciation

289.92

266.76

Net Profit/(Loss) before taxation

381.56

102.52

Provision for Taxation: Current Tax Earlier Year Tax / (Written Back)

32.20

8.70

(6.60)

Minimum Alternative Tax eligible for Set Off

(32.10)

Deferred Tax (Credit)

(28.99)

(1.78)

Fringe Benefit Tax

2.79

407.66

102.20

Balance carried forward from previous year

1,705.98

1,603.78

Amount available for appropriation

2,113.64

1,705.98

29.40

4.12

2,080.12

1,705.98

Net Profit /(Loss) for the year after tax

Provision for Tax on dividend Balance carried forward to the next year

PERFORMANCE

Income from exports increased by 147%, from Rs. 342.71 million in the last year to Rs. 847.93 million in the year under

Your Company achieved an impressive revenue growth of 68% this year. The turnover increased from Rs. 3,706.74 million in the last year to Rs. 6,239.33 million in the year under review. The profits of your Company after providing for tax increased to Rs. 407.66 million as compared to the profits of Rs. 102.20 million, (after tax credit and exceptional income) in the last year.

review. Management sees great opportunities for growth in exports and has decided to aggressively explore the opportunities in international markets. Presently, China continues to be our major export market and your Company has also started exporting to Europe, Middle East Asia, South East Asia and Africa. Your Company plans to set-up sales offices at strategic international locations in support of its

Sterlite Optical Technologies Ltd

Proposed Dividend

Annual Report 2005 - 06

APPROPRIATIONS

ambitious growth plans.

of the Auditors of the Subsidiary Companies have not been

Access products and solutions is the new business initiative launched by your Company during the year. Access products and solutions represents providing turnkey project solutions (hardware and software) to Telecom operators. The telecom market in India is poised to become one of

the largest

telecom markets with the potential to surpass China. This offers a good opportunity for diversifying into this business, which is complementary to your Company's conventional fiber and cable business. During the year, Access products and solutions contributed Rs. 1,064.73 million to the top-line

attached to the Balance Sheet of your Company. However, the shareholders desirous of obtaining the annual accounts of the subsidiaries may obtain the same on request. Pursuant to Accounting Standard 21 issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented by your Company includes the financial information of the subsidiaries. The Report and Accounts of the subsidiaries will be kept for inspection at your Company's registered office upto and including the date of Annual General Meeting.

in the very first year of operations. Management is confident

PREFERENTIAL ALLOTMENT OF EQUITY SHARES AND

that access will be the major growth driver in future.

WARRANTS TO PROMOTERS

During the year your Company made pre-payment of its sales

During the year, your Company made preferential allotment of

tax loan of Rs. 285.48 million availed by it under Sales Tax

equity shares and warrants to the promoters to fund its As per the shareholders' approval at their meeting on March

Deferral Scheme of Government of Maharashtra. The prepayment was made at net present value i.e. Rs. 138.80

25, 2006, your Company allotted to Twinstar International

Million. The resultant gain of Rs. 146.60 million has been

Limited, Mauritius, the promoter group entity, 2,800,000

considered in other income in Profit & Loss Account.

equity shares of Rs. 5 each at a price of Rs. 100 per share and

The detailed analysis of Company's operations and segmentwise performance is covered under 'Management Discussion & Analysis Report'.

5,600,000 warrants with the option to convert each warrant into one equity share of Rs. 5 each at a price of Rs. 100 within a period of 18 months. Your Company received Rs. 336 million upon allotment of aforesaid shares and warrants (Rs. 280 million upon issue and allotment of equity share and

DIVIDEND

Rs. 56 million being 10% of the total issue price of warrants). Your Board of Directors is pleased to recommend a dividend of 10 % (ten percent)

for the financial year 2005-06. The

distribution of dividend will result in payout of Rs.29.4 million excluding tax on dividend.

The proceedings from the preferential allotment have been temporarily parked in the short-term deposits with a bank for which the certificate for utilization from statutory auditors has been obtained as required under Clause 49 of Listing

SUBSIDIARY COMPANIES

Agreement.

Sterlite Telecom Limited and Sterlite Telelink Limited are two

EMPLOYEES STOCK OPTION SCHEME

subsidiaries of your Company. In terms of approval granted by

Your Company perceives its employees as wealth creators and

the Central Government under section 212 (8) of the

believes in sharing value created by the employees with them.

Companies Act, 1956, copies of the Balance Sheet, Profit and

The Board of Directors, with the approval of shareholders

Loss Account, Report of the Board of Directors and the Report

initiated Employees Stock Option Scheme, 2006. As per this

your Company's paid-up Share Capital. The options will vest as per the vesting schedule to be decided by the Compensation Committee at par value (i.e. Rupees Five ) and on the terms and conditions decided by the Compensation Committee.

EXPLANATION ON AUDITORâ&#x20AC;&#x2122;S COMMENT Refer to the remark of Auditors at Para5 (v) and (vi) of the Auditor's Report over Note 7 in Schedule 18 on Notes to Accounts regarding demand of excise duty and penalty: Your Company had received an order dated July 12, 2003 from the Commissioner of Central Excise for payment of excise duty and penalty of Rs. 1,982.00 million. The demand was made

supporting current operations as well as creating future growth. Your Company has focused its attention towards development of products that have applications in FTTH and Metro Area Network. Your Company has state-of-the-art optical fiber products for Long-Haul, Metropolitan, Access and Premise networks.

LISTING Your Company continues to be listed on the National Stock Exchange of India Limited and Bombay Stock Exchange Limited. The application for delisting from The Calcutta Stock Exchange Association Limited, filed by your Company with the Exchange is pending for clearance by the Exchange.

FIXED DEPOSITS

an unconditional stay for non-deposit of the amount

During the year under review, your Company has not accepted any deposits from the public in terms of Section 58A of the Companies Act, 1956 read with Companies (Acceptance of Deposit) Rules, 1975.

demanded. During the year, CESTAT has upheld the demand

DIRECTORS

for alleged use of imported machinery of Export Oriented Unit (EOU) for production and sale in the Domestic Tariff Area. Your Company had preferred an appeal to the CESTAT and obtained

Directorsâ&#x20AC;&#x2122; Report

Scheme, your Company will from time to time grant stock options to the employees subject to maximum limit of 2% of

of Rs. 1,886 million and interest thereon. Your Company has filed an appeal before the Hon'ble Mumbai High Court against this order. The Department has also filed an appeal in the High Court against the CESTAT order and accordingly both the parties are aggrieved by the order of CESTAT. Pending this appeal, the High Court has issued an interim order for release of 3.35 LFKM finished stock for export after payment of

By virtue of Section 255 of the Companies Act, 1956 and the Articles of Association of your Company, Mr. Pravin Agarwal retires by rotation at the ensuing Annual General Meeting and has filed his consent to act as Director of your Company. A brief resume, expertise, shareholding in your Company and details of other directorships of Mr. Pravin Agarwal are given in the Corporate Governance Report.

CORPORATE GOVERNANCE

430 million.

The Report on Corporate Governance alongwith the Certificate from the Statutory Auditors certifying the compliance of Corporate Governance enumerated in Clause 49 of the Listing Agreement with the Stock Exchanges is included in the Annual Report.

Based on the merits of the case and legal opinion obtained on this matter, your Company believes that it has a strong case. In view of the Company, it has been carrying adequate provisions for contingencies in the books of accounts in this matter and does not require any further provisioning.

DIRECTORS' RESPONSIBILITY STATEMENT

RESEARCH & DEVELOPMENT

Your Directors confirm that:

Your management recognizes that R&D plays a critical role in

1. In the preparation of the annual accounts, the

Sterlite Optical Technologies Ltd

export of the finished stock the demand will be abated by Rs.

Annual Report 2005 - 06

redemption fine of Rs. 5 million. Upon completion of the

ap p licab le accounting standards have b een followed. 2. They have selected such accounting policies and applied them consistently, and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2006 and of the profit of your Company for the financial year ended March 31, 2006. 3. They have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; 4. They have prepared the accounts on a “going concern” basis.

GROUP Your Company is controlled by the Agarwal Group; being a group as defined under the Monopolies and Restrictive Trade Practices Act, 1969. The list of entities in the group is as under: Volcan Investments Limited, Bahamas Twinstar International Limited, Mauritius Mr. Dwarkaprasad Agarwal Mr. Agnivesh Agarwal

AUDITORS M/s. Deloitte Haskins & Sells, Chartered Accountants hold office till the conclusion of the forthcoming Annual General Meeting and being eligible, offer themselves for reappointment. Your Company has received intimation to the effect that, proposed re-appointment, if made, would be within the prescribed limit under Section 224(1-B) of the Companies Act, 1956.

prescribed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosures of Particulars in the Report of Directors) Rules, 1988, is given as ‘Annexure I’ and forms a part of the Directors' Report.

PARTICULARS OF EMPLOYEES The particulars of employees as required under the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 is annexed hereto and forms a part of the Directors' Report. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and the Accounts are being sent to all shareholders of your Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to your Company Secretary at the Registered Office of your Company.

ACKNOWLEDGEMENT It has been an impressive year for your Company especially with the expectations of continuing with the sterling performance it had displayed last year and of holding on to its domestic market share while at the same time expanding its global footprint. Your Directors take on record their sincere appreciation to the contributions made by the employees through their hard work, dedication, competence, support and co-operation towards the success of your Company. Your Directors are also very thankful for consistent co-operation and assistance received from its investors, business associates, customers, vendors, bankers, regulatory and government authorities.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as

For and on behalf of the Board Mumbai April 28, 2006

PRAVIN AGARWAL Director

DR. ANAND AGARWAL Whole time Director

Particulars of Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo as per Section 217 (1) (a) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the report of Directors) Rules, 1988 for the year ended 31 March, 2006

ii.

iii. Development of new designs in products iv. Approval of our product from internationally recognized bodies (c) Future plan on R&D

(A) Conservation of Energy

The Company's vision is to strengthen its R&D initiative and focus on new product development as a thrust area, in addition to other engineering processes and upgrades.

The Company adopted the following measures for energy conservation

2. R e d u c t i o n i n A i r H a n d l i n g U n i t s s t a t i c pressure resulting in saving of 3150 units/ day. 3. I n c r e a s e i n N i t r o g e n g e n e r a t i o n f r o m 3000 Nm 3 / day to 4200 Nm 3 / day thereby reducing Specific power consumption from 1.2 units / Nm3 to 0.85 units / Nm3. 4. Conversion of Process chilled water system from open loop to closed loop resulting in saving of 468 units / day.

ii. Benefits derived as a result of the efforts e.g., product improvement, cost reduction, product development: Improved overall productivity, quality of the products and reduced process scrap and cost.

5. Installation of Variable Frequency Drive for ventur y and polishing scrubber and CPP cooling tower resulting in saving of 350 units / day.

iii. Information regarding technology impor ted during last 5 years: The Company has not imported any technology.

i. Development of DOF-Lite (Metro)dispersion optimized optical fiber, compliant with ITU-T G.656 Standards. ii.Development of Bend-Lite bend - insensitive standard single mode optical fiber for FTTH application. Iii.Nine patent applications were filed for products and processes during the financial year 2005 - 06.

(D)

Foreign Exchange Earning and Outgo Discussion on activities relating to expor ts development of exports is covered in Directors' Report and Management Discussion & Analysis Report. Foreign Exchange Earned:

Rs. 847.93 million

Foreign Exchange Outgo:

Rs. 2,673.38 million

The Company does not fall in the list of industries which are required to give details of power and fuel consumption as per Form A of

(b) Benefit derived as a result of above R&D

Companies (Disclosure of Particulars in the

Report of Directors) Rules, 1998.

Opportunity to increase global market share

Annual Report 2005 - 06

(B) Technology Absorption (a)Specific areas in which the Company carried out R&D:

Ef for ts, in brief, made towards technology absorption, adoption and innovation: The technology used for manufacture of various products of the Company is fully absorbed and new innovations in process control, product d eve l o p m e n t , c o s t r e d u c t i o n a n d q u a l i t y improvements are being made on a continuous basis.

Sterlite Optical Technologies Ltd

1. Rep l a c em en t of c h il l ed wa ter p ump s w ith lower discharge head pumps resulting in saving of 1210 units / day.

Technology Up-gradation

Directorsâ&#x20AC;&#x2122; Report

Annexure I

Corporate Governance Report PHILOSOPHY OF THE COMPANY Corporate Governance represents the value, ethical and moral framework under which business decisions are taken. The investors want to be sure that not only is their capital handled effectively and adds to the creation of wealth, but the business decisions are also taken in a manner which is not illegal or involving moral hazard. Your Company perceives good corporate governance practices as a key driver of sustainable corporate growth and longterm shareholder value creation. The primary objective is to develop and adhere to a corporate culture of harmonious and transparent functioning, increasing employee and customer satisfaction and enhancing shareholders' wealth by developing capabilities and identifying opportunities that best serve the goal of value creation. All actions and strategic plans are directed towards delivering value to all stakeholders, as well as conform to the highest standards of corporate behavior. The five core values that drive the Company's business are:

Excellence:

Strive relentlessly and constantly improve ourselves in our offerings

Creativity:

Allow minds to reach beyond conventional and predictable solutions

Integrity:

Conduct our business fairly, with honesty and transparency

Responsibility: For our words and actions Respect:

For our employees, business partners and stakeholders

The Company has three-tier governance structure: Strategic Supervision: The Board of Directors occupies the topmost tier in the governance structure. It plays a role of strategic supervision that is devoid of involvement in the task of strategic management of the Company. The Board lays down strategic goals and exercises control to ensure that the Company is progressing to fulfill stakeholders' aspirations. Strategic Management: The Management Committee is composed of the senior management of the Company and operates upon the directions of the Board. Executive Management: The function of executive management is to execute and realise the goals laid down by the Board and the Management Committee.

Materially Significant, Pecuniary Or Business

The Board of Directors consists of a Whole-time Director and

Relationship With The Company

four Non-Executive Directors. Two Non Executive Directors are

As required under Accounting Standard 18, transactions with

also Independent Directors. The meetings of the Board of

related parties are furnished under Note 15 of Schedule 18 -

Directors are chaired by Mr. Navin Agarwal who is a Non

Notes to the Accounts. There are no transactions of material

Executive Director. One third of the Board of Directors

nature with the Promoter Directors or their relatives, etc that

comprises of Independent Directors in compliance with

Corporate Governance Report

BOARD OF DIRECTORS

may have potential conflict with the interest of the Company.

Clause 49 of the Listing Agreement. Disclosures have been received from Directors and Senior During FY 2005-06, five Board Meetings were held on April 26, 2005, July 30, 2005, October 25, 2005, January 24, 2006 and February 23, 2006. The composition of the Board of Directors, attendance of the Directors in Board or Annual General Meetings and their shareholding details in the

Management relating to the financial transactions in which they or their relatives may have personal interest. However, none of these transactions have a potential conflict with the interest of the Company at large.

Company are as follows:

Name

Designation

Board Meetings

Whether

Directorships

Committee

No. of shares

Attended

attended AGM

in other

Memberships &

held in the

Companies

(Chairmanships) Company in other Companies

Navin Agarwal

Non-Executive

Nil

Yes

Nil

Yes

Nil

Yes

12,000

Director Arun Todarwal*

Non-Executive

Non-Executive Director

Pravin Agarwal**

Non-Executive Director

Dr. Anand Agarwal

CEO & Whole-time Director

The directorships in other companies include all public, private and foreign companies. *Independent Directors as defined in Clause 49 of Listing Agreement.

**Mr. Ankit Agarwal and Mr. Pratik Agarwal, sons of Mr. Pravin Agarwal hold 36,734 and 36,228 shares respectively in the Company.

