Annual Report 2006-07 by Keith DSilva

ANNUAL REPORT 2006 - 07

Technology, Knowledge, Infrastructure to

Bring the World Closer... Fast!

Fiber to Every Home Power to Every Village

Contents Highlights of 2006-07

Financial Overview 2002 - 2006

Our Products

Board of Directors

Management Committee

Message from the Chairman

Message from the CEO

Management Discussion & Analysis Report

Directors' Report

Corporate Governance Report

Research, Product Development & Intellectual Property

New Products 2006 - 07

Human Resources

Health, Safety & Environment

Sustainable Development Report

Auditor's Report

Balance Sheet

Profit and Loss Account

Schedules to Accounts

Cash Flow Statement

Balance Sheet Abstract

Locations

BUSINESS PERFORMANCE Net Revenue Rs. 11,982 Million, EBITDA Rs. 1,191 Million and PAT Rs. 509 Million Net Revenue up by 119%, EBITDA and PAT increased by 43% and 25% respectively over the last fiscal Basic EPS Rs. 8.59 (each share of face value of Rs. 5) Acquisition of the Power Transmission Business from Sterlite Industries (India) Limited from July 2006 Revenues from exports up by 250% over that in the last fiscal

Highlights 2006 - 07

Highlights of 2006 - 07

NEW PRODUCTS Sterlite DOF-LITEâ&#x201E;˘ ITU-T G.655 D and E range of Optical Fiber Products for access networks Sterlite ADSL 2+ Wireless and Wireline Modems for broadband applications

INTELLECTUAL PROPERTY Total of 5 patents granted for Optical Fiber Products and Processes in the European Union, India and China

CERTIFICATIONS / APPROVALS ISO 14001:2004 Environment Management System for Optical Fiber Plant British Safety Council (BSC) 5 Star Rating for Optical Fiber Plant RoHS Compliance for all Optical Fiber Products as per European Union Directive for Restriction of Hazardous Substances Underwriters Laboratories (UL) Certification for Cat 3, 4, 5, 5E and 6 Data Cables Six-Sigma Black Belt certifications by American Society for Quality (ASQ)

AWARDS AND LISTINGS Deloitte Technology Fast 500 Asia Pacific Award 2006 (Rank#73) & Fast 50 India Award 2006 (Rank#6) ELCINA Award for R&D for invention of Low Water Peak Optical Fiber IMC-Ramkrishna Bajaj National Quality Award - Quality Commendation Certificate for 2006 for Manufacturing (Optical Fiber Plant) Top Telecom Cables Company 2006 as per annual V&D100 Survey Listed among 'Dun & Bradstreet India's Top 500 Companies', 'EFY Top 100 Companies' & 'ET500 Fastest Growing Companies in India'

Annual Report 2006 - 07

Fiber to Every Home Power to Every Village

Financial Overview 2002 - 2006 US$ in Million

2006 - 07

2005 - 06

2004 - 05

2003 - 04

2002 - 03

265

124

EBITDA

(7)

PBDT

(12)

PBT

(5)

(18)

PAT

(4)

(18)

Net Worth

Capital Employed

230

128

126

Basic EPS

0.19

0.16

0.04

-0.07

-0.32

11,982

5,474

3,269

919

1,212

119

256

(24)

(80)

1,191

833

473

195

(335)

% Growth

143

(158)

(120)

% to Net sales

(28)

847

671

369

(584)

(48)

531

382

103

(216)

(861)

(24)

(71)

509

408

102

(189)

(861)

(21)

(71)

4,166

3,319

2,609

2,507

3,083

10,014

5,697

4,075

4,184

6,002

Return on Capital Employed %

8.74

9.53

5.07

(2.08)

(10.20)

Interest Coverage ratio

3.46

5.16

4.55

1.51

(1.35)

Working Capital Ratio

3.23

2.91

1.64

2.06

2.86

Debt Equity Ratio

1.41

0.72

0.56

0.67

0.95

Basic EPS

8.59

7.27

1.83

-3.38

-15.38

Net Revenue

Rs. in Million Net Revenue % Growth EBITDA

PBDT % to Net sales PBT % to Net sales PAT % to Net sales

Net Worth Capital Employed

EBITDA 1400 11,982

1,191

1200

10,000 Rs. in Million

1000

8,000 5,474

(335)

20 06 -07

(400)

20 04 -05

20 06 -07

20 05 -06

(200)

20 05 -06

195

200

919

20 03 -04

20 02 -03

473 400

3,269 1,212

600

20 02 -03

4,000

833 800

20 03 -04

6,000

20 04 -05

Rs. in Million

12,000

2,000

Financial Overview 2002 - 2006

Net Revenue 14,000

(600)

Net Worth

Net Profit 4500

600 408

400

3,319 3,083

(189)

(400)

Rs. in Million

20 06 -07

20 05 -06

20 04 -05

20 03 -04

102

20 02 -03

3000

2,609 2,507

2500 2000 1500

(600) 1000 (800) (861)

500

(1000)

Annual Report 2006 - 07

20 06 -07

20 05 -06

20 04 -05

20 03 -04

20 02 -03

Rs. in Million

4000 3500

200

(200)

4,166

509

Fiber to Every Home Power to Every Village

Our Products OPTICAL FIBER BEND-LITE™ Single Mode Optical Fiber BEND-LITE™ (E) Single Mode Optical Fiber OH-LITE™ Single Mode Optical Fiber PMD-LITE® Single Mode Optical Fiber DOF-LITE™ (RS) Single Mode Optical Fiber DOF-LITE™ (LEA) Single Mode Optical Fiber DOF-LITE™ (Metro) Single Mode Optical Fiber MULTI-LITE™ 50/125 Multi Mode Optical Fiber MULTI-LITE™ 62.5/125 Multi Mode Optical Fiber

FIBER OPTIC CABLES ADSS Fiber Optic Cable Series ARMOR-LITE™ Fiber Optic Cable Series Breakout Fiber Optic Cable Series Dielectric Fig-8 Fiber Optic Cable Series DROP-LITE™ Fiber Optic Cable Series DUCT-LITE™ Fiber Optic Cable Series Duplex Fiber Optic Cable Duplex Flat Fiber Optic Cable FRP Armor-LITE™ Fiber Optic Cable Series Indoor Distribution Fiber Optic Cable Series Indoor-Outdoor Fiber Optic Cable Series Micro-Duct Fiber Optic Cable Series Ribbon Cord Fiber Optic Cable Series RIBBON-LITE™ Fiber Optic Cable Series Simplex Fiber Optic Cable Tactical Fiber Optic Cable Series

POWER TRANSMISSION CONDUCTORS AAAC (All Aluminum Alloy Conductor) AAC (All Aluminum Conductor) AACSR (Aluminum Alloy Conductor Steel Reinforced) ACAR (Aluminum Conductor Alloy Reinforced) ACSR (Aluminum Conductor Steel Reinforced)

Our Products

COPPER TELECOM CABLES Cat 3 Indoor Copper Cable Cat 3 Self Supporting Fig-8 Aerial Copper Cable Direct Buried Armored Copper Cable Duct / Direct Buried Unarmored Copper Cable Indoor Individual Pair Screened Copper Cable Internal Exchange Telephone Copper Cables Outdoor Screened PCM Copper Cable Self Supporting Dry Core Aerial Copper Cable Self Supporting Jelly Filled Aerial Copper Cable Optical Fiber

STRUCTURED DATA CABLES Cat 5 Fig-8 Self Supporting Cable Cat 5 Indoor Cable Cat 5e Drop Cable Cat 5e LAN Cables Cat 6 LAN Cables Combo Cable

CUSTOMER PREMISE EQUIPMENT (CPE)

Power Transmission Conductors

SAM100 Dual Port ADSL 2+ Modem SAM200 Wireless Dual Port ADSL 2+ Modem SAM300 Multi Port ADSL 2+ Modem SAM400 Wireless Multi Port ADSL 2+ Modem

ALUMINUM AND ALLOY RODS Grades 1050, 1080, 1120, 1350, 5052, 6101, 6061, 6201

CABLE ACCESSORIES

Annual Report 2006 - 07

Fiber Optic Cables

Copper Telecom Cables

ADSL2+ Modems

Structured Data Cables

Board of Directors Anil Agarwal - (Non-Executive Chairman) Anil Agarwal founded the Sterlite Group in 1976 and has been overseeing the Sterlite Group's operations since its inception. Anil Agarwal is the Executive Chairman of Vedanta Resources Plc, Sterlite Industries (India) Limited, Bharat Aluminum Company Limited (BALCO) and is a director of Hindustan Zinc Ltd (HZL) and Vedanta Alumina Limited. He has over 30 years of experience in business strategy, general management and commercial matters.

Navin Agarwal - (Non-Executive Director) Navin Agarwal has been overseeing the Sterlite Group's operations since its inception. Navin Agarwal is Deputy Executive Chairman of Vedanta Resources Plc, Executive Vice Chairman of Sterlite Industries (India) Limited, Chairman of Konkola Copper Mines (KCM-Zambia) and MALCO and is also a director of Bharat Aluminum Company Limited (BALCO), Hindustan Zinc Ltd (HZL) and Vedanta Alumina Limited. He has over 20 years of experience in business strategy, general management and commercial matters.