Sterlite Optical Technologies Ltd

Haigreve Khaitan*

Annual Report 2005 - 06

Director

COMMITTEES OF THE BOARD AUDIT COMMITTEE The Company has the Audit Committee constituted in

The Audit Committee comprises of three Non

Executive

Directors, two of whom are independent. The representatives of internal and statutory audit are permanent invitees of the Audit Committee. The Chairman of the Committee is a Non

accordance with the requirements of Section 292A of the

Executive Independent Director having accounting and

Companies Act, 1956 and Clause 49 of the Listing Agreement

financial expertise and other members are financially literate.

entered into with the Stock Exchanges. The primary objective of the Audit Committee of the Board of Directors of your Company is to discharge responsibilities relating to accounting and reporting of financial practices adopted by the Company and its subsidiaries, surveillance of internal controls as well as accounting and audit activities. The terms of reference of the Audit Committee include:

The Audit Committee met four times during FY 2005-06 on April 26 2005, July 30, 2005, October 25, 2005 and January 21, 2006. Mr. Arun Todarwal is the Chairman of the Committee and has expertise in accounting and related financial management. The composition of the Audit Committee and attendance at committee meetings are as follows:

Review of the Company's financial reporting process and the disclosure of its financial information. Recommending the appointment and removal of

Name

Category

Navin Agarwal,

Number of Meetings attended

Non-Executive

speedily grow the Company and achieve its vision.

Chairman Arun Todarwal

He possesses the necessary expertise and experience to

Non-Executive &Independent 04

Date of birth

August 7, 1967

Date of joining the Board of the

July 30, 2003

Company Pravin Agarwal

Non-Executive

Shareholding in the Company either

12,000

in his own name or in the name of

PROFILE OF DIRECTOR/S RETIRING BY ROTATION

others and having beneficial interest, as on March 31, 2006

Mr. Pravin Agarwal holds a Bachelors Degree in Commerce. 4.

He has a rich experience in the Industry of over twenty-five years and oversees the operations of Sterlite Industries (India) Limited particularly its 'Transmission Division'.

Directorships (Public Companies) Sterlite Telecom Limited

Director

Sterlite Telelink Limited

Director & Member of Audit Committee

Date of birth

October 16, 1954

Date of joining the Board of the

January 29, 2004

Company 3.

Shareholding in the Company either in Refer Section his own name or in the name of

â&#x20AC;&#x2DC;Board of

others and having beneficial interest,

Directorsâ&#x20AC;&#x2122;

as on March 31, 2006 4.

Directorships (Public Companies) The Madras Aluminium Company Ltd

Director

Dr. Anand Agarwal is responsible for the Company's Optical Fiber and Access Business. Dr. Anand Agarwal joined Sterlite in 1995 and has held various positions including manufacturing, quality assurance and business development. He holds a Bachelor of Technology degree in Metallurgical

Code of Business Conduct & Ethics. The Whistleblower

Details of Non Compliance by the Company, Penalties

policy is the mechanism to help the employees to raise

and Strictures imposed on the Company by Stock

their concerns about any malpractice, impropriety, abuse

Exchange, SEBI or any Statutory Authorities or any matter

or wrongdoing at an early stage and in the right way,

related to capital market

without fear of victimization, subsequent discrimination or

During the process of Open Offer for acquisition of 20%

disadvantage. The policy encourages the employees to

shares of Hindustan Zinc Limited (HZL) from the public

raise concerns within the Company than overlooking a

shareholders, there was a delay in receipt of approval from

Corporate Governance Report

DISCLOSURES

problem. CEO/COO/CFO have been designated as

the RBI and consequently, delay in payment to nine nonresident shareholders.

Ombudsmen in the Policy. The Company has created a special email id to enable the employees to report their

SEBI had passed an order dated June 12, 2003 under

concerns. The employees can even report their concerns

SEBI (Substantial Acquisition of Shares and Takeovers) to the Audit Committee directly. The Ombudsman who is

Opportunities and Ventures Limited (SOVL) (as acquirer),

responsible to submit his report to the Audit Committee

Sterlite Industries (India) Ltd. (SIIL) and the Company (as

does the investigation of the reported concerns.

persons acting in concert) directing payment of interest @

Disciplinary action, if required, is determined by the Audit

consideration amount to NRIs / FIIs / OCBs shareholders, due to delay in receipt of the approval of the Reserve Bank

Committee. The reporting person can make appeal to the Board of Directors against the order of Audit Committee.

of India, under Foreign Exchange Management Act (FEMA)

The Whistleblower Policy also contains mechanism of

in connection with applications accepted in the open offer

redressal available for an employee, if he/she feels that

for HZL.

he/she has been retaliated against due to disclosure of

SOVL, SIIL and the Company had preferred an appeal

concern.

against the SEBI order before Securities Appellate Tribunal

No person has been denied access to the Audit

(SAT). SAT has passed a final order on February 11, 2005

Committee.

setting aside the aforesaid impugned order of SEBI. During the year no concern was reported under During the year there were no penalties and strictures

Whistleblower mechanism.

imposed on the Company by Stock Exchange, SEBI or any Statutory Authorities or any matter related to capital

The Company has complied with all the mandatory

market.

requirements of Clause 49 of the Listing Agreement

The Company has adopted a 'Whistleblower Policy', which has been communicated to all the employees along with

Annual Report 2005 - 06

10% per annum, for alleged delay in payment of

executed with the Stock Exchanges. Comments on adoption of non-mandatory requirements are given at the end of this report.

Sterlite Optical Technologies Ltd

Regulations, 1997 (â&#x20AC;&#x153;Takeover Codeâ&#x20AC;?) on Sterlite

GENERAL SHAREHOLDER INFORMATION Details of last three Annual General Meetings Date

Location

Time

September 19,

B-10/4, Waluj MIDC Industrial

12.30 pm

2003

Area, Aurangabad 431 136

Mr. Navin Agarwal as Whole

Maharashtra, India

time Director

Special Resolutions Passed

Payment of remuneration to

September 28,

B-10/4, Waluj MIDC Industrial

2004

Area, Aurangabad 431 136

Dr. Anand Agarwal, Whole

Maharashtra, India

time Director

August 9, 2005

B-10/4, Waluj MIDC Industrial

12.30 pm

11.00 am

Approval of Remuneration of

Nil

Area, Aurangabad 431 136

Means of Communication

Maharashtra, India

Quarterly Financial Results are published in English in the All-

Details of Extraordinary General Meetings held during the year:

India Edition of The Business Date

March 13, 2006

Standard and are also published

Location

Time

Resolutions Passed

E-1, Waluj MIDC Industrial Area,

11.30 a.m.

Issue and allotment of stock

in the Marathi Edition of Sakal or Lokmat in Aurangabad.

Aurangabad 431 136

options to employees of the

Maharashtra, India

Company

and

its

subsidiaries under

Results are also posted on the Company's

Website:

www.sterliteoptical.com Employees Stock Option Scheme, 2006.

The Company also displays official news releases and

March 25, 2006

E-1, Waluj MIDC Industrial Area,

11.00 a.m.

Issue and allotment of

presentations made to Aurangabad 431 136

2,800,000 Equity Shares

Maharashtra, India

and 5,600,000 warrants

institutional investors or to analysts on the website.

with the option to convert

Management Discussion & each warrant into one into Equity Share. No resolution was passed by postal ballot during the year.

Analysis is a part of Annual Report.

Corporate Governance Report

Implementation of Code of Conduct The Company has adopted the 'Code of Business Conduct & Ethics' for its employees at all levels including Senior Management and Directors. The Code has been effective from April 1, 2005 and was circulated to all the employees and directors of the Company and has also been posted on the Company's website. The Code serves as a guide to the employees of the Company to make good, informed decisions and act on them. As required under Clause 49 of the Listing Agreement, the affirmation as regards compliance with the Code from Directors and Senior Management personnel has been obtained for this financial year. Compliance with SEBI (Prohibition Of Insider Trading) Regulations, 2002 In pursuance of these Regulations, the Company has formulated Insider Trading Code for the Employees and Directors for dealing in shares of the Company. The Code was implemented with effect from October 16, 2004. Various forms have been designed to receive periodical information from the employees and the Directors of the Company, as required in terms of these Regulations. Further, the Trading Window for dealing in shares of the Company is periodically closed for the Directors and employees of the Company as per the Insider Trading Code in force in the Company.

Financial Calendar for FY 2006 - 07

Half Yearly Results

End of October, 2006

Annual General Meeting Day, Date and Time Friday, August 18, 2006 at

Third Quarter Results

End of January, 2007

Fourth Quarter

April/May , 2007

11:00 a.m.

Venue

/Annual Results Book Closure Dates

E-1, Waluj MIDC Industrial Area, Aurangabad 431 136

Friday, August 11, 2006 to Friday, August 18, 2006 (both days inclusive)

Maharashtra, India

Annual Report 2005 - 06

End of July, 2006

Sterlite Optical Technologies Ltd

First Quarter Results

Listing of shares on Stock

Stock Price Data

Exchanges

Stock Price data for the period April 1, 2005 to March 31, 2006 was as detailed below

The equity shares of the Company

Month

Monthly High

Monthly Low

Monthly High

Monthly Low

NSE (Rs.)

BSE (Rs.)

Apr - 05

74.4

62.5

74.5

62.1

May - 05

77.0

64.7

84.0

64.3

Jun - 05

81.9

65.0

81.8

65.0

July - 05

85.0

68.5

78.7

68.6

Aug - 05

129.4

70.8

129.5

70.5

Application for delisting from

Sep - 05

124.5

94.0

125.0

94.5

Calcutta Stock Exchange is

Oct - 05

110.8

73.3

112.0

73.3

pending for approval.

Annual

Nov - 05

97.8

75.5

97.8

75.2

listing fees for the financial year

Dec - 05

104.5

75.0

104.2

87.2

ended March 31, 2006 have been

Jan - 06

108.4

95.0

108.0

95.0

paid to Bombay Stock Exchange

Feb - 06

104.9

93.8

104.4

80.0

Mar - 06

102.7

91.1

102.7

91.0

are listed on Bombay Stock Exchange Limited, National Stock Exchange of India Limited and Calcutta Stock Exchange Association Limited . Delisting from Ahmedabad and Delhi Stock Exchanges has been done.

Limited and National Stock Exchange of India Limited. The

Sources: Data Compiled from BSE & NSE official website

Stock Codes of the Exchanges are Stock Performance as under: The performance of the Company's stock prices as against NSE NIFTY : SOTL - Close ( NSE)

150.0

100.0

Sterlite

Mar -06-

Feb -06-

Jan -06-

Dec -05-

Nov -05-

Oct -05-

0.0

Sep -05-

50.0

Annual report 2006

200.0

Aug -05-

STROPTICAL

Jul -05-

NSE

250.0

Jun -05-

532374

May -05-

BSE

Nifty - Close

300.0

Apr -05-

Code Indexed to 100 as on April 1,2005

Exchange

From

Shareholders

Dematerialization of shares and

liquidity 1-

1000

112,880

97.34

15,018,594

26.82

The Company's equity shares are

1001 -

2000

1,696

1.46

2,473,163

4.42

compulsorily traded in the electronic

2001 -

4000

707

0.61

1,989,636

3.55

form. As at March 31, 2006,

4001 -

6000

261

0.23

1,307,227

2.34

6001 -

8000

103

0.09

715,726

1.27

8001 -

10000

0.07

759,906

1.36

10001 -

20000

115

0.10

1,689,808

3.02

either through NSDL or CDSL. The ISIN

20001

ABOVE

119

0.10

34,840,507

57.22

number allotted to the Company is

Corporate Governance Report

Distribution of Share holding as at March 31, 2006

55899307 shares representing 95.08% of total equity capital was held in electronic form. The Shareholders

TOTAL

115,962

can hold the shares in demat form

INE 089C01011.

58,794,567

Shareholding pattern as at March 31, 2006

Unpaid / unclaimed dividend No. of Shares

In terms of section 205A and 205C of Promoters

23,483,459

39.96

102,062

0.19

4,258,785

7.26

amount of dividend remaining

574,812

1.00

unclaimed for a period of seven years

205

0.00

from the date of transfer to the unpaid

13,589

0.02

dividend account to the Investor

Foreign Institutional Investors

566,114

0.98

Education and Protection Fund (IEPF).

NRIs/ OCBs/Non Domestic Cos./ Foreign National

689,109

1.19

5,493,533

9.36

the Companies Act, 1956, the

GIC and its Subsidiaries UTI Other Mutual Funds

Bodies Corporates (Public)

Company is required to transfer the

Shareholders are requested to ensure that they claim the dividend(s) from the Company before transfer to IEPF.

102,972

0.20

170

0.00

Individuals (Public)

23,509,757

39.99

TOTAL

58,794,567

100.00

Banks Government Companies

Annual Report 2005 - 06

LIC

Sterlite Optical Technologies Ltd

Directors and their Relatives

Outstanding GDRs / ADRs / Warrants or any Convertible instruments, conversion date & likely impact on equity On March 29, 2006, the Board of Directors allotted 5,600,000 warrants to Promoters, each convertible into one Equity Share of Rs. 5 each at a price of Rs. 100 within a period of 18 months. As on March 31, 2006, all the warrants were outstanding for conversion. Share Transfer System The Company has given powers to some of its senior executives to deal with all the matters related to transfers, transmission, issuance of duplicate share/debenture certificates, split and/or consolidation requests. In addition, the Company Secretary and authorised officials of the Registrar and Transfer Agents of the Company have been given powers to endorse registration of transfers on share certificates. The Company's shares being in compulsory demat list are also transferred through the depository system. The Company has entered into agreements with both the depositories NSDL & CDSL.

mentioned address. Members may also write to the Company Secretary at the Office of the Company as detailed below: Company Secretary Sterlite Optical Technologies Limited 4th Floor, Godrej Millennium 9 Koregaon Road, Pune - 411 001 Maharashtra, India Phone: +91-20-30514000 Fax: +91-20-26138083 Email: sandeep.deshmukh@sterlite.com Plant Locations Optical Fiber : E-2 & E-3, Waluj MIDC Industrial Area,

Registrar & Transfer Agents

Aurangabad 431 136, Maharashtra, India

M/s Sharepro Services, Mumbai are Registrars and Transfer Agents for both physical and electronic mode of transfer of shares. Transfer for shares held in the physical mode are approved on a 15 days cycle. Physical Shares sent for transfer are duly transferred within 10-12 days of receipt of documents, if found in order. Shares under objection are returned within 7 days.

Fiber Optic Cables : E-1, Waluj MIDC Industrial Area, Aurangabad 431136, Maharashtra, India Survey No. 68/1, Madhuban Dam Road, Rakholi, Silvassa 396 230, Union Territory of Dadra & Nagar Haveli, India

Shareholders, beneficial owners and depository participants, (DPs) are requested to send / deliver the documents / correspondence relating to the Company's share transfer activity, etc to Sharepro Services (India) Private Limited at the following address:

Union Territory of Dadra & Nagar Haveli, India

M/s. Sharepro Services

B- 10/4, Waluj MIDC Industrial Area,

(Unit Sterlite Optical Technologies Limited)

Aurangabad 431 136, Maharashtra, India

Satam Estate, 3rd Floor, Above Bank of Baroda Chakala, Andheri (East), Mumbai - 400 099, India Phone: +91-22-28215168, 28329828, 28322114 Fax: +91-22-28375646 E-mail : sharepro@vsnl.com

Shareholders' correspondence should be addressed to the Company's Registrar and Transfer Agents at the above-

Copper Telecom Cables : Survey No. 209, Piparia Industrial Estate, Phase II, Silvassa 396 230,

Committee to review incentive to be paid to the Executive Director. Further, the Company has adopted Whistle-blower mechanism, which has been discussed in this report. The Company's policies as regards adoption of other nonmandatory requirements shall be disclosed in this report from time to time.

Corporate Governance Report

Non-mandatory requirements of Corporate Governance Presently the Board elects the Chairman at each Board meeting. The Company has constituted Remuneration

DECLARATION As provided under Clause 49 of the Listing Agreement of the Stock Exchanges, all Board Members and senior Management Personnel have affirmed compliance with the Code of Conduct and Business Ethics of the Company during the year ended March 31, 2006.

For Sterlite Optical Technologies Limited Place : Mumbai

Dr. Anand Agarwal

Dated : April 28, 2006

Wholetime Director

CERTIFICATE To The Members of Sterlite Optical Technologies Limited

We have examined the compliance of conditions of Corporate Governance by Sterlite Optical Technologies Limited, for the financial year ended March 31, 2006, as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to the procedures and implementation thereof, adopted by the Company for ensuring the compliance of the

Governance as stipulated in the abovementioned Listing Agreement. We further state that such compliance is neither an assurance as to future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company. For Deloitte Haskins & Sells Chartered Accountants

Hemant M Joshi Place : Mumbai Dated : April 28, 2006

Partner Membership No. 38019

Sterlite Optical Technologies Ltd

In our opinion and to the best of our information and according to the explanations given to us and the representation made by Directors and the Management, we certify that the Company has complied with the conditions of Corporate

Annual Report 2005 - 06

conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

Environment and Safety Sterlite Optical Technologies Limited is committed to

ISO 14001 specifies the actual requirements for an

protecting the environment everywhere we operate through

environmental management system and it applies to those

continuous improvement of our processes, products and

environmental aspects which the organization has control and

services.

over which it can be expected to have an influence.

We achieve this through: Complying with and striving to exceed all applicable laws, regulations and company standards.

OHSAS specifies the requirements for an occupational health and safety (OH&S) management system, to enable an organization to control its OH&S risks and improve its performance. OHSAS 18001 has been developed to be

Maintaining an environmental management system that

compatible with the ISO 9001 (Quality) and ISO 14001

assures this policy is implemented, including:

(Environmental) management systems standards, in order to

Establishing goals and targets.

facilitate the integration of quality, environmental and occupational health and safety management systems.

Conducting environmental audits and progress reviews. Communicating policy to everyone involved. Implementing measures to reduce pollution, waste and energy consumption. Recycling and working to create innovative recycling opportunities. Promoting and increasing environmental awareness within our plants and facilities. Sterlite Optical Technologies Limited is committed to explore the use of environment - friendly technologies and materials within our research, development and manufacturing processes. We also remain committed to providing a safe work environment for employees, and a safe living environment for our neighbors. Sterlite's optical fiber facility has been audited by BVQi and certified for the ISO 14001:2004 Environment Management System and OHSAS 18001:1999.

the Board of Directors, we report that none of the Directors

THE MEMBERS OF STERLITE OPTICAL TECHNOLOGIES LIMITED

is disqualified as on 31st March 2006 from being

Auditorâ&#x20AC;&#x2122;s Report

appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

1. We have audited the attached Balance Sheet of STERLITE OPTICAL TECHNOLOGIES LIMITED, as at 31st March 2006 and also the Profit and Loss Account and the Cash Flow

5. Further to our comments in the Annexure referred to in paragraph (3) above, we report that:

Statement for the year ended on that date annexed

i. We have obtained all the information and explanations,

thereto. These financial statements are the responsibility

which to the best of our knowledge and belief were

of the Company's management. Our responsibility is to

necessary for the purposes of our audit;

express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; iii.The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this repor t are in agreement with the books of account; iv.In our opinion, the Balance Sheet, Profit and Loss

the amounts and disclosures in the financial statements.

Account and Cash Flow Statement dealt with by this

An audit also includes assessing the accounting principles

report comply with the accounting standards referred

used and significant estimates made by management, as

to in sub-section (3C) of Section 211 of the Companies

well as evaluating the overall financial statement

Act, 1956;

presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor's Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the

v. Attention is invited to Note 7 in Schedule 18 regarding demand of Rs. 1,982 million from the Commissioner of Central Excise for payment of Excise Duty and penalty out of which a sum of Rs. 1,886 million and interest thereon has been confirmed by CESTAT during the year. Pending the outcome of the appeal in the appropriate cour ts no provision has been made barring

matters specified in paragraphs 4 and 5 of the said Order. 4. On the basis of written representations received from the Directors as on 31st March 2006 and taken on record by

Rs. 45 million towards provision for contingencies . We are unable to express an opinion on the outcome of the

Sterlite Optical Technologies Ltd

includes examining, on a test basis, evidence supporting

Annual Report 2005 - 06

statements are free of material misstatement. An audit

matter at this stage. This is the result of decision

t aken by management

at the start of the

preceding financial year and caused us to qualify our audit opinion on the financial statements relating to that year.

vi. In view of the uncertainty concerning the material issue referred in above paragraph (v) and to the best of

our information and according to the explanations given to us, though the said accounts read with the other notes thereon give the information required by the Companies Act, 1956, in the manner so required we are unable to express an opinion whether they give a true and fair view in conformity with the accounting principles generally accepted in India :

a. in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2006; b. in the case of the Profit and Loss Account, of the profit for the year ended on that date; and c. in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For Deloitte Haskins & Sells Chartered Accountants

Place: Mumbai. Dated: April 28, 2006

Hemant M. Joshi Partner Membership Number: 38019

(Referred to in Para 3 of our report of even date on the

The discrepancies noticed on verification between the physical stocks and the book records were not material.

accounts of Sterlite Optical Technologies Limited for the year

4. In our opinion and according to the information and

ended 31st March 2006)

explanations given to us, the Company has not granted or

1. In our opinion and according to the information and explanations given to us, the nature of the Company's business/activities during the year is such that the requirements of clauses (xiii) and (xiv) of paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company. 2. In respect of its fixed assets:

Auditorâ&#x20AC;&#x2122;s Report

Annexure to the Auditor's Report

taken any loan, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly the provisions of Sub Clauses (b), (c ), (d), (f) and (g) of Clause 4 (iii) of Companies (Auditor's Report) Order, 2003 are not applicable to the Company. 5. In our opinion and according to the information and explanations given to us, there are adequate internal control

fixed assets.

procedures commensurate with the size of the Company and the nature of its business with regard to purchases of inventory, fixed assets and for the sale of goods and services.

b. Majority of the assets have been physically verified by the

During the course of our audit, we have not observed any

management during the year. No material discrepancies were

continuing failure to correct major weaknesses in internal

noticed on such verification.

control system.

c. A substantial part of fixed assets have not been disposed

6. According to the information and explanations given to us,

off during the year and accordingly the question of going

we are of the opinion that there are no contracts or

concern status being affected does not arise.

arrangements that need to be entered into the register

3. In respect of inventories:

referred to in Section 301 of the Companies Act, 1956. Accordingly the provisions of Sub Clauses (a) and (b) of Clause

a. The inventory has been physically verified during the year by the management. In our opinion, the frequency of

4 (v) of Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

verification is reasonable. 7. In our opinion and according to the information and b. The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. c. The Company is maintaining proper records of inventory.

explanations given to us the Company has not accepted any deposits within the meaning of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed there under. Accordingly the provisions of Clause 4 (vi) of Companies (Auditor's Report) Order, 2003 are not

Annual Report 2005 - 06

particulars, including quantitative details and situation of

Sterlite Optical Technologies Ltd

a. The Company has maintained proper records showing full

applicable to the Company.

required to deposit any amounts with the Employees' State Insurance Scheme and

8. In our opinion, the internal audit

Investor Education and Protection Fund.

function carried out during the year by

b. According to the information and explanations given to us, no undisputed amounts

an external agency appointed by the

payable in respect of Income Tax, Wealth Tax, Sales Tax, Service Tax, Customs Duty,

management

Excise Duty and Cess were in arrears, as at 31st March 2006 for a period of more than

has

been

commensurate with the size of the

six months from the date they became payable.

Company and nature of its business. c. According to the information and explanations given to us, disputed Sales Tax, 9. We have broadly reviewed the

Income Tax, Service Tax, Excise Duty and Customs Duty not deposited with the

books of account relating to materials,

appropriate authorities are as under:

labour and other items of cost to be maintained by the Company relating to t h e

m a n u f a c t u r e

o f

Name of the

telecommunication cables, pursuant

Statute

to the Rules made by the Central

Central Excise

Government for the maintenance of

Nature of the Dues

Amount (Rs. in Million)

Period to which the Forum where disputes amount relates is pending

Excise Duty

298.27

1992 - 02

Commissioner

Excise Duty

66.12

1994 - 95

CESTAT

Excise Duty

1,886.00

2001 - 02

Mumbai High Court

Customs Duty

47.10

2002 - 04

Special Investigation

Act, 1944

cost records under Section 209 (1) (d)

1999 - 05

of the Companies Act, 1956 and we are of the opinion that prima facie the

Customs Act,

prescribed records have been

1962

Intelligence Bureau, Mumbai

maintained. We have not, however, made a detailed examination of the

Customs Duty

15.23

2003 - 04

Commissioner

records with a view to determining whether they are accurate or complete. 10. a. The Company has been regular

Company has not incurred cash losses during the financial year covered by our audit

in depositing with appropriate

and the immediately preceding financial year.

authorities undisputed statutory dues including Provident Fund, Income Tax,

11. The Company does not have any accumulated losses as at the end of the year. The

12. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to financial institutions. The

Sales Tax, Wealth Tax, Service Tax,

Company continues to dispute amounts aggregating to Rs 188.70 million debited by one

Custom Duty, Excise Duty, Cess and

of the bankers in the earlier year, towards import consignments under Letter of Credit not

other material statutor y dues

accepted by the Company, owing to discrepancies in documents; at this stage we are

applicable to it. The Company was not

unable to determine whether there is a default in repayment of dues to the lender.

19.The Company has not raised monies by public issues. Accordingly the provisions of Clause (xx) of paragraph 4 of the

and advances on the basis of security by way of pledge of

Companies (Auditor's Report) Order, 2003 are not applicable

shares, debentures and other securities. Accordingly the

to the Company.

Auditorâ&#x20AC;&#x2122;s Report

13. In our opinion and according to the information and explanations given to us, the Company has not granted loans

provisions of Clause (xii) of paragraph 4 of the Companies 20. According to the information and explanations given to us, (Auditor's Report) Order, 2003 are not applicable to the during the year no fraud on or by the Company has been Company. noticed or reported during the course of our audit. 14. In our opinion and according to the information and explanations given to us, there are no guarantees given by the Company for loans taken by others from banks, Accordingly the provisions of Clause (xv) of paragraph 4 of the Companies

For Deloitte Haskins & Sells

(Auditors' Report) Order, 2003 are not applicable to the

Chartered Accountants

Company. Hemant M Joshi 15. In our opinion and according to the information and

Place: Mumbai

explanations given to us, term loans have been applied for the

Dated: April 28, 2006

Partner Membership Number: 38019

purpose for which they were raised. 16. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

maintained under Section 301 of the Companies Act, 1956. Accordingly the provisions of Clause (xviii) of paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company. 18. The Company has not issued any debentures during the year nor were any debentures outstanding at the beginning of the year. Accordingly the provisions of Clause (xix) of paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

Sterlite Optical Technologies Ltd

shares to parties and companies covered in the Register

Annual Report 2005 - 06

17. The Company has not made any preferential allotment of

Balance Sheet STERLITE OPTICAL TECHNOLOGIES LIMITED BALANCE SHEET AS AT MARCH 31, 2006 Schedule

SOURCES OF FUNDS 1. Shareholderâ&#x20AC;&#x2122;s Funds Share Capital Upfront Payment against Share Warrants Reserves & Surplus 2.

Loan Funds Secured Loans Unsecured Loans

2006

2005

(Rs. in Million)

1 1 2

3 4

Deferred Tax Liability (Net)

APPLICATION OF FUNDS 1. Fixed Assets Gross Block Less: Depreciation & Impairment Net Block Capital Work-in-Progress

2. 3.

150.66

150.61

5,701.56 2,831.36 2,870.20 19.85

Less: Current Liabilities & Provisions Liabilities Provisions

7 8 9 10

864.41 1,525.26 954.72 979.92 4,324.31

779.27 1,017.69 137.66 636.01 2,570.63

1,215.65 268.79 1,484.44

1,359.70 206.36 1,566.06

Net Current Assets

2,839.87 5,880.58

TOTAL 18

As per our attached Report of even date

For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Hemant M Joshi Partner Membership Number: 38019

2,890.05

5,665.59 2,551.00 3,114.59 18.14 3,132.73

Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances

Notes forming part of Accounts

2,377.45 183.64 5,880.58

1,057.47 408.46 1,465.93 212.63 4,287.91

2,233.21 144.24

TOTAL II.

3,319.49

279.97 2,329.38 2,609.35

293.97 56.00 2,969.52

Place: Mumbai Dated: April 28, 2006

1,004.57 4,287.91

Schedule

2006 (Rs. in Million)

INCOME Turnover Less: Excise Duty

6,239.33 765.61

3,706.74 437.98

Turnover (Net)

5,473.72

3,268.76

12 TOTAL

194.64 5,668.36

51.81 3,320.57

13 14 15 16 17

4,196.07 148.50 340.40 150.55 161.36 -

2,413.86 114.35 220.98 81.18 104.12 16.80

4,996.88 671.48 289.92

2,951.29 369.28 266.76

381.56

102.52

32.20

8.70

(32.10) (28.99) 2.79

(6.60) (1.78) -

PROFIT AFTER TAXATION Balance brought forward from previous year

407.66 1,705.98

102.20 1,603.78

AMOUNT AVAILABLE FOR APPROPRIATIONS

2,113.64

1,705.98

29.40 4.12 2,080.12 2,113.64 7.27

1,705.98 1,705.98 1.83

Other Income II.

2005 (Rs. in Million)

EXPENDITURE Manufacturing & other expenses Personnel Selling & Distribution Administration & General Interest & Finance charges Provisions & write offs

PROFIT BEFORE DEPRECIATION & TAXATION Depreciation PROFIT BEFORE TAXATION Provision for taxation: - Current Tax for the year (Including Rs.0.10 Million (previous year Rs. 0.10 million) for Wealth Tax) - Written Back for earlier year - Minimum Alternate Tax Credit Eligible for Set Off - Deferred Tax ( Net) - Fringe Benefit Tax

APPROPRIATIONS Proposed Dividend on Equity Shares Rs.0.50 Per Share Corporate Tax on Proposed Dividend Balance carried to Balance Sheet Earning per share (Basic & Diluted) (Rs.) (Face Value Rs. 5 each) Notes forming part of Accounts

As per our attached Report of even date

For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 28, 2006

Profit & Loss Account

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Annual Report 2005 - 06

STERLITE OPTICAL TECHNOLOGIES LIMITED

Sterlite Optical Technologies Ltd

Profit & Loss Account

Cash Flow Statement STERLITE OPTICAL TECHNOLOGIES LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 2006 (Rs. in Million)

Cash flow from Operating Activities Net Profit after tax as per Profit & Loss Account Adjustment for Taxation

407.66 (26.10) 381.56

Adjustments for : - Depreciation - Investment Written Off & Loss On Sale Of Investment - Interest Expenses (net) - (Profit) / Loss on Sale of Assets - Gain on prepayment of Deferred Sales Tax Liability - Provisions and write offs

2005 (Rs. in Million)

222224 102.20 0.32 102.52 266.76 0.41 104.12 2.52 16.80

289.92 161.36 (1.49) (146.60) 303.19 684.75

493.13

(907.51)

(777.17) (83.02) 941.55

(222.76)

574.49

(35.25)

13.68

Net cash flow from Operating Activities

(258.01)

588.17

Cash flow from Investing Activities Purchases of Fixed Assets (Including Capital Work in Progress) Proceeds from Sale of Fixed Assets (Purchase)/Sale of Investments Investments in Bank Fixed Deposits Application Money Paid Pending Allotment Interest received from Subsidiary Companies Loan to Subsidiary Companies

(48.95) 3.21 (0.05) (491.64) (24.95) 15.99 (100.83)

(67.81) 14.48 19.65 (95.58)

Net cash flow from Investing Activities

(647.22)

(129.26)

Operating profit before working capital changes Adjustments for : - (Increase)/Decrease in Trade and other receivables - (Increase)/Decrease in Inventories - Increase/(Decrease) in Trade payables Cash generated from operations Direct taxes (paid / TDS deducted) /Refund received

(661.23) (85.14) (161.14)

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2006 2006

2005

(Rs. in Million)

Cash flow from Financing Activities 1,175.73 336.00 (117.62) (163.43) (0.03)

(89.92) (120.71) (123.77) (0.09)

1,230.65

(334.49)

Net Increase in cash and cash equivalent

325.42

124.42

Cash and cash equivalent as at beginning of year

137.66

13.24

Cash and cash equivalent as at year end

463.08

137.66

Proceeds/(Repayment) of Secured Loans (net) Proceeds/ (Repayment) of Preferential Equity Issue & Share Warrants Proceeds/ (Repayment) of Unsecured Loans (net) Interest paid Payment of Unclaimed Dividend Net Cash flow from Financing Activities

407.66

* Investments in Bank Fixed Deposits having maturity of more than 3 Months have been shown under the cash flows from investing activities.