Arun Todarwal - (Non-Executive & Independent Director) 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.

A. R. Narayanaswamy - (Non-Executive & Independent Director) A. R. Narayanaswamy is an Audit Practitioner & runs a Management Consultancy catering to t h e P h a r m a c e u t i c a l , C h e m i c a l , Engineering and Hospitality sectors. Narayanswamy is a Chartered Accountant by profession and his experience spans over 30 years

Haigreve Khaitan - (Non-Executive & Independent Director) 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 8 years in Commercial and Corporate laws, Tax laws, Mergers and Acquisitions, Restructuring, Foreign Collaboration, Licensing etc.

Pravin Agarwal - (Whole-time Director) Pravin Agarwal has been closely involved with the Vedanta Group's operations in India. In addition to overseeing the Telecom Sector Businesses of the Vedanta Group, Mr Pravin Agarwal has been closely associated with Sterlite's Power Transmission Line Business. His rich experience in general management and commercial matters spans over 25 years.

Anand Agarwal - (CEO & Whole-time Director) Anand Agarwal joined Sterlite in 1995 and has held various positions including manufacturing, quality assurance and business development. Prior to joining Sterlite, 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 Ph.D. in Materials E n g i n e e r i n g f ro m t h e Re n s s e l a e r Polytechnic Institute, USA.

Anand Agarwal - (CEO & Whole-time Director)

Anupam Jindal - (Chief Financial Officer) Anupam joined Sterlite in 1998 and since then has worked with the Group's Aluminum Foils and Copper Telecom Cables businesses, before heading finance and accounts at Sterlite's Australia operations. His key focus areas have been Finance, Treasury, Accounts and Management Information System. Anupam holds a degree in Chartered Accountancy from the Institute of Chartered Accountants of India.

Pankaj Khanna - (Chief Operating Officer - Telecom Business) Pankaj joined Sterlite in 2000 and was responsible for new projects for Sterlite's Optical Fiber Business. His key focus area has been process development & project management. Prior to joining Sterlite Pankaj worked with Mitsubishi Electric, Japan. Pankaj holds a Bachelor of Technology degree in Mechanical Engineering from the Indian Institute of Technology (IIT Kanpur).

K S Rao - (Chief Marketing Officer - Telecom Business) K S Rao joined Sterlite in 1992 and since then has held various profiles within the company's telecom business. His key focus areas have been engineering, manufacturing, sales, marketing and business development. K S Rao holds a Bachelor's degree in Mechanical Engineering.

Anil Khandelwal - (Vice President, Finance and Commercial Power Transmission Business) Anil joined Sterlite in 2002 and his key focus areas have been Finance & Commerce and General Management. His experience spans over 20 years with companies like Hindalco & Lotus 2000 Ltd, South Africa. Anil holds a degree in Chartered Accountancy from the Institute of Chartered Accountants of India.

Anil Sikka - (Associate Vice President, Marketing - Power Transmission Business) Anil joined Sterlite in 2005 and his key focus areas have been Marketing and General Management. His experience spans over 22 years with companies like ABB, India & Bahwan Engineering Company, Oman. Anil holds a Bachelor's degree in Electrical Engineering from Indian Institute of Technology (erstwhile University of Roorkee), Roorkee and a Masters in Management & Systems from Indian Institute of Technology (IIT - Delhi).

Ajay Bakshi - (Head - Human Resources) Ajay joined Sterlite in 2004 and headed the Learning and Development function at Vedanta Resources Plc. Prior to joining Sterlite, Ajay worked with Castrol, Gillette and Kotak Mahindra Life Insurance. His experience spans over 13 years and his key focus areas have been Learning & Development, Talent and Performance Management. Ajay holds a Degree in Mechanical Engineering from MIT, Manipal and a MBA from Pune University.

Dharmendra Jain - (General Manager, Finance, Banking & Treasury - Power Transmission Business) Dharmendra joined Sterlite in 1997 and his key focus areas are Finance, Treasury, Taxation, Commercial, Accounts & MIS. His experience spans over 16 years with companies like Indian Aluminium Cable Ltd (HDC Group). Dharmendra holds degree for Chartered Accountancy from the Institute of Chartered Accountants of India.

Annual Report 2006 - 07

Anand joined Sterlite in 1995 and has held various positions including manufacturing, quality assurance and business development. Prior to joining Sterlite, 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.

Management Committee

With privatization of Telecom and Power sectors, and increased globalization, Sterlite Optical Technologies has evolved into a company with a leadership in all its business segments in India and an increasingly strong global presence. power growth story in India, which in my belief is similar to the telecom growth story. The power transmission business is very synergistic with our telecom cables business. Globally, most companies have both power & telecom cables as business segments on account of sourcing, operational and selling synergies. This also ties in strategically with the Group's foray in the power generation business. Till FY 2006, Sterlite Optical was essentially a telecom cables company with majority of its revenues coming from sales in the government sector in India, however this has significantly changed in the last year. As industry leaders in India, we remain committed and would continue to contribute to India's growth in the telecom and power sectors. With privatization of these sectors, and increased globalization, SOTL has evolved into a company with a leadership in all its business segments in India and an increasingly strong global presence. In both Optical Fiber & Power businesses, we are running at nearly 100% capacity and we have expansions underway. Going forward, we see the company evolving into a dominant position in its optical fiber business and power conductor business.

Dear Stakeholder, As you are aware, Sterlite Optical Technologies is the Group's vehicle for participation in the growing infrastructure sectors of Telecom and Power. The Company remains a key part of the Group's overall vision of attaining a Leadership Position in all the businesses we operate in. Post the telecom meltdown, the Company saw a couple of difficult years, but it has come a long way since its inception. Through focused efforts in backward integration, technological innovations and operational efficiencies, the Company has transformed from an India-centric, manufacturing based organization into a truly global, market-centric organization. Indian manufacturing is now a global phenomenon and the Ministry of Communications has a definite mandate of making India into a Technology Manufacturing Hub. We believe we are uniquely positioned to capitalize on this opportunity. During the last year, the Company acquired a power transmission business into its portfolio to participate in the

We continue to be very bullish about the growth in telecom and power sectors, and SOTL's positioning both in India and internationally. Our strategic path is to grow our business to a $ 1 billion Company by 2010 and our vision is to be positioned within the Top 5 global companies, for each of our business segments. We believe we have the right leadership, the right team and the right technology to make this happen. 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.

Anil Agarwal Chairman

We are glad to present the Annual Report for the Year 2006-07. The past year was a very exciting year for Sterlite Optical Technologies Ltd. - the year in which I believe we have truly proven our ability to position ourselves for future growth while staying committed to our core values : Excellence, Creativity, Integrity, Responsibility and Respect.

Message from the Chairman & CEO

We continue our focus on increasing our global footprint and on consolidating our market share for Telecom & Power products.

In 2006-07 net revenue increased to Rs. 11,982 Million, compared with Rs. 5,474 Million in 2005-06. The net profit was Rs. 509 Million, compared to a net profit of Rs. 408 Million in the last fiscal. Our revenues from export sales increased exponentially by 250% compared with the last fiscal. During the year, our Company acquired the Power Transmission Conductors business from Sterlite Industries (India) Limited. This marks a significant milestone for us as it brings together two complementary pan-India market leaders who would be better able to capitalize on customer relationships to compete for and serve large-business and institutional customers in more than 45 countries across Europe, Asia, Africa & the Middle East. Through the year, we continue our focus on increasing our global footprint and on consolidating our market share for Telecom & Power products in India. We also undertook several initiatives for technological and operational improvements at all our manufacturing facilities such as Six-Sigma, SAP implementation across all our plant locations, capacity enhancements and backward integration projects in the direction of achieving our Vision for the Year 2010.

We also commenced manufacturing of ADSL2+ Modems at our facility in Aurangabad. Our range of in-house developed wireline and wireless modems will be used for broadband applications. During the year, we were granted 5 patents in the European Union, China & India. Our technology development team has filed several more patent applications for innovations in our products and processes. Sterlite's Optical Fiber facility was certified for the ISO 14001:2004 Environment Management System and received the British Safety Council Five Star Rating. Our range of Optical Fiber products also were certified as RoHS compliant as per the European Union Directive for Restriction of Hazardous Substances and our range of Structured Data Cables were certified by Underwriters Laboratories.

The Company also received the 'Deloitte Technology Fast 500 Asia Pacific Award 2006, 'Deloitte Technology Fast 50 India Award 2006', 'ELCINA Award for R&D 2006', 'V&D 100 Top Telecom Cables Company Award 2006' and the 'IMCRamkrishna Bajaj National Quality Award - Quality Commendation Certificate for 2006' for our Optical Fiber Plant. The Management Committee and I remain as confident as ever that we will 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 human capital 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. Here's looking forward to exciting & promising times ahead!

Dr. Anand Agarwal Chief Executive Officer

Annual Report 2006 - 07

Based on customer needs 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 Sterlite DOFLITEâ&#x201E;˘ G.655 D & E Optical fibers designed for Access networks.