For Deloitte Haskins & Sells Chartered Accountants Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 28, 2006

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Annual Report 2005 - 06

For and on behalf of the Board

Sterlite Optical Technologies Ltd

(Rs. in Million)

Cash Flow Statement

STERLITE OPTICAL TECHNOLOGIES LIMITED

Schedules to Accounts Schedules forming part of the Balance Sheet SCHEDULE 1 SHARE CAPITAL : 2006 (Rs. in Million)

Authorised: 90,000,000 (Previous Year 90,000,000)Equity Shares of Rs. 5 each fully paid up

2005 (Rs. in Million)

450.00

Issued, Subscribed & Paid up: 58,794,567 (Previous Year 55,994,567) Equity Shares of Rs. 5 each fully paid up

293.97

279.97

TOTAL

293.97

279.97

Of the above : 55,912,559 equity shares of Rs. 5 each were allotted to the shareholders of Sterlite Industries (India) Ltd. upon demerger pursuant to the scheme of arrangement sanctioned by the Honourable High Court of Judicature at Bombay. During the year, 2,800,000 equity share allotted on preferential allotment basis. 5,600,000 Warrants were issued during the year with option to exercise Equity conversion for 2,800,000 warrants before 28th March 2007 and for balance 2,800,000 warrants by 28th September 2007.

SCHEDULE 2 RESERVES & SURPLUS : 2006 (Rs. in Million)

Share Premium: Balance as per last Balance Sheet Add: Received During the year

42.96 266.00

General Reserve: Balance as per last Balance Sheet Surplus as per Profit & Loss Account TOTAL

2005 (Rs. in Million)

308.96

42.96 42.96

580.44

2,080.12 2,969.52

1,705.98 2,329.38

SCHEDULE 3 SECURED LOANS :

(A) Working Capital Loans : From Banks (B) Other Loans: Housing Development Finance Corporation Limited

TOTAL

2006

2005

(Rs. in Million)

2,033.21

657.47

200.00

400.00

2,233.21

1,057.47

Schedules to Accounts

Schedules forming part of the Balance Sheet

Notes (A) Working capital loans from Banks are secured by hypothecation of Raw materials , Work in Progress, Finished Goods & Sundry Debtors and further secured by second charge on all immovable and movable fixed assets of the Company both present and future. (B) Secured by first charge by deposit of title deed of immovable properties of the Company and hypothecation of movable properties of the Company both present and future and also secured by Corporate Guarantee given by Twinstar International Limited.

SCHEDULE 4

TOTAL

2005 (Rs. in Million)

24.12 38.72

268.50 59.58

81.40

80.38

144.24

408.46

Sterlite Optical Technologies Ltd

Sales Tax Loan (Interest Free) [Due within one year Rs. 3.95 Million (Previous Year Rs. 4.10 Million)] Loans from Subsidiaries Short Term Loan Others

2006 (Rs. in Million)

Annual Report 2005 - 06

UNSECURED LOANS :

Schedules forming part of the Balance Sheet SCHEDULE 5 FIXED ASSETS :

(Rs. in Million)

Gross Block At Cost As at

Nature Of Assets

Additions

Deductions

01.04.2005

Depreciation As at

As at

For the Year Deductions

31.03.2006 01.04.2005

Land Building Plant & Machinery Furniture & Fixture Data Processing Equipments Office Equipments Electric Fittings Vehicles

19.61 314.35 5,090.10 17.88

2.19 25.24 0.60

19.61 316.54 8.68 5,106.66 0.22 18.26

58.07 20.51 131.28 13.79

12.85 1.52 0.86 3.53

0.03 0.87 1.02

TOTAL Previous Year

5,665.59 5,596.05

46.79 110.01

Impairment As at

As at

Net Block As at

As at

31.03.2006 31.03.2006 31.03.2006 31.03.2005

0.35 70.56 1,769.44 8.16

0.03 10.47 260.07 1.16

70.92 22.00 131.27 16.30

46.36 7.30 44.57 4.92

8.90 1.01 6.77 1.51

10.82 5,701.56 40.47 5,665.59

1,951.66 1,705.13

289.92 266.76

0.38 81.03 8.67 2,020.84 0.05 9.27 0.01 0.37 -

587.51 -

55.26 8.30 50.97 6.43

11.37 -

9.10 2,232.48 20.23 1,951.66

598.88 599.34

19.23 19.26 235.51 243.79 2,498.31 2,732.91 8.99 9.72 15.66 13.70 68.93 9.87

11.71 13.21 75.12 8.87

2,870.20 3,114.59 3,114.59

Notes Land includes leasehold land of Rs. 1.62 Million

SCHEDULE 6 INVESTMENTS:

LONG TERM (UNQUOTED) A) TRADE INVESTMENTS i) In Equity Shares of Subsidiary Companies 1,00,00,000 (Previous Year 1,00,00,000) Equity shares of Sterlite Telecom Limited of Rs. 10 each, fully paid up. 60,070 (Previous Year 60,070) Equity shares of Sterlite Telelink Limited of Rs. 10 each, fully paid up 50,000 (Previous Year 50,000) Equity shares of Optical Link Limited of Rs. 10 each, fully paid up ii) In Preference Shares of a Subsidiary Company 50,00,000 6% Redeemable non convertible(Previous Year 6% Redeemable non convertible) Preference shares of Sterlite Telecom Limited of Rs 10 each fully paid up iii) Others In Equity shares of Sterlite Infrastructure Private Limited 5200 Equity shares of Rs.10 each fully paid up B) OTHER THAN TRADE In National Savings Certificate (Deposited with Sales Tax office)

TOTAL

2006

2005

(Rs. in Million)

100.00

0.60

50.00

0.05

0.01

150.66

150.61

SCHEDULE 7 INVENTORIES :

2006

(At cost or net realisable value, which ever is lower) Raw Materials (Including Goods in Transit Rs. 127.0 Million) (Previous Year Rs. 44.25 Milliion) Work-in-Progress Finished Goods Stores, Spares, Packing Materials & Others

TOTAL

2005

(Rs. in Million)

416.37

216.19

57.11 328.04 62.89

37.22 471.43 54.43

864.41

779.27

Schedules to Accounts

Schedules forming part of the Balance Sheet

SCHEDULE 8 SUNDRY DEBTORS (Unsecured):

2006 (Rs. in Million)

a) Due for a period exceeding 6 months: - Considered good - Considered doubtful Less: Provision for Doubtful Debts b)

Others - Considered good

TOTAL

72.70 157.19 229.89 157.19 72.70 1,452.56 1,525.26

2005 (Rs. in Million)

2.19 157.19 159.38 157.19 2.19 1,015.50 1,017.69

SCHEDULE 9

Cash in hand Balance with Scheduled Banks in: i) Current Accounts ii) Deposit Accounts (*) iii) Dividend Account Cheques on Hand Balances with Non Scheduled Banks in : i) Current Accounts (**) TOTAL *

Includes Rs. 336.00 Million Unutilised Money out of the Preferential Issue

** Balance with Non Schedule bank is maintained with Industrial Bank of China (Maximum Amount Outstanding during the year Rs. 0.54 Million)

2005 (Rs. in Million)

0.37

0.28

6.58 642.75 4.68 300.00

0.92 12.95 4.71 118.80

0.34 954.72

137.66

Annual Report 2005 - 06

2006 (Rs. in Million)

Sterlite Optical Technologies Ltd

CASH & BANK BALANCES:

Schedules forming part of the Balance Sheet SCHEDULE 10 LOANS & ADVANCES (Unsecured Considered Good) :

To Subsidiary Companies Share Application Money (Pending allotment ) Advances recoverable in cash or in kind or for value to be received Balances with Central Excise Authorities Income Tax - Advance Tax and Tax Deducted at Source Minimum Alternate Tax Credit Entitlement Other Advances TOTAL

2006

2005

(Rs. in Million)

344.95 174.45 213.53 77.83 136.66 32.10 0.40

244.12 149.50 80.62 4.51 104.29 52.97

979.92

636.01

SCHEDULE 11 CURRENT LIABILITIES & PROVISIONS :

A) Current Liabilities : Acceptances Sundry Creditors i) Small Scale Industrial undertakings ii) Others Unclaimed Dividend Other Liabilities Interest accrued but not due on Loans B)

Provisions : For Taxation [Including for Wealth Tax Rs.0.10 million (Previous Year Rs 0.10 Million) Provision For Contingencies Provision For Leave Encashment Proposed Dividend on Equity Shares Corporate Tax on Proposed Dividend

TOTAL

2006

2005

(Rs. in Million)

664.82

282.19

414.83 4.68 115.62 15.70 1,215.65

953.82 4.71 117.19 1.79 1,359.70

131.17

99.06

95.00 9.10 29.40 4.12

100.00 7.30 -

268.79

206.36

1,484.44

1,566.06

Note : The Company had made a provision of Rs. 100 Million towards contingencies in the earlier year against various disputed excise matters and disputed claim with Bank including Rs. 50 million towards disputed excise matter. Rs. 5 Million has been utilised during the year against redemption fine paid for release of seized fiber stock in excise case. The Company has provided Rs 2.58 Million and paid Rs 0.78 Million towards leave encashment.

SCHEDULE 12 OTHER INCOME :

2006 (Rs. in Million)

Profit on Sale of Fixed Assets (Net) Sundry Creditors written back Interest received on Sales Tax /Income Tax Refund Gain on Prepayment of Deferred Sales tax Liability Miscellaneous Income TOTAL

2005

Schedules to Accounts

Schedules forming part of the Profit & Loss Account

(Rs. in Million)

1.49 40.83 146.60 5.72

20.11 2.29 29.41

194.64

51.81

SCHEDULE 13

Raw materials consumed Decrease / (Increase) in stocks: Opening Stock: Work-in-Progress Finished Goods

3,795.94

Closing Stock: Work-in-Progress Finished Goods Decrease / (Increase) in stocks: Excise Duty on stocks Stores & Spares Power, Fuel & Water Repairs & Maintenance Building Machinery Others Carriage Inward Other Manufacturing Expenses TOTAL

2005 (Rs. in Million)

2,265.73

37.22 471.43 508.65

13.49 383.72 397.21

57.11 328.04 385.15 123.50 (32.39) 106.61 124.35

37.22 471.43 508.65 (111.44) 32.92 82.65 87.01

4.54 20.36 1.13 20.72 31.31

1.93 18.47 0.73 9.35 26.51

4,196.07

2,413.86

Annual Report 2005 - 06

2006 (Rs. in Million)

Sterlite Optical Technologies Ltd

MANUFACTURING & OTHER EXPENSES :

Schedules forming part of the Profit & Loss Account SCHEDULE 14 PERSONNEL : Salaries, Wages, Bonus & Commission Contribution to Provident Fund & Other Funds Employees' Welfare & Other Amenities TOTAL

2006

2005

(Rs. in Million)

117.29 6.84 24.37 148.50

91.89 5.24 17.22 114.35

SCHEDULE 15 SELLING & DISTRIBUTION : Sales Commission Sales Promotion Packing Expenses Carriage Outward Other Expenses TOTAL

2006

2005

(Rs. in Million)

52.54 122.60 125.26 40.00 340.40

14.97 23.46 77.92 80.82 23.81 220.98

SCHEDULE 16 ADMINISTRATION & GENERAL : Rent Insurance Rates & Taxes Conveyance & Travelling Expenses Loss on sale of Fixed Assets (Net) Loss on sale & Reduction in value of Long term Investments Directors' Sitting Fees General Expenses TOTAL

2006

2005

(Rs. in Million)

7.04 14.50 7.46 24.67 0.08 96.80 150.55

3.50 11.50 5.37 21.53 2.52 0.41 0.07 36.28 81.18

SCHEDULE 17 2006

INTEREST & FINANCE CHARGES : (Net)

(Rs. in Million)

On Debentures & Fixed Loans Others Bank charges Less: Interest Received from customers and subsidiaries [Tax Deducted at Source Rs. 3.78 Million (Previous year Rs. 4.11 Million)] TOTAL

2005 (Rs. in Million)

134.19 43.16 177.35 15.99

48.49 56.77 20.47 125.73 21.61

161.36

104.12

e) Investments Long term investments are stated at cost of acquisition. Provision for diminution in the value of long term investments is made, only if such decline is other than temporary.

Notes Forming Part Of The Accounts 1. Significant Accounting Policies

Schedules to Accounts

SCHEDULE 18

a) Basis of Preparation of Financial Statements f) The financial statements have been prepared under the historical cost convention on accrual basis of accounting in accordance with the generally accepted accounting principles in India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. b) Use of Estimates The preparation of the financial statements in conformity with the generally accepted accounting principles requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting year. Difference between the actual result and estimates are recognised in the year in which the results are known/ materialised.

Inventories i)

Inventories are valued at lower of cost or net realisable value except for scrap which is valued at net realisable value.

ii) Cost of inventories of finished goods and work-inprogress includes material cost, cost of conversion and other costs. iii) Cost of inventories is determined on First In First Out (FIFO) basis except stores and spare parts, which is determined on weighted average cost basis. g) Foreign Currency Transactions i)

Transactions denominated in foreign currencies are recorded at the exchange rates prevailing at the date of transaction.

d) Depreciation i)

Depreciation on Fixed Assets is provided on straight line method at the rates specified in Schedule XIV of the Companies Act, 1956.

ii) Cost of leasehold land is amortised in proportion to the period of lease.

( i i i ) T h e exc h a n g e d i f fe r e n c e s a r i s i n g o n

Sterlite Optical Technologies Ltd

Fixed Assets are stated at cost (net of Cenvat) less accumulated depreciation and impairment.

(ii) Monetary items denominated in foreign currency at the year end and not covered by forward exchange contracts are translated at year end rates. In case of monetary items covered by forward exchange contracts, the difference between the year end rate and the rate on the date of contract is recongnised as exchange differences and the premium paid on forward contract has been recognized over the life of the contract.

Annual Report 2005 - 06

c) Fixed Assets

settlement/translation are recognised in the revenue accounts, except those pertaining to fixed assets, which are adjusted to the cost of such fixed assets. (h) Borrowing Costs Borrowing costs that are directly attributable to the acquisition or construction of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to revenue. i)

Sales Revenue is recognised when it is earned and no significant uncertainty exists as to its ultimate realization or collection. Revenue is recognised on despatch of goods. Sales include excise duty, sale of scrap and are net of sales tax and quantity discounts.

the Advance License Scheme [Duty Exemption Entitlement Certificate (DEEC Scheme)]/duty entitlement credited under the Duty Entitlement Pass Book Scheme (DEPB Scheme)/Target Plus Entitlement Scheme on export of the goods manufactured by it. Wherever export sales are made by the Company, pending receipt of imported duty-paid raw materials under the DEPB scheme, the higher cost of domestic raw materials actually consumed for the purpose of such exports is compensated and/or matched by accruing the value of the benefit under the DEPB scheme. n) Taxes on Income Current tax is determined as the amount of tax payable in respect of taxable income for the year based on the provisions of the Income Tax Act, 1961. Deferred tax for the year is recognised on timing difference, being the difference between taxable

(j) Retirement Benefits Contribution to Provident Fund and Superannuation Fund are accounted on actual liability basis. Gratuity liability is provided as calculated by Life Insurance Corporation of India on actuarial basis. k) Leave Encashment

income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised and

Leave encashment liability is accounted on actual liability basis. l)

Research and Development Revenue expenditure on research and development (R&D) is expensed as incurred. Capital expenditure on R&D is capitalised with fixed assets.

m) Export Incentives

carried forward only if there is a reasonable/virtual certainty of its realization. 0) Operating Leases

Assets taken on Lease under which all significant risks and rewards of ownership are effectively retained by the lessor are classified as Operating Leases. Lease payments under Operating Leases are recognised as expenses as incurred in accordance with the

Advance licences are issued to the Company under

respective Lease agreements.