Vignettes - 2006 - 07

Gitex, Dubai - November 2006

Voice & Data, Brand Conclave - April 2006

Wire & Cable, Mumbai, India 2006 - November 2006

SVIAZ Expo, Russia - May 2006

India Telecom, Delhi, India - December 2006

ECOC, France - September 2006

Middle East Electricity Fair, Dubai - February 2007

Paper presentation at IWCS, USA - November 2006.

Customer Networking Reception, Delhi, India - March 2007

105.3

108.0

97.3

100

76.0

74.5

80 51.3

62.2

60.3

62.2

40 20

N America

Asia

Europe

20 06

20 05

Rest of the World Source: CRU, UK

CRU International - a research agency in the United Kingdom, reported that the global demand for Optical Fiber Products increased to 97.3 Million-km in 2006 compared with 76.0 Million-km in 2005, translating to a Y-o-Y growth of 28%.

Annual Report 2006 - 07

Such an integrated grid shall evacuate additional 100,000 MW by the year 2012 and carry 60% of the power generated in the country. The existing inter-regional power transfer capacity is

Demand for Optical Fiber 120

20 04

'Power for all by the year 2012' is the vision of the Ministry of Power, Government of India. India's transmission perspective plan focuses on the creation of a 'National Grid' in a phased manner by adding over 60,000 KM of Transmission Network by 2012.

The year 2006 experienced an impressive revival in global demand for optical fibers. Developed and emerging economies had encouraging announcements on infrastructure development projects. There are new and sustainable demand drivers on the anvil and there is wave of activity to develop new products to address applications as fiber comes closer to the subscriber.

20 03

1.2 Power Sector

2.1 Optical Fibers and Fiber Optic Cables

20 02

Additionally, the Indian Finance Minister's Union Budget 200708 recommendations for higher focus on e-governance is a significant milestone for the telecom equipment sector, as this would herald the next wave in demand for creation of high bandwidth communication infrastructures.

2. Industry Status: Telecom and Energy

20 01

Broadband is 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, favoring the rising use of online education, telemedicine networks and connectivity for rural knowledge centers. Greater use of online services in commerce, industry and transportation will create a boom for broadband. TRAI has suggested a range of measures for an open-sky policy for DTH, VSAT and up linking using satellites that should boost broadband.

With the tremendous impetus that the infrastructure sector is providing India's economy and the resultant positive initiatives taken by government, regulators and industry alike, the coming years promise to bring India on par with the most developed global economies.

20 00

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.

In the recent Union Budget, the Indian Finance Minister's recommendation of addition in power capacity & support for 'Accelerated Power Development & Reform Program' (APDRP) is an extension of the Government's vision - 'Power for all by year 2012'. This would provide a fillip for indigenous power transmission & distribution equipment manufacturers.

19 99

I n d i a i s ex p e r i e n c i n g u np r e c e d e n te d g row t h i n telecommunications. This growth is estimated to lead to an expenditure of over US$ 50 Billion till Year 2010.

19 98

1.1 Telecom Sector

9,000 MW, which is to be further enhanced to 30,000 MW by year 2012 through creation of â&#x20AC;&#x153;Transmission Super Highwaysâ&#x20AC;?. For creation of such a grid, an investment of Rs. 710 Billion is envisaged.

Demand (Million Km)

1. India's quest in building world-class infrastructures

Management Discussion & Analysis Report

This demand is close to that last seen in Year 2000, during the Telecom Boom. However, in contrast with Year 2000 where North America led with 44% of annual global demand, in the Year 2006, Asia led the annual global demand with approximately 48 Million-km. Asia showed the strongest 2006 growth with 35% growth, followed by North America and Europe with 25% and 10% Y-o-Y growth respectively. In the emerging Markets, which comprise Middle East, Africa & Latin America, consolidated demand grew by 53%. Regionwise Demand for Optical Fibers in 2006

Indian Fiber Optic Market in 2006-07 (Mn-fkm)

0.77

Private Telecom 1.27

Cellular + CATV + MSOs + Others Government (BSNL + MTNL + Railways + PSUs) 1.06

The demand of fiber optic cables by Indian Private Telecom Incumbents, Cellular Industry, CATV Industry, MSOs and others have surpassed that of the Government incumbents like BSNL, MTNL and RailTel, which were traditionally the largest buyers of fiber optic cables in India.

Asia

27%

18%

Europe Rest of the World N America 49%

The Indian Government as a buyer of Fiber Optic Cables through the Telecom Incumbents & Public Sector Undertakings such as the Oil and Gas Sector, Power Sector, etc. cumulatively constituted about 25% of the total purchases of Fiber Optic Cables in India in FY 2006-07. The Private Telecom Operators constituted about 34%.

Source: CRU, UK

Segmental Distribution of Fiber Optic Cables in India

The increase in emerging-market backbone deployments has 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. Based on industry information and published sources, the fiber optic industry in India showed an increase in demand in 200607 to 3.1 Million-km of cabled optical fiber. This represents a yo-y growth of about 33% in FY 2006-07 over FY 2005-06.

3.10 3.0 2.5 2.0

2.33 2.01

1.5 1.0

20 06 -07

20 05 -06

0.5

20 04 -05

There is a significant push to offer higher-bandwidth services both by wire-line and wireless operators in the mature markets. Rapidly growing industry segments such as Broadband, Voice over Internet Protocol (VoIP), Streaming Media, technological innovations in fiber optics, DWDM and WDM have contributed to the growth in demand in the developed economies.

3.5 Demand (Million Km)

The growth of demand for Fiber Optic Cables was due to stronger FTTx related deployments in North America and Western Europe, as well as stronger backbone deployments in Eastern Europe, Middle East and Africa.

Cellular + CATV + MSOs + Others Private Telecom Government (BSNL + MTNL + Railways + PSUs)

There has been a countrywide renewal in demand from the Cellular Industry, with new and expanded networks being laid to cater to the booming subscriber base. There is also an increasing adoption of fiber-based networks by the Cable TV Segment, Multi-Service Operators (MSOs) and e-Governance State Initiatives. This set of buyers had a cumulative purchase

anticipated to show a significant revival in FY 2007-08, with tenders for about 85 Lckm being announced at the time of publishing of this report.

2.2 Copper Telecom Cables

2.3 Power Transmission Conductors

The global demand growth rate for Copper Telecom Cables has stabilized at 7%- 9%.

As reported by ABS Research, UK, the global market for power transmission conductors was valued at about US$12.3 Billion in 2006 and has a CAGR of 7% from 2004 through 2006.

For many telecom service providers in India betting on the wireline sector, the objective of broadband and telephone businesses is to have presence in cities with high revenue potential. For them, the product offering in this segment includes supply and installation of fixed-line telephones providing local, national and international long distance voice connectivity and broadband Internet access through DSL.

Management Discussion & Analysis Report

of about 1.2 Million-km of Optical Fibers, which constituted about 41% of India's purchases of Fiber Optic Cables in India in FY 2006-07.

ABS Research also anticipates a stable demand growth in the Regional Demand for Power Transmission & Distribution Conductors 15.9 16 14.9 14.0 14 13.1

Segmental Distribution of Copper Telecom Cables in India 180

11.6

12 10.9

170

160

US$ Billion

Demand (lckm)

12.3

140 120

100 80 6

60 40 21

20 06 -07

20 05 -06

Private Telecom 2004

Asia

Copper cables 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. In 2006-07, there was a noted decrease in the purchases of Copper Telecom Cables in India mainly on account of meager purchases by BSNL & MTNL since during 2005-06 most incumbents had built up significant inventories, which were systematically depleted during FY 2006-07. The industry is

2005

2006

Middle East

2007

Africa

2008

Europe

2009

2010

Americas

global market from 2007 through 2010 at a CAGR of about 67% The global power industry is currently experiencing Y-o-Y demand growth similar to those experienced by the telecom industry in the late 1990's. Based on industry information and published sources, the Power Transmission Conductors industry in India showed an increase in demand in 2006-07 to approximately 300,000 MT of power transmission conductors. This represents a Y-o-Y

Annual Report 2006 - 07

Government (BSNL + MTNL)

The year 2007 is the year of broadband in India. Considering the 2006 figures, according to industry players, the task of achieving the government's target may take more time. The number of broadband subscribers (with a download speed of 256 kbps or more) was 2.06 Million subscribers at the quarter ended December 2006 registering a growth of about 120% over that in quarter ended December 2005

Indian Power Transmission Conductors Market in 2006-07 (% Value)

PGCIL

40%

State Electricity Boards 55%

Private / Others

growth of about 20% in FY 2006-07 over FY 2005-06 State owned Power Grid Corporation of India (PGCIL) continued to be the largest buyer of power transmission conductors in the country, with demand equivalent of about 40% of total Indian demand. The demand from State Electricity Boards constituted about 175,000 MT, 55% total demand. There was also a marginal demand of 15,000 MT, 5% of total demand of power transmission conductors from the Private Energy industry.

3. Demand Drivers & Future Outlook: 3.1 Telecom Sector

2.5

Besides, broadband deployment by telcos, IPTV is touted as the next the key growth driver in the Indian wireline sector. IPTV deployment among service providers in India may see a spurt in demand for wireline infrastructure. According to a study by ABI Research, total subscribers for IPTV may exceed 120 Million by 2010 with Asia Pacific constituting roughly 47% of the total subscribers worldwide. China and India are seen as major markets. This technology offers services such as digital broadcast TV, time-shifted broadcast TV, video-on-demand and radio services etc. and will fuel the next level of telecom industry revolution. In India, Metro Ethernet Networks are relatively new. However, a few infrastructure providers are committed in building on the market leadership in the growing Metro Ethernet market. Since proliferation of 3G, WiMax, IPTV, IMS will drive the network expansion in wireline, wireless and cable.

1.5 1.0 0.5

De c0 6

Se p0 6

Ju n0 6

Ma r0 6

Source: TRAI

The Indian Government has already decided to offer the best in terms of both quality and volume-broadband connection to masses in India and both private and public telecos may be relooking at the wireline phones. For wireline business, the government will continue to become a major customer for wireline infrastructure providers. Apart from BSNL and MTNL, they also cater to telecom network infrastructure needs of utilities like railways, oil and gas, power, etc.

2.0

De c0 5

Million Broadband Connections (>=256 Kbps download speed)

Wireline sector may show positive signs if India could match the growth figures of broadband penetration in the US and China, though broadband can run on wireless technologies as well. The global broadband market is expected to grow more than double, to $80 Billion in the next five years, with an average CAGR of 32.5%.

Broadband can also be offered on cable, however due to the poor state of infrastructure, not many players have ventured into this segment. The main reason for the poor wireline infrastructure quality is on account of about 75% of the network being old with poor joints and thin cables. These networks may not be able to handle ADSL to its maximum capability without reconditioning. The final quality of broadband, which will have a telling impact on the wireline infrastructure growth, will depend on quality of last-mile infrastructure, relevant content, etc.

Since it is a relatively new technology to Indian telcos, infrastructure providers are pushing hard to win critical new

Annual Report 2006 - 07

Management Discussion & Analysis Report

ISO 14001:2004 Environment Management System Certification & British Safety Council (BSC) 5 Star Rating for Optical Fiber Plant

The increase in volume has significantly improved the cost advantage your company has always carried and in turn has improved the profitability of the business significantly.

RoHS Compliance for all Optical Fiber Products as per European Union Directive for Restriction of Hazardous Substances

Underwriters Laboratories (UL) Certification for Cat 3, 4, 5, 5E & 6 Data Cables

Six-Sigma Black Belt certifications by American Society for Quality (ASQ)

Production of Optical Fiber cables aggregated 1.21 Million fiber kilometers (FKM) compared to 1.08 Million fiber kilometer (FKM) in the previous year showing a moderate growth of 11%. Sales of optical fiber cables was 1.20 Million fiber kilometer (FKM) compared to 1.07 Million fiber kilometer (FKM). Your Company continues to be the largest manufacturer of Optical Fiber products in India with the share for Fiber Optic Products in India of about 43%.

Deloitte Technology Fast 500 Asia Pacific Award 2006 (Rank#73) & Fast 50 India Award 2006 (Rank#6)

Access Business

ELCINA Award for R&D for invention of Low Water Peak Optical Fiber

IMC-Ramkrishna Bajaj National Quality Award - Quality Commendation Certificate for 2006 for Manufacturing (Optical Fiber Plant)

V&D100 Top Telecom Cables Company 2006 Award

4.2 Segmental Performance Optical Fiber Business The Company continues to be 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 been a significant year for this business as the company has been able to achieve the rated capacity of Optical Fiber manufacturing in the second half of the year. The total production of the Optical Fiber has been 3.91 Million kilometer (KM) against 2.73 Million kilometer (KM) during the previous year showing an impressive growth of 43% over previous year. Your Company has continued to achieve a significant market share in Global market for its uncabled Optical Fiber. Sales of Optical Fiber (excluding captive consumption) during the year was 2.72 Million kilometer (KM) compared to 2.18 Million kilometer (KM) in the previous year.

During the current year this business has been adversely affected due to deferment of buying program of PSU telecom majors such as BSNL and MTNL. The Company has explored new export markets and continues to increase its market share in India including with private telecom majors. During the year the company has supplied cables to various new customers in countries such as Vietnam, Qatar, Nepal etc. The Access business started in last year has also been sluggish during the current year as the company received no new orders in this business. However the company retains a positive outlook on this business and look forward to increased business opportunities in the new markets being developed overseas. Power Transmission Business This business has been recently acquired by the company from Sterlite Industries (India) Limited and since its acquisition, it has significantly improved the performance of the company. During 9 months in the current year, the Power Transmission Business has produced 91,426 KM of conductors (58,199 MT).

4.3 Financial Analysis Capital Structure : The total shareholders' funds as at March 31, 2007 aggregated Rs. 4,166 Million of which equity capital was Rs. 308 Million comprising of 61,594,567 shares of Rs. 5

During the year, your Company has granted 592,900 stock options to its employees. The vesting is due in the years 200708, 2008-09 & 2009-10, subject to meeting its conditions stipulated by Compensation Committee for the vesting. As at the year end the Reserves and Surplus stood at Rs. 3,812 Million. Total networth as at year ended March 31, 2007 was Rs. 4,166 Million as against Rs. 3,319 Million as at the previous year end. Dividend : Board of directors have recommended an equity dividend of 15% i.e. Rs. 0.75 per share of Rs. 5 each. The dividend outflow will aggregate to Rs. 54 Million (including dividend tax) compared to Rs. 34 Million (including dividend tax) in the previous year. Loan Profile : During the year, the company had repaid the opening long term loan of Rs. 200 Million, however during the year the company has taken new long term loan of Rs. 875 Million (net of repayment of Rs. 25 Million during the current year) to part finance the acquisition of Power Transmission Business. In addition to this, the company has also taken a loan of Rs. 450 Million to part finance the ongoing expansion project at Hardwar for Power Transmission Business. Thus as at March 31, 2007, the long term borrowing of the company stood at Rs 1,325 Million. With the acquisition of Power Transmission Business, the working capital borrowing of the company has also increased from Rs. 2,033 Million as at the end of previous year to Rs. 4,329 Million. The debt equity ratio of the Company as at March 31, 2007 was 1.41 as compared to 0.72 in the previous year-end due to high borrowing of newly acquired Power

Capital Employed : The total capital employed by the company increased by 76% from Rs. 5,697 Million to Rs. 10,014 Million. The Turnover to capital employed increased from 1.10 times for the previous year to 1.30 times for the current year.

Management Discussion & Analysis Report

Transmission Business and long term borrowing for its acquisition.

Gross Block and Capital Work in Progress : The gross block of the company increased from Rs. 5,702 Million at the beginning for the year to Rs. 7,925 Million at the end of current year mainly comprising of acquisition of power transmission line business and amalgamation of its wholly owned subsidiaries. In addition to this, company also has capital work in progress of Rs. 528 Million at the end of the year which includes expansion project of optical fiber capacity at Aurangabad and power transmission line business at Haridwar. Both these projects are expected to be commissioned by first half of the year 2007-08. Revenue and Profits : During the year under review, the Company's net revenue aggregated Rs. 11,982 Million compared to Rs. 5,474 Million in the previous year marking an increase of 119%. Gross Revenue from Optical Fiber business was marginally higher by 6% at Rs. 2,543 Million compared to Rs. 2,399 Million in the previous year. While, the optical fiber (bare fiber business) has grown by more than 24%, the slow growth in the business revenue is attributed to lack of cable orders from domestic markets where major telecom companies had deferred their capital requirements, a major driver for telecom cable business. During the year Access business was also adversely affected due to similar reason hence demand for copper cables were low in domestic market during the year under review. To overcome the sluggish demand from the domestic cable market, the company has taken various measures to expand its global market share in both copper cable and optic fiber cable. Company's export of telecom business (Optic Fiber and Access business) during the year was 150 crores as compared to 85 crores in the previous year. The Gross Revenue of newly acquired Power Transmission Line business at Rs. 8,464 Million has contributed 65% to the top line of the company.

Annual Report 2006 - 07

each. As approved by shareholders, the Company had made preferential allotment of 2,800,000 Equity shares and 5,600,000 Warrants convertible into Equity Shares to the Promoter's Group Company in the previous year. During the year promoters have exercised the option to convert 2,800,000 warrants and accordingly similar number of equity shares have been issued to them during the year, which are included in the above share capital. Rs. 266 Million received on account of conversion is transferred to share premium account during the year. As at the end of the year, 2,800,000 warrants are outstanding, convertible in to equity shares by September 28, 2007.

Profit before interest, depreciation, tax and provision for contingencies (EBITDA) excluding other income aggregated Rs. 1,140 Million compared to Rs. 638 Million in the previous year, an increase of 79% from previous year. During the year depreciation has been higher due to acquisition of Power Transmission Line business and merger of wholly owned subsidiaries. Interest cost is also high due to above factors and also due to global increase in interest rates.