The Company reports basic and diluted earnings per share in accordance with Accounting Standard 20 issued by The Institute of Chartered Accountants of India on 'Earnings Per Share'. Basic earnings per share is computed by dividing the net profit or loss for the period by the weighted average number of Equity shares outstanding during the period. Diluted earnings per share is computed by dividing the net profit or loss for the period by the weighted average number of equity shares outstanding during the period as adjusted for the effects of all diluted potential equity shares except where the results are anti- dilutive. q) Impairment of Assets An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. An impairment loss is charged to the Profit and Loss Account in the

present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation as and when a reliable estimate of the amount of the obligation

Schedules to Accounts

p) Earnings per share

can be made. No provision is recognised for i)

Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Company; or

ii) Any present obligation that arises from past events but is not recognised because-It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

year in which an asset is identified as impaired. An

-A reliable estimate of the amount of obligation

impairment loss recognized in prior accounting

cannot be made.

periods is reversed if there has been a change in the estimate of the recoverable amount.

Such obligations are recorded as Contingent Liabilities. These are assessed continually and only that

part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made. Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realized.

Annual Report 2005 - 06

Commodity hedging transactions:

Sterlite Optical Technologies Ltd

2. Deferred Tax

Contracts entered into by the company, for hedge

The Company has recognised deferred tax asset consisting of

purpose, as on 31st March, 2006.

unabsorbed tax depreciation to the extent it can be realised

Currency in

against the reversal of deferred tax liability on account of

Millions

depreciation. The break-up of closing net deferred tax liability

US $ 15.42

Amount

Buy / Sell

No of Contracts

Buy

(Rs in Million)

687.70

is as under: b) The year end foreign currency exposures that have not Particulars

Current Year

Previous Year

Rs. in Million

Rs. In Million

548.63

581.56

20.28

1.89

been hedged by a derivative instrument or otherwise are given below:

Deferred Tax Liability a) Depreciation b) On export benefit

Amounts receivable in foreign currency on account of the following:

Particulars

Deferred Tax Assets a) On provision for doubtful

52.91

Currency in

Amount

Millions

(Rs in Million)

52.91 Export of goods

US $ 3.17

141.52

debts b) On unabsorbed tax

332.36

317.91

ii) Amounts payable in foreign currency on account of the following:

depreciation carried forward Net Deferred Tax Liability

183.64

212.63 Particulars

3. The amount of foreign exchange (gain)/loss adjusted

Currency in

Amount

Millions

(Rs in Million)

Import of goods and services

$ 11.84

528.26

capital work in progress is Rs. 1.23 Million (previous year

Import of goods and services

Euro 0.01

0.50

Rs. (0.71) Million) and (credited) / debited to respective

Import of goods and services

GBP 0.04

2.82

$ 21.95

979.15

during the year to the carrying cost of the fixed assets and

heads of accounts in Profit and Loss Account is Rs. (7.73)Million (previous year Rs. (6.42) Million);

Loans payable

premium on forward exchange contract to be recognised in the Profit and Loss account of subsequent accounting period is Rs. 0.47 Million ( previous year Rs. 0.08 Million).

c) Commodity Future Contract to hedge against fluctuation in commodity prices. The following are the outstanding Future's contract entered into by the

4. Derivative Instruments : The company has entered into the following derivative

company as on 31st March 2006: No. of Contract

instruments: a) The following are the outstanding Forward Exchange

Contracted

Buy / Sell

Quantity

575 MT

Sell

order for release of 3.35 LFKM finished stock for export after payment of redemption fine of Rs. 5 Million. Upon

of India in December, 2005, which is applicable to the

completion of the export of the finished stock, the

financial periods ending on or after 31st March, 2006.

demand will be abated by Rs. 430 Million.

Therefore, figures for the previous year have not been disclosed.

8. Other Income includes Rs. 146.68 Million on account of the prepayment of deferral sales tax liability in

(Previous Year Rs. 5.63 Million) have been taken into Entitlement

scheme.

accordance with the scheme framed by the Government of Maharasthra. 9. The Company has investment of Rs.150 Million (Previous Year Rs. 150 Million) in the equity and preference share capital of its wholly owned subsidiary

6. In view of book profits and no taxable profits, as per

namely Sterlite Telecom Limited (STL). The net worth of

computation of income, the provision for tax has been

the said Company has been eroded by over 50%. No

made as per MAT under section 115 JB of the Income Tax

provision has been made against these investments

Act 1961. The Company is entitled to avail Credit under

considering the continued support of the holding

section 115JAA(IA). Accordingly it has considered MAT

company.

credit entitlement as an asset as it has reversible deferred tax liability on account of depreciation.

10. In view of Accounting Standard 28 on Impairment of Assets issued by the Institute of Char tered

Provision for tax for earlier years had been made during

Accountants of India, the Company has reviewed its fixed

the previous years based on various incentives/

assets and does not expect any loss as on 31st March

deductions allowable under the Income Tax Act, 1961 and

2006 on account of impairment.

following various judicial decisions. 7. The Company had received an order dated July 12, 2003 from the Commissioner of Central Excise for payment of excise duty and penalty of Rs. 1,982 Million for alleged use of imported machinery of Export Oriented Unit (EOU)

11. Loans and Advances to subsidiaries, associates etc (a) Outstanding Loans/Advances to 100% subsidiary Sterlite Telelink Limited (STLL) is Rs. 344.95 Million as on March 31, 2006 (previous year Rs. 244.12 Million).

for production and sale in the Domestic Tariff Area for

The maximum amount outstanding from subsidiaries

which the Company had preferred an appeal to the

during the year was Rs. 349.61 Million (previous year

CESTAT and obtained an unconditional stay for non-

Rs. 375.54 Million); the detail of the same is as under:

deposit of the amount demanded. The Company had paid Rs.30 Million without prejudice to its claim. During the

Sterlite Telecom Limited - Rs. Nil (previous year

year, CESTAT has upheld the demand of Rs. 1,886 Million

Rs. 131.42 Million)

and interest thereon. The Company has filed an appeal

Sterlite Telelink Limited- Rs.349.61 Million (previous

before the Hon'ble Mumbai High Court against this order.

year Rs. 244.12 Million)

Pending this appeal, the High Court has issued an interim

Annual Report 2005 - 06

incentives, estimated benefits of Rs.78.88 Million

Sterlite Optical Technologies Ltd

5. In terms of accounting policy (m) for the accrual of export

account under the DEPB / Target Plus

Schedules to Accounts

The above disclosures have been made consequent to an announcement by the Institute of Chartered Accountants

The above loans and advances to subsidiary fall under the category of loan and advances in the nature of loan where there is no repayment schedule. (b) Employee loans as per Company policy are not considered.

Current Year (Rs. in Million)

Previous Year (Rs. in Million)

Audit Fees

1.32

Tax Audit Fees

0.33

0.01

1.65

1.66

respect of Taxation matters

(Certification work etc)

14. Managerial Remuneration: (Excluding contribution to Gratuity fund since the same is provided on an actuarial basis for the Company as a whole) Particulars

Salary

Current Year (Rs. in Million)

3.87

Previous Year (Rs. in Million)

3.46

Contribution to Provident Fund

0.19

0.16

Other Benefits / Perquisites

1.55

1.32

5.61

4.94

Computation of Net Profit for the year has not been given as no commission is payable. 15. Related Party Disclosures Related party disclosures as required by Accounting Standard 18 â&#x20AC;&#x153;Related Party Disclosuresâ&#x20AC;? issued by the

100% Subsidiaries of the Company Sterlite Telelink Limited, Sterlite Telecom Limited Dr. Anand Agarwal Twinstar International Limited

13. Payment To Auditors:

In any other manner

iii) Associate Company

to Investor Education and Protection Fund.

As advisor in other capacity in

below:a) Name of related party and its relationship:

Ii) Key Management Personnel

12. There are no amounts due and outstanding to be credited

Particulars

Institute of Chartered Accountants of India are given

Sr. No. Transaction

1.a

Purchase of Raw Materials &

Sterlite Telelink Ltd

Sterlite Telecom Ltd.

2006

2005

2006

2005

12.90

27.34

148.44

469.68

Twinstar International Limited 2006

2005

Key Management Personnel 2006

2005

Schedules to Accounts

(Rs. in Million) Subsidiary Companies

Stores 1.b

Purchase of Semifinished Goods

2.a

Sale of Raw Material & Stores

191.77

469.37

2.b

Sale of Semifinished Goods

267.99

215.53

Sale/(Purchase) of Fixed

(7.67)

0.14

4.20

2.40

3.31

(244.12)

113.82

59.57

55.07

(84.00)

(338.29)

1.45

(25.08)

(16.83)

(19.65)

4.23

3.05

(344.95)

(244.12)

38.72

59.57

5.61

4.94

Assets 4

Rent Paid

Corporate Guarantee Commission received

6.a

Opening Balance of Loans

6.b

Loans (Given) / Taken during

(Given) / Taken as on April 1.

the year (Net) 6.c

Loans (repaid)/received during the year

6.d

Interest paid/(received) on Loans.

6.e

Outstanding Balance of Loans

0.60

150.00

149.50

14.00

allotment

266.00

Upfront Receipt on Share

56.00

11.79

Investments

Share application money

Equity share capital issued

Proceeds of Preferential Share

Warrant Issued 13

Dividend

b) The above transactions were carried out with the related parties

c) There are no provisions for doubtful debts or no amounts have been written off in respect of debts due to or from related parties.

Sterlite Optical Technologies Ltd

0.60 149.50

Annual Report 2005 - 06

(Given) / Taken as on year-end Remuneration

16. Operating Leases Disclosures in respect of Operating Leases of office and factory buildings as per the requirement of Accounting Standard 19 on Leases issued by The Institute of Chartered Accountants of India, is as under: a) Lease payments recognized in the statement of Profit and Loss for the period is Rs. 4.20 Million (previous year Rs. 3.50 Million). b) The future minimum lease payments payable over the next one-year is Rs. 4.20 Million (previous year Rs. 4.20 Million). c) The lease agreement has been entered for a period of 12 month with an option to the company to renew the lease for a further period of 12 months on a mutually decided rent. 17. Earnings per share (EPS) The earnings per share, computed as per the requirement under Accounting Standard 20 on Earnings per Share issued by The Institute of Chartered Accountants of India, is as under: Sr. No.

Earning Per Share (EPS)

Net Profit as per Profit and Loss Account available for Equity

18. The Company has received exemption for the current as well as previous year from the Department of Company Affairs, Government of India, under section 212(8) of the Companies Act,1956, from attaching the Balance Sheet and Profit and Loss Account of subsidiaries under section 212(1) of the Companies Act,1956. 19. The Company has allotted 5,600,000 warrants on 29th March 2006 on preferential basis (Rs. 10 per warrant has been received upfront) to Promoter's Group. The warrant holder have an option to be allotted one equity share of Rs. 5 each at a price of Rs. 100 each on the payment of balance amount. The Option for 2,800,000 shares should be exercise on or before 28th March 2007 and for the balane 2,800,000 equity shares, option should be exercise on or before 28th September 2007.

March 31, 2006 (Rs. in Million)

March 31, 2005 (Rs. in Million)

407.66

102.20

56,017,581

55,994,567

56,017,581

55,994,567

shareholders

Weighted Average Number of equity shares For Basic Earning per share For Diluted Earning per share No. Of Share for Basic EPS Add: Potential Equity Shares ( Convertible Warrant )

46,027 56,063,608

55,994,567

Basic (On Nominal Value of Rs. 5 Per Share) Rupees

7.27

1.83

Diluted (On Nominal Value of Rs. 5 Per Share) Rupees

7.27

1.83

No of Shares for Diluted Earning Per Share III Earning Per Share (Weighted Average)

Schedules to Accounts

20. Details regarding licensed / registered, installed capacity and actual production (as certified by the Management)

Licensed / Registered Capacity

a. Capacity

Installed Capacity

Current Year

Previous Year

Current Year

Previous Year

UNIT

Per Annum

Copper Telecom Cables

CKM

7,500,000

Fibre Optic cables *

FKM

2,400,000

1,000,000

Optical Fibre

5,000,000

4,000,000

Broadband Access Networks

Nos.

1,500,000

600,000

* Based on Average FKM

b. Production (including for captive consumption)

Unit

Current Year

Previous Year per annum

Per annum

Copper Telecom Cables

CKM

3,794,403

3,069,539

Fibre Optic cables *

FKM

1,082,510

719,507

Optical Fibre

2,729,892

1,861,056

* It includes 792,923 KM (Previous Year 663,194 KM) produced for captive consumption.

21. Quantitative information in respect of Opening Stock, Closing Stock, Sales and Consumption of Raw

a) Opening Stock

Quantity

Per annum

A. Capacity

(Rs. in Million)

Per annum

138.56

Quantity

Per annum 81

Value (Rs. in Million)

Per annum 0.07

Copper Telecom Cables

CKM

Fibre Optic cables

FKM

39,404

60.94

52,330

69.63

Optical Fibre

658,971

271.93

632,496

314.02

TOTAL

213,885

Value

471.43

383.72

Sterlite Optical Technologies Ltd

Previous Year

Current Year Unit

Annual Report 2005 - 06

Materials (As Certified by Management)

b) Closing Stock

Quantity

Per annum

A. Capacity Copper Telecom Cables

CKM

196,773

Fibre Optic cables

FKM

Optical Fibre

Value (Rs. in Million)

Per annum

Quantity

Per annum

Value (Rs. in Million)

Per annum

115.34

213,885

138.56

55,255

78.64

39,404

60.94

414,165

134.06

658,971

271.93 471.43

328.04

TOTAL

c) Sales

Previous Year

Current Year Unit

Quantity

Per annum

A. Capacity

Value (Rs. in Million)

Quantity

Per annum

Value (Rs. in Million)

Per annum

Copper Telecom Cables

CKM

3,811,516

2,673.85

2,520,661

1699.69

Fibre Optic cables

FKM

1,066,659

1,611.03

732,433

1218.57

Optical Fibre

2,181,774

788.00

1,171,387

517.16

Others TOTAL

d) Raw Material Consumed

1,166.45

271.32

6,239.33

3,706.74

Previous Year

Current Year Unit

Quantity

Per annum

A. Capacity

Value (Rs. in Million)

Per annum

Quantity

Per annum

Value (Rs. in Million)

Per annum 682.42

Copper Rods

5,639

1,061.94

4,224

Polyethylene Compounds

8,095

436.22

5,058

253.91 106.13 93.25

Galvanised Steel Wire/ Steel tape

5,355

214.10

3,661

Resin

143,430

92.82

104,266

Silica Tubes

7,955

42.08

9,374

42.79 397.27

Insulated Wire and Semifinished Goods

CKM

234,546

148.18

747,121

Access Products and Solutions

Nos

540,000

493.20

Others

TOTAL

Previous Year

Current Year Unit

1,307.40

689.96

3,795.94

2,265.73

Schedules to Accounts

22. CIF Value Of Imports

Raw Material

Current Year

Previous Year

(Rs. in Million)

Raw Material

426.47

2,537.10

Stores Spares & Consumables

48.57

29.57 3.68

33.48

2,570.35

508.52

Capital Goods

TOTAL

Per annum

23. Expenditure In Foreign Currency

Raw Material

Current Year

Previous Year

(Rs. in Million)

Per annum

2.25

1.62

Sales Commission

61.64

21.97

Interest

33.50

Others

5.63

2.93

TOTAL

103.02

26.52

Travel

24. Earnings in Foreign Currency Previous Year (Rs. in Million)

Per annum

Per annum 342.71

25. Value of Raw Material Consumed Previous Year

Current Year (Rs. in Million)

% of Total Consumption

(Rs. in Million)

% of Total Consumption

Per annum

Indigenious

1,294.27

34.10

1,941.79

85.70

Imported

2,501.67

65.90

323.94

14.30

TOTAL

3,795.94

100.00

2,265.73

100.00

A. Capacity

Annual Report 2005 - 06

847.93

(a) FOB value of Exports

Sterlite Optical Technologies Ltd

Raw Material

Current Year (Rs. in Million)

26. Value of Components, Stores and Spare Parts Consumed Previous Year

Current Year (Rs. in Million)

A. Capacity

% of Total Consumption Per annum

(Rs. in Million)

Per annum

% of Total Consumption Per annum

Indigenious

83.36

78.19

57.36

69.40

Imported

23.25

21.81

25.29

30.60

106.61

100.00

82.65

100.00

TOTAL

27. Contingent Liabilities

Sr. No.

A. Capacity

Description

Current Year

Previous Year

(Rs. in Million)

Per annum

Disputed Liabilities in Appeal 24.20

24.20

b) Excise Duty

364.42

123.22

c) Income Tax

9.95

372.21

47.10

6.00

188.70

443.88

122.60

23.29

78.18

2338.76

2467.90

10.61

50.00

a) Sales Tax

d) Customs Duty e) Service Tax f) Claims lodged by a Bank Against the Company g)Excise duty case in High Court (refer Note 7 supra) 2.

Outstanding Bank Guarantees

Outstanding amount of Export obligation against Advance Licence

Export Obligation under EPCG Scheme

Bond in Favour of Excise Department

6. The company has given Corporate Guarantee to the

30.Comparative

I n c o m e Ta x D e p a r t m e n t o n b e h a l f o f g r o u p

Comparative financial information (i.e the amounts and

companies. The outstanding amount is Rs 1,140.00

other disclosure for the preceding year presented above),

Million (Previous Year Rs. 1,140.00 Million) on this

is included as an integral part of the current year's

account as at the year - end.

financial statement, and is to be read in relation to the 28. Segment reporting under Accounting Standard 17 of the Institute of Chartered Accountants of India is presented in the consolidated financial statements. 29. Small scale industrial undertaking - Nil whom amount is

amounts and disclosures relating to the current year. Figures of the previous year have been regrouped / reclassified wherever necessary to correspond to figures of the current year.

due for more than 30 days has been determined based on For and on behalf of the Board

the information available with the Company.

Place: Mumbai Dated: April 28, 2006

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Balance Sheet Abstract

Balance Sheet Abstract BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE I

Registration Details Registration No.

1 2 5 2 2 5

Capital Raised during the year ( Amount in Rs. Million) Public Issue

III

1 1

2 0 0 6

0 3

Balance Sheet Date 3 1

State Code

Right Issue

N I L

Private Placement

N I L

3 3 6

Position of Mobilization and Deployment for Funds ( Amount in Rs. Million) Total Liabilities

7 3 6 5

Total Assets

7 3 6 5

Sources of Fund Paid by Equity Share capital Reserve & Surplus

2 9 4

Share Warrant

5 6

2 9 7 0

Secured Loans

2 2 3 3

1 8 4

Deferred Tax

Unsecured Loans

1 4 4

Application of Funds Net Fixed Assets

2 8 9 0

Investments

1 5 1

Net Current Assets

2 8 4 0

Miscellaneous Expenses

N I L

Accumulated Losses

III Performace of Company (Amount in Rs. Million) Turnover

5 4 7 4 3 8 2

Profit Before Tax

7 . 2 7

Earning per Share in Rs

Other Income

1 9 5

Profit after Tax

4 0 8

Dividend rate %

Total Expenditure

5 2 8 7

1 0

IV Generic Names of Three Principal Products of the Company

9 0 0 1 1 0 0 0 O P T I C A L F I B R E

Item Code no. ( ITC Code) Product Description

8 5 4 4 2 0 1 9 F I L L E D J E L L Y C A B L E

C A B L E

T E L E P H O N E

As per our Report of even date For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board

Hemant M Joshi Partner Membership No: 38019

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

Place : Mumbai Dated : April 28, 2006

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Sterlite Optical Technologies Ltd

Item Code no. ( ITC Code) Product Description

Annual Report 2005 - 06

Item Code no. ( ITC Code) 9 0 0 1 1 0 0 0 Product Description O P T I C A L F I B R E

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES

Name of the Subsidiary Company A. Capacity

Sterlite Telecom Limited

Sterlite Telelink Limited

Optical Link Limited

Financial year of the Subsidiary Company ended on

March 31, 2006

December 26, 2005

Shares of the Subsidiary Company held on that date

10,000,000

60,070

50,000

100%

5,000,000

NIL

100%

NIL

Loss 17.97 Loss 79.78

Loss 64.82 Profit 159.51

NIL NIL NIL NIL

a) For the financial year of the subsidiary

NIL

b) For the previous financial years of the

NIL

0.50

N.A

Sr. No.

and extent of holding (a) Equity Shares Extent of Holding (b) Preference Shares of Rs. 10 each Extent of Holding The net aggregate amount of the Subsidiary's

profit/(loss) so far as it is concerned with the members of Sterlite Optical Technologies Limited I ) Not dealt with in the Holding Company's Accounts (Rs. in Million) a) For the financial year of the subsidiary b) For the previous financial years of the subsidiary since it became a subsidiary of the Holding Company

II) Dealt with in the Holding Company's Accounts

subsidiary since it became a subsidiary of the Holding Company 4.

Material changes, if any, between the end of the financial year of the subsidiary company and the Holding Company

Note:

Optical Link Limited, the wholly owned subsidiary of the Company has made application to the Registrar of Companies, Mumbai for stricking off its name from the register of Companies under section 560 of the Companies Act, 1956. The approval is awaited.

Pursuant to the Scheme of Amalgamation of Sterlite Telecables Limited (STCL) with Sterlite Telelink Limited (STLL) (the Scheme) as sanctioned by the Honâ&#x20AC;&#x2122;ble High Court of judicature at Bombay on October 7,2004. and filed with the Registrar of Companies on October 7,2004 after receipt of the same by STLL,the entire business, including the assets and liabilities of erstwhile STCL stands transferred to and vested with the Company with effect from April 1, 2004. The Scheme has accordingly been given effect to in the previous year financial statements. For and on behalf of the Board

Place : Mumbai Dated : April 28, 2006

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

(ii) Note No. 11 of Schedule 18 regarding demand of Rs. 1,982 million from the Commissioner of Central Excise for payment of Excise Duty and penalty out of which a sum of Rs. 1,886 million and interest thereon has been confirmed by CESTAT during the year. Pending the outcome of the appeal in the appropriate courts no provision has been made barring Rs. 45 million towards provision for contingencies. We are unable to express an opinion on the outcome of the matter at this stage. This is the result of a decision taken by management at the start of the preceding financial year and caused us to qualify our audit opinion on the financial statements relating to that year.

5. In view of the uncertainty concerning the material issue referred in above paragraph 4 (ii) and to the best of our information and according to the explanations given to us, we are unable to express an opinion ( except for the previous year where we have given 'subject to' opinion) whether the Consolidated Financial Statements give a true and fair view in conformity with the accounting principles generally accepted in India;

(a) in the case of the Consolidated Balance Sheet, of the state of affairs of the STERLITE OPTICAL TECHNOLOGIES' GROUP as at March 31, 2006; (b) in the case of the Consolidated Profit and Loss Account, of the profit for the year ended on that date; and (c) in the case of the Consolidated Cash Flow Statement, of the cash flows for the year ended on that date.

For Deloitte Haskins & Sells Chartered Accountants Place : Mumbai Dated : April 28, 2006

Hemant M Joshi Partner Membership No: 38019

Annual Report 2005 - 06

4. Attention is invited to the following Notes in Schedule 18 (i) Note No 2 (d) regarding different methods of providing depreciation in the holding and subsidiary companies which is not in accordance with Accounting Standard 21 on Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. This is the result of a decision taken by management at the start of the preceding financial year and caused us to

qualify our audit opinion on the consolidated financial statements relating to that year.

Sterlite Optical Technologies Ltd

TO THE BOARD OF DIRECTORS OF STERLITE OPTICAL TECHNOLOGIES LIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF STERLITE OPTICAL TECHNOLOGIES LIMITED AND ITS SUBSIDIARIES The Board of Directors Sterlite Optical Technologies Limited. We have audited the attached Consolidated Balance Sheet of STERLITE OPTICAL TECHNOLOGIES GROUP as at March 31,2006, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of STERLITE OPTICAL TECHNOLOGIES'S management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit. 1. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 2. We report that the Consolidated Financial Statements have been prepared by the STERLITE OPTICAL TECHNOLOGIES'S management in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. 3. Without qualifying our opinion we draw attention to Note no 9. of Schedule 18 regarding accounting of purchase of and profit/loss of cable division of ICOMM Tele Limited.

Auditorâ&#x20AC;&#x2122;s Report

Balance Sheet CONSOLIDATED BALANCE SHEET OF STERLITE OPTICAL TECHNOLOGIES LIMITED AND ITS SUBSIDIARIES AS AT MARCH 31, 2006 Schedule I.

SOURCES OF FUNDS 1. Shareholderâ&#x20AC;&#x2122;s Funds Share Capital Upfront Payment against Share Warrants Reserves & Surplus 2. Loan Funds Secured Loans Unsecured Loans

2006

2005

(Rs. in Million)

1 1 2

3 4

TOTAL APPLICATION OF FUNDS 1. Fixed Assets Gross Block Less: Depreciation & Impairment

Net Block Capital Work-in-Progress

2. Investments 3. Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Less: Current Liabilities & Provisions Liabilities Provisions

6,460.53 3,272.01

6,443.80 2,963.82

3,188.52 19.85 3,208.37

3,479.98 18.14 3,498.12

0.06

0.01

6 7 8 9 10

939.23 1,672.38 1,071.60 1,116.02 4,799.23

819.44 1,138.54 175.77 859.15 2,992.90

1,465.06 638.10 2,103.16

1,595.35 553.98 2,149.33

Net Current Assets TOTAL Notes forming part of Consolidated Accounts

2,696.07

843.57

5,904.50

4,341.70

As per our attached Report of even date

For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Hemant M Joshi Partner Membership Number: 38019

2,378.25 209.80 5,904.50

1,057.47 348.88 1,406.35 246.26 4,341.70

2,272.72 105.53

3. Deferred Tax Liability (Net)

II.

3,316.45

279.97 2,409.12 2,689.09

293.97 56.00 2,966.48

Place: Mumbai Dated: April 28, 2006

2005 (Rs. in Million)

INCOME Turnover Less: Excise Duty

6,533.71 821.20

4,019.38 477.06

Net sales

5,712.51

3,542.32

12 TOTAL

191.49 5,904.00

57.15 3,599.47

II.

13 14 15 16 17

4,370.52 175.52 372.84 153.19 181.75 23.36 5,277.18 626.82 335.36

2,600.22 139.23 255.53 92.39 128.66 24.03 16.80 3,256.86 342.61 322.70

291.46

19.91

32.20

8.70

(32.10) (36.46) 2.94

(6.60) (2.79) -

324.88 1,814.76

20.60 1,794.16

29.40 4.12 2,106.12

1,814.76

5.80

0.37

EXPENDITURE Manufacturing & other expenses Personnel Selling & Distribution Administration & General Interest & Finance charges Provision for Amortisation (See note 8 of schedule 18) Provisions & write offs PROFIT BEFORE DEPRECIATION & TAXATION Depreciation PROFIT BEFORE TAXATION Provision for taxation: - Current Tax for the year (Including Rs.0.10 Million (previous year Rs. 0.10 million) for Wealth Tax) - Written Back for earlier year - Minimum Alternate Tax Credit Eligible for Set Off - Deferred Tax ( Net) - Fringe Benefit Tax PROFIT AFTER TAXATION Balance brought forward from previous year APPROPRIATIONS Proposed Dividend on Equity Shares Rs.0.50 Per Share Corporate Tax on Proposed Dividend Balance carried to Balance Sheet Earning per share (Basic & Diluted) (Rs.) (Face Value Rs. 5 each) Notes forming part of Consolidated Accounts

For and on behalf of the Board

As per our Report of even date For Deloitte Haskins & Sells Chartered Accountants Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 28, 2006

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Wholetime Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Profit & Loss Account

2006 (Rs. in Million)

Other Income

Schedule

Annual Report 2005 - 06

CONSOLIDATED PROFIT & LOSS ACCOUNT OF STERLITE OPTICAL TECHNOLOGIES LIMITED AND ITS SUBSIDIARIES FOR THE PERIOD ENDED MARCH 31, 2006

Sterlite Optical Technologies Ltd

Profit & Loss Account

Cash Flow Statement Sterlite Optical Technologies Limited Consolidated Cash Flow Statement Prepared Pursuant To Clause 32 Of Listing Agreement

Cash flow from Operating Activities Net Profit after tax as per Profit & Loss Account Adjustment for Taxation Adjustments for : - Depreciation - Provisions and write offs - Gain on prepayment of Deferred Sales Tax Liability - Provision for Amortisation - Interest Income - Interest Expenses (net) - Investment Written off & Loss on Sale of Investment - (Profit) / Loss on Sale of Assets

291.46

222224 20.60 (0.69) 19.91

335.36 (146.60) 23.36 181.75 (1.49)

322.70 16.80 24.03 (2.29) 128.66 0.41 2.35 392.38 683.84

512.57

(969.62)

(897.52) (95.18) 965.40

(285.78)

485.27

(36.58)

(11.92)

Net cash flow from Operating Activities

(322.36)

473.35

Cash flow from Investing Activities Purchases of Fixed Assets (Including Capital Work in Progress) Proceeds from Sale of Fixed Assets (Purchase)/Sale of Investments Investments in Bank Fixed Deposits Application Money (Pending Allotment) refund received Interest Income on Investments

(55.17) 11.05 (0.05) (491.64) (24.95) -

(92.06) 6.70 2.29

Net cash flow from Investing Activities

(560.76)

(83.07)

Adjustments for : - (Increase)/Decrease in Trade and other receivables - (Increase)/Decrease in Inventories - Increase/(Decrease) in Trade payables Cash generated from operations Direct taxes (paid / TDS deducted) /Refund received

2005 (Rs. in Million)

324.88 (33.42)

Operating profit before working capital changes

2006 (Rs. in Million)

(700.11) (119.79) (149.72)

2005 (Rs. in Million)

Proceeds/(Repayment) of Secured Loans (net) Proceeds/ (Repayment) of Preferential Equity Issue Proceeds/ (Repayment) of Unsecured Loans (net) Interest paid Dividend paid on Equity Shares (Including Corporate Dividend Tax)

1,215.24 336.00 (96.75) (167.15) (0.03)

(89.92) (9.84) (128.66) (0.09)

Net Cash flow from Financing Activities

1,287.31

(228.51)

Net Increase (decrease) in cash and cash equivalent

404.19

161.77

Cash and cash equivalent as at beginning of year

175.77

14.00

Cash and cash equivalent as at year end

579.96

175.77

Cash flow from Financing Activities

* Investments in Bank Fixed Deposits having maturity of more than 3 Months have been shown under the cash flows from investing activities

For Deloitte Haskins & Sells Chartered Accountants Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 28, 2006

PRAVIN AGARWAL Director

Dr. ANAND AGARWAL Whole time Director

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Annual Report 2005 - 06

For and on behalf of the Board

Sterlite Optical Technologies Ltd

2006 (Rs. in Million)

Cash Flow Statement

Sterlite Optical Technologies Limited Consolidated Cash Flow Statement for the year ended March 31, 2006

Schedules to Accounts Schedules forming part of the Consolidated Balance Sheet SCHEDULE 1 SHARE CAPITAL : 2006

2005

(Rs. in Million)

450.00

Issued, Subscribed & Paid up: 58,794,567 (Previous Year 55,994,567) Equity Shares of Rs. 5 each fully paid up

293.97

279.97

TOTAL

293.97

279.97

Authorised: 90,000,000 (Previous Year 90,000,000) Equity Shares of Rs. 5 each fully paid up

Of the above : 55,912,559 equity shares of Rs. 5 each were allotted to the shareholders of Sterlite Industries (India) Ltd. upon demerger pursuant to the scheme of arrangement sanctioned by the Honourable High Court of Judicature at Bombay. During the year, 2,800,000 equity share allotted on preferential allotment basis. 5,600,000 Warrants were issued during the year with option to exercise Equity conversion for 2,800,000 warrants before 28th March 2007 & for rest 2,800,000 warrants by 28th September 2007.