One of the measures of the current value of a company is its market capitalization. The BSE Sensex appreciated nearly 15% from 11,280 as on March 31, 2006 to 12,979 as on March 31, 2007; the company's share price on the BSE, appreciated by 87% from Rs. 97 per share to nearly Rs. 182 per share. Correspondingly, the market capitalization increased from Rs. 5,710 Million as on March 31, 2006 to Rs. 11,210 Million as on March 31, 2007. Total shareholders' return ('TSR')

After providing Rs. 345 Million for interest, Rs. 316 Million for depreciation, and after tax implications, the net profit after tax aggregated Rs. 509 Million as compared to net profit after tax of Rs. 408 Million in the previous year.

Closing Share Price (Rs. Per share)

Cash Flow : The cash flow summary for the year is as follows:

Dividend per share paid during the year (Rs. Per share)

Net Cash provided/(used) for: Operating activities Investing activities Financing activities

Rs. in Million 1,309 (2,695) 928

Parameter

182

0.5

Opening share price (Rs. Per share)

Total shareholders' return (Rs. Per share)

204

526

Total shareholders' return (Rs. Crore)

5. Shareholders' value The shares of Sterlite are listed on the Bombay Stock Exchange ('BSE') and National Stock Exchange in India. Sterlite has consistently enhanced shareholders' value over the last three years as is evident from increasing returns generated on its net worth, improved market capitalization and rising shareholder returns. Market Capitalization as on March 31, 2007

12000

11,210

2004-05 2005-06 2006-07

TSR reflects the gain earned by the shareholders directly and indirectly (directly in the form of the dividend received by them and indirectly in the form of the capital appreciation registered by the stock during a financial year under review). Absolute TSR was derived by subtracting the start-of-the-year market capitalization from the market capitalization at the end of the year, as adjusted for dividend payouts during the year. On this basis, TSR increased from Rs. 2,040 Million as on 31 March 2006 to Rs. 5,260 Million as on 31 March 2007, an increase of over 158%.

10000

Rs. in Million

6. Risks and Concerns 8000

4000

Companies businesses have inherent internal as well external risks. Companies approach towards management comprises the identification of all the risks by its senior management and timely adaptation of mitigation measures to eliminate/ minimizes the effect of potential risks. The Company endeavors to ensure that risk remaining unmitigated is not material to affect the performance of the company.

5,710

6000 3,500

20 07

20 06

20 05

2000

Technology & Intellectual property rights infringement Risk Product obsolescence risks are inherent in the optical fiber business. The management continues to accord high priority to in-house Research and Development in order to ensure new product development as per the evolving needs of the industry, technical enhancements and quality improvements of existing product offerings. During the FY 2006-07, the Company launched Sterlite DOFLITEâ&#x201E;˘ ITU-T G.655 D&E range of Optical Fiber Products designed for access networks and Sterlite ADSL 2+ Wireless & Wireline Modems for broadband applications. The Company was granted five patents during FY 2006-07

Product Patent No ZL 02809096.9, for 'Dispersion shifted fiber with low dispersion slope', granted in China. This patent is valid up to Year 2022.

Patent No ZL 20041000901.7, for 'Method for producing twisted optical fiber with reduced polarization mode dispersion', granted in China. This patent is valid up to Year 2024.

Product Patent CN 1268952C for 'Dispersion optimized fiber having higher spot area ' granted in China, valid till Year 2023.

Patent No IN 203463, for 'Method for producing twisted optical fiber with reduced polarization mode dispersion', granted in India. This patent is valid up to Year 2024.

Patent No EP 1439150B1 for 'Method for producing twisted optical fiber with reduced polarization mode dispersion', granted by the European Patent Office. This patent is valid up to Year 2024.

Management Discussion & Analysis Report

Lower volumes and prices in the domestic and global markets will 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 Company'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 stabilizing cash flows. In addition to this company has also acquired into Power Transmission line business during the course of the year, which will diversify the risk in the long run, and the companies dependence on telecom business performance will reduce significantly.

Our Research and Development team till date has filed in total 73 applications for patents and is at an advanced stage in the preparation of several product and process patent applications due for filing during FY 2007-08. Financial Risk Company has established a risk management strategy that comprise the reasonable use of derivative and non-derivative financial instruments primarily to manage its exposure to market risks resulting from adverse fluctuations in commodity prices, interest rates and foreign currency exchange rates. Derivative financial instruments which may be used by us, include commodity pricing contracts & foreign currency exchange contracts. We do not use derivative financial instruments for trading purposes, nor do we engage in speculation. The company is affected by global/domestic increase in interest cost, which it tries to manage through optimum use of various borrowing options available with it.

7. Internal Control Systems and their adequacy Internal control system continues to be prime focus area of the company. The company already had Enterprise Resource Planning (ERP) implemented way back in the year 2000. During the current year, the management has again re implemented the advanced version of ERP to strengthen monitoring of all aspects of operations and managerial functions. All the operations of the company are carried out in conformity with the defined processes. The company also has policy of periodic audits of all business activities viz. purchase, stores, marketing, personnel, production, maintenance, finance and accounts, IT systems through independent audit firm of international repute. These independent audit firms with the expertise and specialized staff carry on internal audit of all the companies

Annual Report 2006 - 07

Business Risks

operations 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.

8. 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 607 persons as on March 31, 2007.

Cautionary Statement Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, and expectations may be â&#x20AC;&#x153;forward looking statementsâ&#x20AC;? 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 operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws, certain presumptions on which estimates are based and other incidental factors.

Directors' Report

Directors' Report To the Members, Your Directors are pleased to present the Eighth Annual Report together with the audited accounts of the Company for the year ended March 31, 2007.

FINANCIAL RESULTS

Net Turnover Profit before Interest, Depreciation & Tax Less: Interest Less: Depreciation Net Profit before taxation Provision for Taxation: Current Tax Minimum Alternative Tax eligible for Set Off Deferred Tax (Credit) Fringe Benefit Tax Net Profit for the year after tax Balance carried forward from previous year Amount available for appropriation APPROPRIATIONS General Reserve Proposed Dividend Provision for Tax for dividend Balance carried forward to the next year

PERFORMANCE Your Company achieved revenue of Rs. 11,982 Million this year which is 119% higher than the revenues for the previous year. The revenue increase is mainly due to acquisition of Power Transmission Line Division by your Company. The performance of Telecom Division was affected adversely due to sluggish business conditions prevailing in telecom cable business, particularly, in Jelly-Filled Cables. The profits of your Company after providing for tax increased to Rs. 509 Million as compared to the profits of Rs. 408 Million, (after tax credit and exceptional income) in the last year. Income from exports increased by 250%, from Rs. 848 Million in the last year to Rs. 2,964 Million in the year under review.

2006-07

2005-06

(Rs. in Million)

11,982 1,191 345 316 531

5,474 833 161 290 382

61 (60) 17 5 509 2,080 2,589

32 (32) (29) 3 408 1,706 2,114

25 46 8 2,509

29 4 2,080

Your Company has set-up its sales / representative offices in Dubai, Bangkok & Moscow and plans to set-up additional offices at strategic international locations in Europe and other developed markets in support of its growth plans. The detailed analysis of your Company's operations and segment-wise performance is covered under 'Management Discussion & Analysis Report'.

ACQUISITION OF POWER TRANSMISSION LINE DIVISION During the year, your Company acquired the Power Transmission Line (PTL) Division from Sterlite Industries (India) Limited (SIIL), as a going concern, with effect from July 1, 2006,

Annual Report 2006 - 07

Particulars

for a consideration of Rs. 1,485 Million. This Division is engaged in the business of manufacturing of power conductors. This acquisition marks a significant milestone for SOTL as it brings together two complementary pan-India market leaders who would be better able to capitalize on customer relationships to compete for and serve large-business and government customers in more than 45 countries across the globe. There exist intrinsic similarities between the power and telecom sectors, as utility companies are the primary buyers. Additionally, there are operational, sourcing and selling synergies that can be effectively leveraged.

DIVIDEND Your Board of Directors is pleased to recommend a dividend of 15 % for the financial year 2006-07. The distribution of dividend will result in payout of Rs. 462 Million excluding tax on dividend.

AMALGAMATION OF SUBSIDIARIES By the order passed by the Hon. High Court of judicature at Bombay on April 16, 2007, both the subsidiaries of the Company viz. Sterlite Telecom Limited and Sterlite Telelink Limited were merged with the Company. The Hon. Court granted dispensation of holding the meetings of shareholders of the Company as well as the subsidiaries.

EXPANSION AND DIVERSIFICATION Considering growing demand for Optical Fiber, your Company has projects underway to increase the manufacturing capacity at its integrated Optical Fiber plant at Aurangabad from 4 Million-KM to 6 Million-KM. This additional capacity would be operational by the beginning of second half of Financial Year 2007-08. Your Company has also undertaken expansion of its existing Power Transmission Conductor manufacturing capacity from 75,000 MT per annum to 1,15,000 MT per annum by setting a new facility at Haridwar, Uttarakhand. As an extension to the Company's Access Business your Company has commenced manufacturing of ADSL2+ Modems at its facility at Aurangabad. Sterlite's range of wired and wireless modems were developed in-house and the manufacturing unit has an annual installed capacity of 0.72 Million Modems. Sterlite's ADSL 2+ Modems would cater to single-user and multi-user broadband needs for residential and commercial usage. The Company after this expansion / diversification would serve as a 'one-stop window' for a comprehensive suite of Telecom and Energy products that would include Optical Fiber, Fiber Optic Cables, Copper Telecom Cables, LAN Cables, Power Transmission & Distribution Conductors, Energy Cables, ADSL Modems, Fiber-to-the-Home (FTTH) and Multi Protocol Label Switching (MPLS) solutions.