SCHEDULE 2 RESERVES & SURPLUS :

Share Premium: Balance as per last Balance Sheet Add: Received During the year

2005 (Rs. in Million)

42.96 266.00 308.96

42.96 42.96

General Reserve: Balance as per last Balance Sheet

550.99

Capital Reserve Balance as per last Balance Sheet

0.41

2,106.12 2,966.48

1,814.76 2,409.12

Surplus as per Profit & Loss Account TOTAL

2006 (Rs. in Million)

SCHEDULE 3 SECURED LOANS : 2006

2005

(Rs. in Million)

(A) Working Capital Loans : From Banks (B) Other Loans: Housing Development Finance Corporation Limited

TOTAL

Schedules to Accounts

Schedules forming part of the Consolidated Balance Sheet

(Rs. in Million)

2,072.72

657.47

200.00

400.00

2,272.72

1,057.47

SCHEDULE 4

2005 (Rs. in Million)

Sales Tax Loan (Interest Free) [Due within one year Rs.3.95 Million (Previous Year Rs 4.10 Million)]

24.12

268.50

Short Term Loan Others

81.41

80.38

105.53

348.88

TOTAL

Sterlite Optical Technologies Ltd

2006 (Rs. in Million)

Annual Report 2005 - 06

UNSECURED LOANS :

Schedules forming part of the Consolidated Balance Sheet SCHEDULE 5 FIXED ASSETS : (Rs. in Million)

Gross Block At Cost As at

Nature Of Assets

Additions

Deductions

01.04.2005

Depreciation As at

As at

For the Year Deductions

31.03.2006 01.04.2005

Land Building Plant & Machinery Furniture & Fixture Data Processing Equipments Office Equipments Electric Fittings Vehicles

51.52 440.14 5,646.44 21.27

3.07 30.37 0.60

65.20 21.99 183.11 14.13

13.01 1.55 0.86 3.53

TOTAL Previous Year

6,443.80 6,357.90

52.99 131.01

51.52 443.21 34.12 5,642.69 0.22 21.65

As at

Net Block As at

As at

31.03.2006 31.03.2006 31.03.2006 31.03.2005

0.35 110.76 2,107.84 10.19

0.03 19.05 290.75 1.40

78.21 23.51 183.10 16.64

51.66 7.92 70.60 5.16

9.66 1.11 11.82 1.54

36.26 6,460.53 45.11 6,443.80

2,364.48 2,065.31

335.36 322.70

0.03 0.87 1.02

Impairment

0.38 129.81 26.28 2,372.31 0.05 11.54 0.01 0.37 -

587.51 -

61.32 9.02 82.05 6.70

11.37 -

26.71 2,673.13 23.53 2,364.48

598.88 599.34

51.14 51.17 313.40 329.38 2,682.87 2,950.85 10.11 11.08 16.89 14.49 89.68 9.94

13.54 14.07 100.92 8.97

3,188.52 3,479.98 3,479.98

Notes Land includes leasehold land of Rs. 1.62 Million

SCHEDULE 6 INVESTMENTS:

LONG TERM (UNQUOTED) A) TRADE INVESTMENTS In Equity Shares of Sterlite Infrastructure Private Limited. 5200 Equity shares of Rs. 10 each fully paid up B) OTHER THAN TRADE In National Savings Certificate (Deposited with Sales Tax office)

TOTAL

2006

2005

(Rs. in Million)

0.05

0.01

0.06

0.01

SCHEDULE 7 INVENTORIES :

2006

TOTAL

2005

(Rs. in Million)

466.84

231.15

65.66 338.18 68.55

40.20 489.30 58.79

939.23

819.44

Schedules to Accounts

Schedules forming part of the Consolidated Balance Sheet

SCHEDULE 8 SUNDRY DEBTORS (Unsecured):

2006 (Rs. in Million)

a) Due for a period exceeding 6 months: - Considered good - Considered doubtful Less: Provision for Doubtful Debts b)

Others - Considered good

TOTAL

98.99 161.38 260.37 161.38 98.99 1,573.39 1,672.38

2005 (Rs. in Million)

16.52 161.38 177.90 161.38 16.52 1,122.02 1,138.54

SCHEDULE 9

Includes Rs. 336.00 Million Unutilised Money out of the Preferential Issue

** Balance with Non Schedule bank is maintained with Industrial Bank of China (Maximum Amount Outstanding during the year Rs. 0.54 Million)

2005 (Rs. in Million)

0.38

0.28

8.32 645.47 4.68 412.41

0.92 15.80 4.72 154.05

0.34 1,071.60

175.77

Annual Report 2005 - 06

2006 (Rs. in Million)

Sterlite Optical Technologies Ltd

CASH & BANK BALANCES:

Schedules forming part of the Consolidated Balance Sheet SCHEDULE 10 LOANS & ADVANCES (Unsecured Considered Good) :

Share Application Money (Pending allotment ) Advances recoverable in cash or in kind or for value to be received Balances with Central Excise Authorities Income Tax - Advance Tax and Tax Deducted at Source Minimum Alternate Tax Credit Entitlement Other Advances TOTAL

2006

2005

(Rs. in Million)

24.95 696.26 89.53 266.64 32.10 6.54

560.12 6.84 233.09 59.10

1,116.02

859.15

SCHEDULE 11 CURRENT LIABILITIES & PROVISIONS : A) Current Liabilities : Acceptances Sundry Creditors i) Small Scale Industrial undertakings ii) Others Unclaimed Dividend Other Liabilities Interest accrued but not due on Loans B)

2006

2005

(Rs. in Million)

664.82

282.19

451.49 4.68 327.68 16.39 1,465.06

950.65 4.71 356.02 1.78 1,595.35

193.79

161.69

95.00 10.68 29.40 4.12 305.11 638.10 2,103.16

100.00 8.57 283.72 553.98 2,149.33

Note : The Company had made a provision of Rs. 100 Million towards contingencies in the earlier year against various disputed excise matters and disputed claim with Bank including Rs. 50 Million towards disputed excise matter. Rs. 5 Million has been utilised during the year against redemption fine paid for release of seized fiber stock in excise case. The Company has provided Rs. 3.07 Million and paid Rs 0.96 Million towards leave encashment

SCHEDULE 12 OTHER INCOME : Profit on Sale of Fixed Assets (Net) Unclaimed liabilities written back Interest received on Sales Tax /Income Tax Refund Gain on Prepayment of Deferred Sales tax Liability Miscellaneous Income TOTAL

2006

2005

(Rs. in Million)

1.49 40.83 146.60 2.57

0.17 20.11 2.29 34.58

191.49

57.15

Schedules to Accounts

Schedules forming part of the Consolidated Profit & Loss Account

Raw materials consumed Decrease / (Increase) in stocks: Opening Stock: Work-in-Progress Finished Goods Closing Stock: Work-in-Progress Finished Goods Decrease / (Increase) in stocks: Excise Duty on stocks Stores & Spares Power, Fuel & Water Repairs & Maintenance Building Machinery Others Carriage Inward Other Manufacturing Expenses TOTAL

2006

2005

(Rs. in Million)

3,950.18

2,429.25

40.20 489.30 529.50

14.09 390.33 404.42

65.66 338.18 403.84 125.66 (34.10) 111.47 129.46

40.20 489.30 529.50 (125.08) 35.68 89.35 103.76

4.57 22.98 1.24 21.97 37.09

1.93 21.19 0.75 11.69 31.70

4,370.52

2,600.22

Sterlite Optical Technologies Ltd

MANUFACTURING & OTHER EXPENSES :

Annual Report 2005 - 06

SCHEDULE 13

Schedules forming part of the Consolidated Profit & Loss Account SCHEDULE 14 PERSONNEL :

Salaries, Wages, Bonus & Commission Contribution to Provident Fund & Other Funds Employees' Welfare & Other Amenities TOTAL

2006

2005

(Rs. in Million)

138.80 8.23 28.49 175.52

111.39 6.47 21.37 139.23

SCHEDULE 15 SELLING & DISTRIBUTION : Sales Commission Sales Promotion Packing Expenses Carriage Outward Other Expenses TOTAL

2006

2005

(Rs. in Million)

52.54 132.95 138.71 48.64 372.84

14.98 23.46 92.36 97.47 27.26 255.53

2006

2005

(Rs. in Million)

2.84 15.84 8.25 27.43 2.73 0.08 3.39 92.63 153.19

1.11 13.17 6.49 23.18 2.52 0.41 4.21 0.07 2.18 39.05 92.39

SCHEDULE 17 INTEREST & FINANCE CHARGES : (Net) On Debentures & Fixed Loans Others Bank charges Less: Interest Received from customers [Tax Deducted at Source Rs. nil (Previous year Rs. Nil Million)] TOTAL

2006

2005

(Rs. in Million)

139.09 46.05 185.14 3.39

48.49 59.60 22.53 130.62 1.96

181.75

128.66

NOTES FORMING PART OF THE CONSOLIDATED ACCOUNTS (f) Inventories

The financial statements have been prepared under the historical cost convention on accrual basis of accounting in accordance with the generally accepted accounting principles in India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. (b) Use of Estimates The preparation of the financial statements in conformity with the generally accepted accounting principles requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting year. Difference between the actual result and estimates are recognised in the year in which the results are known/ materialised. (c) Fixed Assets Fixed Assets are stated at cost (net of Cenvat) less accumulated depreciation and impairment. (d) Depreciation Depreciation on Fixed Assets of Sterlite Optical Technologies Limited, the Holding Company, is provided on straight line method at the rates specified in Schedule XIV of the Companies Act, 1956 and on Fixed Assets of the subsidiary companies Sterlite Telelink Limited, on written down value method at the rates specified in Schedule XIV of the Companies Act, 1956. Cost of leasehold land is amortised in proportion to the period of lease. (e) Investments Long term investments are stated at cost of acquisition. Provision for diminution in the value of long term investments is made, only if such decline is other than temporary.

(ii) Cost of inventories of finished goods and work-inprogress includes material cost, cost of conversion and other costs. (iii)Cost of inventories is determined on First In First Out (FIFO) basis except stores and spare parts, which is determined on weighted average cost basis. (g) Foreign Currency Transactions (i) Transactions denominated in foreign currencies are recorded at the exchange rates prevailing at the date of transaction. (ii) Monetary items denominated in foreign currency at the year end and not covered by forward exchange contracts are translated at year end rates. In case of monetary items covered by forward exchange contracts, the difference between the year end rate and the rate on the date of contract is recognised as exchange differences and the premium paid on forward contract has been recognized over the life of the contract. (iii) T h e e x c h a n g e d i f f e r e n c e s a r i s i n g o n settlement/translation are recognised in the revenue accounts, except those pertaining to fixed assets, which are adjusted to the cost of such fixed assets. (h) Borrowing Costs Borrowing costs that are directly attributable to the acquisition or construction of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to revenue. (i) Sales Revenue is recognised when it is earned and no

Annual Report 2005 - 06

(a) Basis of Preparation of Financial Statements

(i) Inventories are valued at lower of cost or net realisable value except for scrap which is valued at net realisable value.

Sterlite Optical Technologies Ltd

1. Significant Accounting Policies

Schedules to Accounts

SCHEDULE 18

significant uncertainty exists as to its ultimate realization or collection. Revenue is recognised on despatch of goods. Sales include excise duty, sale of scrap and are net of sales tax and quantity discounts. (j) Retirement Benefits Contribution to Provident Fund and Superannuation Fund are accounted on actual liability basis. Gratuity liability is provided as calculated by Life Insurance Corporation of India on actuarial basis. (k) Leave Encashment Leave encashment liability is accounted on actual liability basis. (l) Research and Development Revenue expenditure on research and development (R&D) is expensed as incurred. Capital expenditure on R&D is capitalised with fixed assets.

difference, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised and carried forward only if there is a reasonable/virtual certainty of its realisation. (o) Operating Leases Assets taken on Lease under which all significant risks and rewards of ownership are effectively retained by the lessor are classified as Operating Leases. Lease payments under Operating Leases are recognised as expenses as incurred in accordance with the respective Lease agreements. (p) Earnings per share

(m) Export Incentives Advance licences are issued to the Company under the Advance License Scheme [Duty Exemption Entitlement Cer tificate (DEEC Scheme)]/duty entitlement credited under the Duty Entitlement Pass Book Scheme (DEPB Scheme)/ Target Plus Entitlement Scheme on export of the goods manufactured by it. Wherever export sales are made by the Company, pending receipt of imported duty-paid raw materials under the DEPB scheme, the higher cost of domestic raw materials actually consumed for the purpose of such exports is compensated and/or matched by accruing the value of the benefit under the DEPB scheme.

(n) Taxes on Income Current tax is determined as the amount of tax payable in respect of taxable income for the year based on the provisions of the Income Tax Act, 1961. Deferred tax for the year is recognised on timing

An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. An impairment loss is charged to the Profit and Loss Account in the year in which an asset is identified as impaired. An impairment loss recognized in prior accounting

The Commodity Hedging Contracts are accounted on the date of their settlement and realized gain/(loss) in respect of settled contracts are recognized in the Profit & Loss accounts. (s) Provisions, Contingent Liabilities and Contingent Assets As per Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets, issued by the Institute of Chartered Accountants of India, the Company recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. No provision is recognised for a) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Company; or b) Any present obligation that arises from past events but is not recognised becauseIt is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or A reliable estimate of the amount of obligation cannot be made. Such obligations are recorded as Contingent Liabilities. These are assessed continually and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare

Schedules to Accounts

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realized. 2. Notes on Consolidation of Accounts a) The consolidated financial statements of Sterlite Optical Technologies Ltd. and its subsidiaries are prepared in accordance with Accounting Standard-21 "Consolidated Financial Statements", issued by the Institute of Chartered Accountants of India. b) (i) Subsidiary companies (all of which are wholly owned) incorporated in India and included in consolidation are: 1. Sterlite Telelink Limited 2. Sterlite Telecom Limited (ii) In view of the application made by the company's 100 % subsidiary Optical Link Limited to the Registrar of Companies in December 2003 for being struck off from the register of companies under the Simplified Exit Scheme of the Department of Company Affairs and there being no assets and liabilities, the holding company had written off the investment in equity shares of Rs 0.50 million and the company has not been included in consolidation. c) The financial statements of the Company and its Subsidiary Companies have been combined on a lineby-line basis by adding together the book values of like i te m s o f a s s e t s , l i a b i l i t i e s , i n c o m e a n d expenses, after fully eliminating intra-group balances and intra-group transactions and consequent unrealised profits or losses. d) The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances except depreciation to the extent of

Annual Report 2005 - 06

(r) Commodity hedging transactions:

circumstances where no reliable estimate can be made.

Sterlite Optical Technologies Ltd

periods is reversed if there has been a change in the estimate of the recoverable amount.