The accounts of the Company have been prepared consolidating the accounts of both the subsidiaries with effective from April 1, 2006 as per the scheme.

PREFERENTIAL ALLOTMENT OF EQUITY SHARES AND WARRANTS TO PROMOTERS As reported in the last year, your Company has made preferential allotment of equity shares and warrants to the promoters. During the last year, your Company had allotted 2,800,000 equity shares of Rs. 5 each at a price of Rs. 100 per share and 5,600,000 warrants to promoters. Out of these warrants, 2,800,000 warrants were converted on February 2, 2007 into equal number of equity shares. The proceeds raised from preferential allotment were utilized by the Company for the purpose of acquisition of Power Transmission Line Division. During the year, holding of the Promoter Group entity, viz. Twin Star International Limited was transferred to Twin Star Overseas Limited (both incorporated in Mauritius) pursuant to a scheme of arrangement arrived under the Mauritius Companies Act, 2001. However, this transfer does not amount to change in the promoter group.

EMPLOYEES STOCK OPTION SCHEME As per Employees Stock Option Scheme as approved by the shareholders, your Company granted 592,900 stock options during the year to its employees, including the employees of the subsidiaries and also the employees of the newly acquired Power Transmission Business. The details of the options

Directors' Report

granted upto March 31, 2007 are set out in "Annexure II" to this report, as required under Clause 12 of the Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999.

The Company has filed over 70 patent applications till date and is in the advanced stage of taking patent for several other inventions. Please refer to 'Research, Product Development and Intellectual Property' in the Annual Report.

EXPLANATION ON AUDITORS COMMENT

FIXED DEPOSITS

The remark of Auditors at Para 4 (vi) and (vii) of the Auditor's Report over Note 8 of Schedule 19 on Notes to Accounts regarding demand of excise duty and penalty amounting to Rs. 1,886 Million is self-explanatory and does not require further comment.

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.

DIRECTORS

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

RESEARCH & DEVELOPMENT Your management recognizes that Research & Development plays a critical role in 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 a complete basket of Optical Fiber Products for Long-Haul, Metropolitan, Access and Premise networks.

By virtue of Section 255 of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Arun Todarwal and Mr. Haigreve Khaitan retire by rotation at the ensuing Annual General Meeting. During the previous year, Mr. Anil Agarwal was appointed as additional director and Chairman of the Company. Also Mr. A.R. Narayanaswamy, Independent Director, was inducted into the Board of Directors of your Company. A brief resume, expertise, shareholding in your Company and details of other directorships of these directors are given in the Corporate Governance Report. Suitable resolutions for the approval of shareholders are incorporated in the notice convening the Annual General Meeting.

MANAGEMENT DISCUSSION & ANALYSIS The Report on Management Discussion & Analysis has been attached and forms part of the Annual Report.

CORPORATE GOVERNANCE The Report on Corporate Governance along with 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.

DIRECTORS' RESPONSIBILITY STATEMENT Your Directors confirm that: i)

In the preparation of the annual accounts, the applicable accounting standards have been followed;

Annual Report 2006 - 07

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 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 in the year 2004-05. In the year 2005-06 , CESTAT has upheld the demand of Rs. 1,886 Million and interest thereon. The Company has filed an appeal before the Hon'ble High Court of judicature at Bombay 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 Rs. 5 Million. Upon completion of the export of the finished stock the demand will be abated by Rs. 430 Million.

ii) 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, 2007 and of the profit of your Company for the financial year ended March 31, 2007; iii) 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; iv) 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 : 1. 2. 3. 4.

Volcan Investments Limited, Bahamas Twinstar Overseas Limited, Mauritius Dwarkaprasad Agarwal Agnivesh Agarwal

AUDITORS The Company has adopted the policy of periodically rotating Statutory Auditors as a good governance practice. The Board has proposed for your approval appointment of M/s. S.R. Batliboi & Co., Chartered Accountants in place of M/s. Deloitte Haskins & Sells, Chartered Accountants from the conclusion of forthcoming Annual General Meeting till the next Annual General Meeting.

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 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 the "Company Secretary" at the Registered Office of the Company.

ACKNOWLEDGMENT 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. Last but not the least, your Directors are also thankful for consistent co-operation and assistance received from its investors, business associates, customers, vendors, bankers, regulatory and government authorities. For and on behalf of the Board of Directors Pravin Agarwal Whole-time Director Place : Mumbai Dated : April 30, 2007

Dr. Anand Agarwal CEO & Whole-time Director

Directors' Report

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, 2007

1. Conservation of Energy The Company adopted the following measures on energy conservation 1. Taking cooling of Hydrogen cells on cooling tower and switching off chiller. 2. Converting one H2 cell to 42 pair from 34 pair. 3. Speed optimization of NDT/ODT AHUs 4. HT/LT water line cooling on PHE in CPP 5. Switching from HSD to HFO in auxiliary boiler by doing necessary modification. 6. Installation of 66 kV line by replacing 11 kV to reduce losses in Line & to ensure uninterrupted supply from SEB. 7. Installation of high mast lighting to replace street lights in the plant.

2. Technology Absorption (a) Specific areas in which the Company carried out R&D 1. Development of Sterlite DOF-LITE ITU-T G.65 D&E range of optical products for application in access n et wo rk s a n d m o d e m s fo r b ro a d b a n d applications. 2. Developed wired and wireless ADSL 2+Modems for single-user and multi-user broadband needs. 3. Developed R8EC rods ( Low UTS & High conductivity) for cables application 4. Developed ACSR ACO 500 and ACSR 490/65 Conductors as per German specifications. 5. Developed Al 59 Rods/ Conductors ( High conductivity conductors) E.H.C Araucaria Conductors (High UTS & High Conductivity ) (b) Benefits derived as a result of above R&D 1. Opportunity to compete in international market 2. Technology Up-gradation 3. Development of new designs in products 4. Attaining accreditation of our product from internationally recognized bodies

(c) Future plan on R&D Ensure new product development as per evolving needs of the industry, technical enhancements and quality improvements of existing product offerings.

3. Technology Absorption, Adoption and Innovation (i) Efforts, 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 development, cost reduction and quality improvements are being made on a continuous basis. During the year the Company developed wired and wireless ADSL 2+Modems for single-user and multiuser broadband needs as per the designs provided by Texas Instruments Inc, USA. (ii) Benefits derived as a result of the efforts e.g., product improvement, cost reduction, product development : The Company is engaged in that business where product obsolescence are inherent. The efforts made for product improvement/ development help Company not only to offer better value added products to its customers but also explore new markets. (iii) Information regarding technology imported during last 5 years : The Company has not imported any technology. 4. Foreign Exchange Earning and Outgo Discussion on activities relating to exports development of exports is covered in Directors' Report and Management Discussion & Analysis Report. Foreign Exchange Earned: Rs. 2,964.39 million Foreign Exchange Outgo: Rs. 4,300.34 million The Company does not fall in the list of industries which are required to give details of power and fuel consumption as per â&#x20AC;&#x153;Form Aâ&#x20AC;? of Companies (Disclosure of Particulars in the Report of Directors) Rules, 1998.

Annual Report 2006 - 07

Annexure I to the Directors' Report

Annexure II to the Directors' Report Statement as at March 31, 2007 as required under Clause 12 of the Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999. 1. Options Granted Total 592,900 options were granted as on March 31, 2007路 465,700 options were granted on June 14, 2006 127,200 options were granted on March 19, 2007 2. Pricing formula Options vest at a nominal value i.e Rs. 5 per option 3. Options vested Nil 4. Options exercised Nil 5. Total number of ordinary shares arising as a result of Nil exercise of Options 6. Options Lapsed Nil 7. Variation of terms of option Nil 8. Money raised by exercise of option Nil 9. Total number of options in force 592,900 10. Number of options granted to Senior Managerial Personnel Dr. Anand Agarwal CEO & Whole-time Director 41,300 Anupam Jindal Chief Financial Officer 14,000 Pankaj Khanna Chief Operating Officer (Telecom) 22,700 K.S. Rao Chief Marketing Officer (Telecom) 24,700 Anil Khandelwal Vice President - Finance & Commercial (Transmission) 12,600 Anil Sikka Assoc. Vice President, Marketing (Transmission) 11,100 Ajay Bakshi Head - Human Resources 8,000 Dharmendra Jain GM - Finance, Banking & Treasury (Transmission) 10,100 11. Identified employees who had Options during any one None year, equal to or exceeding 1% of issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant. 12. Diluted earnings per share pursuant to issue of ordinary Rs. 7.83 shares on exercise of Options calculated in accordance with Accounting Standard (AS) 20 "Earnings Per Share" 13. Method of Calculation of Employee Compensation Cost The Company has used fair market value method for calculation of compensation cost, using the Black Scholes Option Pricing Model. 14. Weighted average exercise price and weighted average Weighted Average Exercise Price (per option) - Rs.5 fair values of Options granted for options whose exercise Weighted Average Fair Value (per option) - Rs. 102.88 price either equals or exceeds or is less than the market price of the stock. 15. A description of method and significant assumptions used The fair value of each option is estimated using the Black during the year to estimate the fair values of options Scholes Option Pricing model after applying following weighted average Assumptions: Grant dated June 14, 2006 Grant dated March 19, 2007 1. Risk Free Interest rate 7.17% 8.07% 2. Expected Life 1.50 to 3.50 years 1.50 to 2.50 years 3. Expected Volatility 59.81% 60.84% 4. Expected Dividend Yield 0.57% 0.57% 5. The price of underlying share at the time of grant Rs. 89.25 Rs. 179.00

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.

Corporate Governance Report

Your Company perceives good corporate governance practices as a key driver of sustainable corporate growth and long-term 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

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 Corporate Management Committee.

Annual Report 2006 - 07

The Company has three-tier governance structure:

I. BOARD OF DIRECTORS The Board of Directors consists of two Whole-time Directors and five Non-Executive Directors. Three Non Executive Directors are also Independent Directors. Mr. Anil Agarwal is the Non-Executive Chairman of the Board. In his absence, Mr. Navin Agarwal chairs these meetings. The Company has three independent directors and therefore the Company complies with criteria that at least one third of the Board should comprise of Independent Directors.

Name

Designation

Anil Agarwal

Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Whole-time Director Whole-time Director & CEO

Navin Agarwal Arun Todarwal * Haigreve Khaitan* AR Narayanaswamy* Pravin Agarwal** Dr. Anand Agarwal

During FY 2006-07, five Board meetings were held on April 28, 2006, July 25, 2006, August 21, 2006, October 30, 2006 and January 25, 2007. The composition of the Board of Directors, attendance of the Directors in Board or Annual General Meetings attendance and their shareholding details in the Company are as follows:

Board Meetings attended

Whether attended AGM

Directorships in other Companies

Committee Memberships & (Chairmanships) in other Companies

No. of shares held in the Company

Nil

Yes

Nil

Yes

12,000

* 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. Notes: Mr. Anil Agarwal, Chairman was inducted into the Board of Directors from October 30, 2006. Mr. A R Narayanaswamy was inducted into the Board of Directors from April 30, 2007. The directorships in other companies include all public, private and foreign companies.

DIRECTORS WITH MATERIALLY SIGNIFICANT, PECUNIARY OR BUSINESS RELATIONSHIP WITH THE COMPANY As required under Accounting Standard 18 transactions with related parties are furnished under Note 15 of Schedule 18 - Notes to the Accounts. There were no transactions of material nature with the Promoter Directors or their relatives, etc that may have potential conflict with the interest of the Company.

II. COMMITTEES OF THE BOARD 1. AUDIT COMMITTEE The Company has the Audit Committee constituted in accordance with the requirements of Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement 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 Committee comprises of four Directors, three of whom are Independent. Mr. Arun Todarwal, Chairman of the Committee is a Non-Executive Independent Director having accounting and financial expertise. Mr. Navin Agarwal and Mr. Haigreve Khaitan are the two other members. With effect from April 30, 2007, Mr. Navin Agarwal ceased to be a member and Mr. Pravin Agarwal and Mr. A.R. Narayanaswamy were inducted into the Committee from that date. The representatives of internal and statutory auditors are permanent invitees of the Audit Committee. The Audit Committee met four times during FY 2006-07 i.e. on April 26, 2006, July 24, 2006, October 30, 2006 and January 20, 2007. The Composition of the Audit Committee and attendance at Committee meetings is as follows: Name

Category

Navin Agarwal, Chairman

Non-Executive

Number of Meetings attended during the period 04

Arun Todarwal

Non-Executive & Independent

Pravin Agarwal

Executive

Annual Report 2006 - 07

Name

Corporate Governance Report

Disclosures on materially significant related party transactions There were no transactions of material nature with the promoters, the directors or the management or their subsidiaries or relatives during the period, which would have potential conflict with the interest of the Company at large.

ii) Details of Non Compliance by the Company, Penalties and Strictures imposed on the Company by Stock Exchange, SEBI or any Statutory Authorities or any matter related to capital market in last three years During the process of Open Offer for acquisition of 20% shares of Hindustan Zinc Limited (HZL) from the public shareholders, there was a delay in receipt of approval from the Reserve Bank of India (RBI) and consequently, delay in payment to nine non-resident shareholders. SEBI had passed an order dated June 12, 2003 under SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997 (â&#x20AC;&#x153;Takeover Codeâ&#x20AC;?) on Sterlite Opportunities and Ventures Limited (SOVL) (as acquirer), Sterlite Industries India Ltd. (SIIL) and the Company (as persons acting in concert) directing payment of interest at 10% per annum, for alleged delay in payment of consideration amount to NRIs / FIIs / OCBs shareholders, due to delay in receipt of the approval of the Reserve Bank

of India, under FEMA in connection with applications accepted in the open offer for HZL. SOVL, SIIL and the Company had preferred an appeal against the SEBI order before Securities Appellate Tribunal (SAT). SAT has passed a final order on February 11, 2005 setting aside the aforesaid impugned order of SEBI. During the year there were no Penalties and Strictures imposed on the Company by Stock Exchange, SEBI or any Statutory Authorities or any matter related to capital market. iii) The Company has adopted a 'Whistleblower Policy', which has been communicated to all the employees along with Code of Business Conduct & Ethics. The Whistleblower policy is the mechanism to help the employees to raise their concerns about any malpractice, impropriety, abuse or wrongdoing at an early stage and in the right way, without fear of victimization, subsequent discrimination or disadvantage. The policy encourages the employees to raise concerns within the Company than overlooking a problem. CEO/COO/CFO have been designated as Ombudsmen in the Policy. The Company has created a special email id to enable the employees to report their Concerns. The employees can even report their concerns to the Audit Committee directly. The Ombudsman who is responsible to submit his report to the Audit Committee does the investigation in the reported concerns. Disciplinary action, if required, is determined by the Audit Committee. The reporting person can make appeal to the

Annual Report 2006 - 07

IV. DISCLOSURES

Board of Directors against the order of Audit Committee. The Whistleblower Policy also contains mechanism of redressal available for an employee, if he/she feels that he/she has been retaliated against due to disclosure of concern. No person has been denied access to the Audit Committee. During the year no concern was reported under Whistleblower mechanism. iv)

The Company has complied with all the mandatory requirements of Clause 49 of the Listing Agreements executed with the Stock Exchanges. Comments on adoption of non-mandatory requirements are given at the end of this report.

The CEO - CFO certificate as required under clause 49 (V) of the Listing Agreement, was laid before the Board of Directors at its meeting held on April 30, 2007 and was taken on record by the Board.

V. GENERAL SHAREHOLDER INFORMATION Details of last three Annual General Meetings Date

Location

Time

Special Resolutions Passed

September 28, 2004

B-10/4, Waluj MIDC Industrial Area, Aurangabad 431 136 Maharashtra, India

12.30 pm

Approval of Remuneration of Dr. Anand Agarwal, Whole-time Director

August 9, 2005

B-10/4, Waluj MIDC Industrial Area, Aurangabad 431 136 Maharashtra, India

11.00 am

Nil

August 18, 2006

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

11.00 am

Further issue of share capital

No other shareholders' meeting was held during the year. Postal Ballot: The Company conducted Postal Ballot for the purpose of alteration of 'Objects Clause' of its Memorandum of Association, Commencement of new business and Payment of Commission to non-executive Directors. The postal ballot Notice was issued on August 21, 2006 pursuant to Section 192A(2) of the Companies Act, 1956. Mr. Pravin Agarwal, Director was authorized for the entire process of postal ballot and Mr. S.V. Deulkar, the Scrutinizer, appointed by the Board, submitted their report dated September 25, 2006 stating the result of voting as under : Item

No. of votes in favour (%)

No. of votes against (%)

Result

Amending Objects Clause

23,408,444 (99.67%)

76,600 (0.33%)

Passed

Commencement of new business

23,359,810 (99.66%)

79,377 (0.34%)

Passed

Payment of Commission to Non-Executive Directors

23,264,892 (99.29%)

167,002(0.71%)

Passed

Means of Communication

Quarterly Financial Results are published in English in the All-India Edition of The Business Standard and are also published in Marathi or English, in the Aurangabad Edition of Sakal or Lokmat Times.

Results are also posted on the Company's website: www.sterliteoptical.com

The Company also displays official news releases and the presentations made to institutional investors or to analysts on its website.

Management Discussion & Analysis is a part of Annual Report.

The Company has adopted the 'Code of Conduct & Business 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 the year ended March 31, 2007. Compliance with SEBI (Prohibition Of Insider Trading) Regulations, 2002 In pursuance of these Regulations, the Company has formulated Insider Trading Code for its 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 has been closed for the Directors and employees of the Company as per the Insider Trading Code in force in the Company.