3.40 % ( previous year 10.6%) (refer note no. 1 (d)(i))

Rs. 0.41Million being the difference between the

and are presented to the extent possible, in the same

amounts of shares allotted to the shareholders of

manner as the Company's separate financial

erstwhile Sterlite Telecable Limited and the value of

statements. 3. (A) Pursuant to the Scheme of Amalgamation of Sterlite Telecable Limited (STCL) with Sterlite Telelink Limited (STLL) (the Scheme) as sanctioned by the Hon'ble High Court of Judicature at Bombay on October 7,2004. and filed with the Registrar of Companies on October 7,2004 after receipt of the same by the Company, the entire business, including the assets and liabilities of erstwhile STCL stands transferred to and vested with

net assets acquired, has been credited in the previous year to the Capital Reserves. 4. Deferred Tax The Company has recognised deferred tax asset consisting of unabsorbed tax depreciation to the extent it can be realised against the reversal of deferred tax liability on account of depreciation. The break-up of closing net deferred tax liability is as under: -

STLL with effect from 1st April 2004. The Scheme has accordingly been given effect to in the previous year financial statements. (B) In terms of the Scheme, The Company has issued in previous year 10,000 Equity shares at Face value of Rs. 10 each as fully paid up to Sterlite Optical Technologies Limited (The Holding Company)

Particulars

Current Year

Previous Year

Rs. in Million

Rs. In Million

Deferred Tax Liability a) Depreciation b) On export benefit

577.22

617.88

20.28

1.89

52.91

334.79

320.60

209.80

246.26

Deferred Tax Assets a) On provision for doubtful debts b) On unabsorbed tax

depreciation carried forward Net Deferred Tax Liability

(D) The Amalgamation has been accounted for under the â&#x20AC;&#x153; Pooling of Interest' method as prescribed by the Accounting Standard-14 - Accounting for Amalgamations, issued by the Institute of Chartered

5. In terms of accounting policy (m) for the accrual of export incentives, estimated benefits of Rs. 78.88 Million (Previous Year Rs. 5.63 Million) have been taken into account under the DEPB/Target Plus Entitlement scheme.

Accountants of India. Accordingly, the assets, liabilities and Reserves of erstwhile STCL as at 1 April 2004 have been taken over at their book values and the share application money received from SOTL, the Holding Company, being converted to loan prior to the amalgamation. There were no differences in accounting policies between the two companies.

6. The amount of foreign exchange (gain)/loss adjusted during the year to the carrying cost of the fixed assets and capital work in progress is Rs. 1.45 Million (previous year Rs. 0.71 Million) and (credited) / debited to respective heads of accounts in Profit and Loss Account is Rs. (6.94) million (previous year Rs. (6.26) Million); premium on forward exchange contract to be recognised in the Profit and Loss account of subsequent accounting period is Rs. 0.47 Million

7. Derivative Instruments : The company has entered into the following derivative instruments: (a) Forward Exchange Contracts [being a derivative instrument, which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(c) Commodity Future Contract to hedge against fluctuation in commodity prices. The following are the outstanding Future's contract entered into by the company as on 31st March 2006: No. of Contract

Contracted

Schedules to Accounts

( previous year Rs.0.08 Million).

Buy / Sell

Quantity

575 MT

Sell

The above disclosures have been made consequent to an announcement by the Institute of Chartered Accountants of India in December, 2005, which is applicable to the financial

The following are the outstanding Forward Exchange Contracts entered into by the company as on 31st March, 2006:

periods ending on or after 31st March, 2006. Therefore, figures for the previous year have not been disclosed. 8. Small scale industrial undertaking nil whom amount is

Currency in

Amount

Millions

(Rs. in Million)

US $ 15.42

687.70

Buy / Sell

No. of Contracts

Buy

due for more than 30 days has been determined based on the information available with the Company.

(b) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below:

9. On 24th April, 1998 Sterlite Telecom Limited, the subsidiary had entered into an agreement for purchase of the Cable Division undertaking of ICOMM Tele Limited (formerly known as ARM Ltd.) on a going concern basis for a lump sum consideration of Rs. 380.00 million. A management

Amounts receivable in foreign currency on account of the following:

agreement dated 24th April, 1998 was made and in terms of this agreement all profits, losses, liabilities, commitments,

Export of goods

Currency in

Amount

shall accrue and be on account of the Company. In

Millions

(Rs. in Million)

accordance with the legal form of the agreement, the

US $ 3.17

141.52

Company has recognized the cash loss of Rs. 2.73 million (previous year Rs. 3.01 million) in its administration and

ii. Amounts payable in foreign currency on account of the following:

general expense and as a prudent accounting policy, the Company is providing in the Profit & Loss Account for the erosion in the value of the assets due to usage over the

Particulars

Currency in

Amount

Millions

(Rs. in Million)

estimated useful life of the assets. Consequently an amount of Rs. 305.11 million (including Rs.23.36 million for current

Import of goods and services

$ 12.08

538.87

year) [previous year Rs. 283.72 million (including Rs.11.50

Import of goods and services

Euro 0.01

0.50

million for the previous year net of Rs.12.53 million for assets

Import of goods and services

GBP 0.04

2.82

$ 22.84

1018.66

Loans payable

sold)] representing amortization is shown under Current Liabilities and Provisions.

Sterlite Optical Technologies Ltd

Particulars

Annual Report 2005 - 06

benefits and risk of the undertaking after 24th April, 1998

10. In view of book profits and no taxable profits, as per

14. There are no amounts due and outstanding to be credited

computation of income, the provision for tax has been made

to Investor Education and Protection Fund.

as per MAT under section 115 JB of the Income Tax Act 1961. The Company is entitled to avail Credit under section 115JAA(IA). Accordingly it has considered MAT credit

15. Payment to Auditors: Particulars

entitlement as an asset as it has reversible deferred tax liability on account of depreciation. Provision for tax for earlier years had been made during the previous year based on various incentives/ deductions allowable under the Income Tax Act, 1961 and following various judicial decisions.

Current Year (Rs. in Million)

Previous Year (Rs. in Million)

a) Audit Fees

1.55

b) Tax Audit Fees

0.33

0.01

1.88

1.89

c) As advisor in other capacity in respect of Taxation matters d) In any other manner (Certification work etc)

11. The Company had received an order dated July 12, 2003 from the Commissioner of Central Excise for payment of excise duty and penalty of Rs. 1,982 Million for alleged use of imported machinery of Export Oriented Unit (EOU) for

16. Managerial Remuneration: (excluding contribution to Gratuity fund since the same is provided on an actuarial basis for the Company as a whole.)

production and sale in the Domestic Tariff Area for which the Company had preferred an appeal to the CESTAT and obtained an unconditional stay for non-deposit of the amount demanded. The Company had paid Rs. 30 Million without prejudice to its claim. During the year, CESTAT has upheld the demand of Rs. 1,886 Million and interest thereon. The

Particulars

Current Year (Rs. in Million)

Previous Year (Rs. in Million)

Salary

3.87

3.46

Contribution to Provident Fund

0.19

0.16

Other Benefits / Perquisites

1.55

1.32

5.61

4.94

Company has filed an appeal before the Hon'ble Mumbai High Court against this order. Pending this appeal, the High Court has issued an interim order for release of 3.35 LFKM finished stock for export after payment of redemption fine of

Computation of Net Profit for the year has not been given as no commission is payable.

Rs. 5 Million. Upon completion of the export of the finished stock the demand will be abated by Rs. 430 Million. 12. Other Income includes Rs. 146.68 Million on account of

17. Segment Reporting In accordance with the Accounting Standard-17 on â&#x20AC;&#x153;Segment

the prepayment of deferral sales tax liability in accordance with the scheme framed by the Government of Maharasthra.

Reportingâ&#x20AC;?, issued by the Institute of Chartered Accountants of India, the Company has identified two reportable business

13. In view of Accounting Standard 28 on Impairment of

segments i.e. Optical Fiber (cabled / uncabled) and Access

Assets issued by the Institute of Chartered Accountants of India, the Company has reviewed its fixed assets and does not

business, which are regularly evaluated by the Management,

expect any loss as on 31st March 2006 on account of

in deciding the allocation of resources and assessment of

impairment.

performance. The segment performance as follows :

Unallocable

Others

Total

(Cabled / Uncabled)

2006

2005

2006

2005

Segment Revenue 2,428.67 1,784.82 4,105.04 Segment Results (PBIT) 142.38 63.06 209.67 Less: Interest Profit/(Loss) Before Tax Provision for Tax(net) Profit/(Loss) after Tax 4,496.53 4,248.80 2,394.25 Segment Assets 391.92 447.22 976.44 Segment Liabilities 28.33 119.64 24.66 Capital Expenditure Incurred 231.78 261.96 103.58 Depreciation Amortisation 7.42 Significant non cash expenditure (5.00) Provision for Contingencies

2,234.56 89.76 1,524.54 1,037.03 11.37 60.74 9.38 -

2006

2005

2006

2005

2006

(25.44) 477.40 502.80 23.36 -

(24.08) 479.90 498.68 24.03 -

146.60 181.75 (33.42) 639.42 441.80 -

19.83 128.66 (0.69) 237.80 412.66 -

2005

6,533.71 4,019.38 473.21 148.57 181.75 128.66 291.46 19.91 (33.42) (0.69) 324.88 20.60 8,007.60 6,491.04 2,312.96 2,395.59 52.99 131.01 335.36 322.70 23.36 24.03 16.80 (5.00) -

Schedules to Accounts

(Rs. in Million)

Access Business

Optical Fibre

(i) Particulars

Note : Access business consists of manufacturing of Copper telecom cable and broadband access network.

1. Segment Revenue - External Turnover - Within India - Outside India Total Revenue 2. Segment Assets - Within India - Outside India Total Assets 3. Capital Expenditure - Within India - Outside India Total Capital Expenditure

Previous Year (Rs. in Million)

5,683.03 850.68 6,533.71

3,676.67 342.71 4,019.38

7,898.53 109.07 8,007.60

6,412.95 78.09 6,491.04

52.99

131.01

52.99

131.01

19.The earnings per share, computed as per the requirement under Accounting Standard 20 on Earning per share, issued by The Institute of Chartered Accountants of India, is as under: Earning Per Share EPS

18. Related party disclosure as required by Accounting Standard 18 â&#x20AC;&#x153;Related Party Disclosuresâ&#x20AC;? are as given below: (a) Name of related party and its relationship: (i) Associate Companies Twinstar International Limited (ii) Key management Personnel of Sterlite Optical Technologies Limited: Dr. Anand Agarwal (b) The following transactions were carried out with the related parties in the ordinary course of business: Sr. No.

1. 2. 3. 4. 5.

Particulars

(c) There are no provisions for doubtful debts or no amounts have been written off in respect of debts due to or from related parties.

2006

2005

2006

2005

Equity Share Capital issued 14 Premium on Share Capital 266 issued Share Warrant 56 Dividend 11.79 Remuneration -

5.61

4.94

March 31,2006 March 31,2005 (Rs. in Million) (Rs. in Million)

I Net Profit as per Profit and Loss Account available for Equity shareholders 324.9 20.60 Weighted Average Number of equity shares II For Basic Earning Per share 56,017,581 55,994,567 For Diluted Earning Per Share No. Of Share for Basic EPS 56,017,581 55,994,567 Add: Potential Equity Shares 46,027 ( Convertible Warrant ) No of Shares for Diluted Earning Per 56,063,608 55,994,567 Share III Earning Per Share (Weighted Average) Rs. 5.80 Basic (On Nominal Value of Rs. 5 Per Rs. 0.37 Share) Rs. 5.80 Diluted (On Nominal Value of Rs. 5 Rs. 0.37 Per Share)

Annual Report 2005 - 06

Current Year (Rs. in Million)

Sterlite Optical Technologies Ltd

(ii) Particulars

20. The Ministry of Company Affairs, Government of India vide its Order No 47/130/2006-CL-III dated March 24, 2006 issued under section 212(8) of the Companies Act'1956 has exempted the Company from attaching the Balance Sheet and Profit and Loss Account of Subsidiaries under Section 212(1) of the Companies Act'1956.In terms of this order, the required information to be disclosed relating to Subsidiary Companies are given below:

Sr. No.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Particulars

Capital

Sterlite Telelink Ltd. Current Previous Year Year

Sterlite Telecom Ltd. Current Previous Year Year

Optical Link Ltd. Current Previous Year Year

0.60

150.00

150

0.50

94.70

159.51

(97.74)

(79.78)

(0.50)

Total Assets

712.09

696.58

614.30

636.70

Total Liabilities

467.30

386.96

562.04

566.48

Turnover

913.97

914.48

4.23

3.05

(Loss) before Taxation

(64.67)

(55.19)

(25.44)

(27.40)

0.14

(7.48)

(1.01)

Loss after Taxation

(64.82)

(55.19)

(17.97)

(26.39)

Proposed Dividend

149.50

Reserves

Details of Investments

Provision for Taxation Current and Deferred

Share Application Money

21.Contingent Liabilities: Sr. No.

Descriptions

Current Year Previous Year Rs. In Million Rs. In Million

6.00

188.70

22. Sterlite Telecom Limited the subsidiary has accumulated losses of Rs. 97.75 Million which has resulted in the net worth of the said company being eroded by more than 50% and the company has continued to incur losses. As the Holding Company continues to provide support and in view of the proposed restructuring of the business of the said company, the accounts have been prepared on a going concern basis.

443.88

122.60

23. Comparative

23.29

78.18

2338.76

2467.90

10.61

50.00

Disputed Liabilities in Appeal a) Sales Tax B) Excise Duty c) Income Tax d) Customs Duty e) Service Tax f) Claims lodged by a Bank Against the company

24.20

364.42

123.22

41.80

9.95

372.21

47.10

g)Excise duty case in High Court (Refer to Note 11Supra)

Outstanding Bank Guarantees

Outstanding amount of Export obligation against Advance Licence

Export Obligation under EPCG Scheme

Bond in Favour of Excise Department

6. The Holding Company Sterlite Optical Technologies Limited. has given Corporate Guarantee to the Income Tax Department on behalf of group companies. The outstanding amount is Rs 1,140.00 Million (Previous Year Rs. 1,140.00 Million) on this account as at the year-end.

Comparative financial information (i.e. the amounts and other disclosure for the preceding year presented above), is included as an integral part of the current year's financial statement, and is to be read in relation to the amounts and disclosures relating to the current year. Figures of the previous year have been regrouped/reclassified wherever necessary to correspond to figures of the current year. For and on behalf of the Board Dr. ANAND AGARWAL PRAVIN AGARWAL Wholetime Director Director

Place: Mumbai Dated: April 28, 2006

ANUPAM JINDAL Chief Financial Officer

SANDEEP DESHMUKH Company Secretary

Company Secretary & Compliance Officer Sandeep Deshmukh

Chief Financial Officer Anupam Jindal

Auditors Deloitte Haskins & Sells Chartered Accountants

Bankers Bank of Maharashtra Corporation Bank HDFC Bank Limited ICICI Bank Limited Punjab National Bank State Bank of India Union Bank of India

Registrar and Transfer Agents M/s Sharepro Services (Unit: Sterlite Optical Technologies Limited) Satam Estate, 3rd Floor, Above Bank of Baroda Chakala, Andheri (East), Mumbai 400 099 Phone: +91-22-28215168, 28348218, 28215991, 28329828 Fax: +91-22-28375646 E-mail: sharepro@vsnl.com

Sterlite Optical Technologies is the high technology Optical Fiber, Fiber Optic Cable, Copper Telecom Cable and LAN Cable manufacturing entity of the multi - billion dollar Sterlite Group. Sterlite Optical Technologies is Indiaâ&#x20AC;&#x2122;s only integrated optical fiber manufacturer and is among the select few globally. The Company enjoys a strong, globally competitive position in optical fiber products and has more than 11 million-km of fiber laid across the globe. Sterlite's technology which helps carry and deliver increasing amount of data at the speed of light, is the key component in the broadband and convergence revolution that is sweeping the globe, enabling millions to communicate, interact and enjoy life. The next time you speak on the phone, watch television, or browse the Internet, think of Sterlite Optical Technologies The backbone of broadband !

CORPORATE OFFICE th

4 Floor Godrej Millenium , 9, Koregaon Road, Pune 411 001 , Maharashtra, INDIA Phone: +91-20-30514000 Fax: +91-20-26138083 Email: communications@sterlite.com Website: www.sterliteoptical.com

REGISTERED OFFICE E-1, MIDC, Waluj, Aurangabad 431 136, Maharashtra, INDIA Phone: +91-240-2564599 Fax: +91-240-2564598

SALES OFFICES CHINA B-2002, Far East International Plaza, 317, Xianxia Road, Shanghai 200051 CHINA Phone: +86-21-62351469 Fax: +86-21-62351470

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