Financial Calendar for FY 2007-08 First Quarter Results : End of July, 2007 Half Yearly Results : End of October, 2007 Third Quarter Results : End of January, 2008 Fourth Quarter/Annual Results : April/May, 2008

Corporate Governance Report

Implementation of Code of Conduct

Book Closure Dates: Tuesday, July 10, 2007 to Friday, July 13, 2007 (both days inclusive) Dividend Payment Dates: The dividend as recommended by the Board of Directors, if declared in the Annual General Meeting, will be paid on or after July 17, 2007. Listing of shares on Stock Exchanges The equity shares of the Company are listed on Bombay Stock Exchange Limited, National Stock Exchange of India Limited. Application for delisting from Calcutta Stock Exchange is pending for approval. Annual listing fees for the financial year ended March 31, 2007 have been paid to Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The Stock Codes of the Exchanges are as under: Exchange

Code

BSE

532374

NSE

STROPTICAL

Stock Price Data

Day, Date, Time Friday, July 13, 2007 at 11.30 AM

Stock Price data for the period April 1, 2006 to March 31, 2007 was as detailed below

Venue

E-1, MIDC Waluj Aurangabad - 431 136 Maharashtra, India

MONTH

Agenda

1. Adoption of Audited Accounts 2. Declaration of dividend 3. Reappointment of Mr. Arun Todarwal as Director liable to retire by rotation 4. Reappointment of Mr. Haigreve Khaitan as Director liable to retire by rotation 5. Appointment of Statutory Auditors 6. Appointment of Mr. Anil Agarwal as Director 7. Appointment of Mr. A. R. Narayanswamy as Director 8. Appointment of Mr. Pravin Agarwal as Wholetime Director 9. Alteration of name of the Company

Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07

MONTHLY MONTHLY HIGH (Rs.) LOW (Rs.) NSE NSE 189.0 98.6 194.6 112.0 144.6 87.0 122.8 92.1 183.3 98.7 184.4 160.2 204.9 164.3 234.8 187.5 241.0 196.6 252.0 195.6 219.9 156.0 192.0 154.0

MONTHLY MONTHLY HIGH (Rs.) LOW (Rs.) BSE BSE 188.9 99.0 194.4 112.3 144.5 87.0 122.6 93.0 183.0 98.9 184.0 160.0 205.0 164.4 235.0 187.5 240.9 197.1 252.4 207.2 219.5 173.1 191.0 154.0

Sources: Data Compiled from BSE & NSE official websites

Annual Report 2006 - 07

Annual General Meeting

Stock Performance

Dematerialization of shares and liquidity

The performance of the Company's stock prices as against NSE NIFTY is given in the charts below:

The Company's equity shares are compulsorily traded in the electronic form. As on March 31, 2007, 56,146,864 shares representing 91.16% of total equity capital was held in electronic form. The Shareholders can hold the shares in demat form either through NSDL or CDSL. The ISIN number allotted to the Company is INE 089C01011.

250 SOTL Share Price on NSE

230

Nifty

210 190 170 150

Unpaid / unclaimed dividend

130 110

In terms of section 205A and 205C of the Companies Act, 1956, the Company is required to transfer the amount of dividend remaining unclaimed for a period of seven years from the date of transfer to the unpaid dividend account to the Investor Education and Protection Fund (IEPF). Shareholders are requested to ensure that they claim the dividend(s) from the Company before transfer to IEPF.

90 70

7 0Fe b

M a-r

-0

6 c0 De

Ja n

v06 No

t-0 6

O ct0

-0 6

Se p

Au g

-0

Ju l

ne Ju

6 Ap r-0

M ay -0 6

Indexed to 100 as on April 1, 2006

Distribution of Share holding as at March 31, 2007 SHARES

SHARE HOLDERS

Less Than 1000

103,532

97.84 12,671,013

% 20.57

1001 - 2000

1,279

1.21

1,866,262

3.03

2001 - 4000

535

0.51

1,526,881

2.48

4001 - 6000

191

0.18

953,047

1.55

6001 - 8000

0.06

427,373

0.69

8001 - 10000

0.05

479,573

0.78

10001 - 20000

0.07

1,034,892

1.68

0.09 42,635,526

69.22

20001 and Above

100 105,821

100.00 61,594,567 100.00

Equity holding pattern as at March 31, 2007 CATEGORY

No. of Shares

PROMOTERS GROUP DIRECTORS & THEIR RELATIVES LIFE INSURANCE CORPORATION GIC & ITS SUBSIDIARIES UNIT TRUST OF INDIA OTHER MUTUAL FUNDS FOREIGN INSTITUTIONAL INVESTORS NRIs/ OCBs/NON DOMESTIC COs./ FOREIGN NATIONAL CORPORATE BODIES (PUBLIC) BANKS GOVERNMENT INDIVIDUALS (PUBLIC)

26,283,459 102,062 4,258,785 268,965 205 4,654,339 2,300,765 801,390

42.67 0.17 6.91 0.44 7.56 3.74 1.30

4,815,052 89,456 170 18,019,919

7.82 0.15 0.00 29.26

TOTAL

61,594,567 100.00

Outstanding GDRs / ADRs / Warrants or any Convertible instruments, conversion date & likely impact on equity On March 29, 2006 the Company had allotted to its Promoters, on preferential allotment basis, 5,600,000 warrants, each convertible in one equity shares of Rs. 5 each, at a price of Rs. 100 per share. Out of these warrants, 2,800,000 warrants were converted into equity shares on February 2, 2007. The remaining warrants are convertible before September 28, 2007. Share Transfer System Two Directors and four Executives of the Company have been given powers 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. 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.

Corporate Governance Report Non-mandatory requirements of Corporate Governance

DECLARATION

Presently the Board elects the Chairman at each Board meeting. As required under non-mandatory requirements the Company has constituted Remuneration Committee. Further, the Company has adopted Whistleblower mechanism, which has been discussed in this report. The Company's policies as regards adoption of other non-mandatory requirements shall be disclosed in this report from time to time.

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, 2007. For Sterlite Optical Technologies Limited Place : Mumbai Dated : April 30, 2007

Dr. Anand Agarwal CEO & Whole-time 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 31st March, 2007, as stipulated in Clause 49 of the Listing Agreement of the said Company with Stock Exchanges.

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 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 Partner Dated : April 30, 2007 Membership No: 38019

Annual Report 2006 - 07

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

Research, Product Development & Intellectual Property

Distribution by Academic Qualification of the Research / Product Development & IP Teams

7% 7%

BE / Btech Graduate

46%

PhD ME / Mtech

40%

ELCINA Award for R&D 2006

During 2006-07, the company contributed to the global knowledge pool through publishing of white papers, participation in technical forum, presentations at various conferences and symposia around the world.

Sterlite Optical Technologies was awarded the ELCINA Award for Research and Development 2006. The Company received this prestigious honor for its invention of Low Water Peak Optical Fiber* (Sterlite OH-LITE™) that is specifically designed to increase the transmission capacity of the Optical Fiber.

11 technical white papers chosen for presentation / publishing at IWCS 2006 (USA), APOC 2006 (South Korea), Photonics 2006 (India) & AOE 2006 (China)

Keynote Speaker at IWCS Executive Forum, USA

Inaugural Speaker at 2006 Fiberoptics in Asia - 1st FTTH Development Committee (China)

Presentations made at X National Telecom Seminar (India), IIT Kanpur (India) & 15th Convergence India 2007.

Event Chairperson at Wire & Cable India 2006, India

Technical Discussion Panelist at 'Broadband India Summit 2006', Mumbai & Delhi

Nominated to Technical Symposium Committee for IWCS 2006, USA

Encouraging Innovation - The Sterlite Innovation Award We aim to encouraging creativity, rewarding creative and innovative talents on which our organization and our future are built. The Company has instituted an annual innovation award 'Sterlite Innovation Award' for its employees to recognize those who enhanced the value of Intellectual Property of the Company. The criteria for the Sterlite Innovation Award include patentability, sustainability, novelty of the idea within the organization and the benefits to the organization.

Electronic Industries Association of India (ELCINA) is committed to the promotion of electronics manufacturing culture India focused on components-the building blocks of electronics industry. Since last three decades, ELCINA has been giving away a series of awards to recognize the achievements of Electronics / IT Hardware manufacturing companies in India. The ELCINA Award for R&D was judged on the improvement in performance of the product, its quality & reliability, patents and inventions resulting from the R&D effort. The assessment parameters also included evidence of customer satisfaction & productivity enhancement, degree of sophistication & the enduse application of the product. *Low Water Peak Optical Fibers: Fiber optics installation and deployment is a long-term investment, which forms the foundation of today's networks. Fiber installed today must be extremely versatile and support network needs for 20 25 years from now, and also provide compatibility with installed standard single mode fiber. In order to provide a future-proof fiber solution for networks, the ITU-T has set a new standard (ITU-T G.652D) for Low Water Peak Fibers. These fibers provide an additional band of low-loss spectrum around the OHabsorption peak near 1380 nm. This additional band can mean an additional 100 nm of “usable” wavelengths in the fiber's “E-band” (1360-1460 nm), or an additional five wavelengths in the ITU's coarse wavelength-division multiplexing (CWDM) grid of wavelengths, thus increasing the capacity of optical fiber

Annual Report 2006 - 07

Research, Product Development & Intellectual Property

Technical Papers / Forums

New Products 2006 - 07 Sterlite DOF-LITE™ Single Mode Optical Fiber Sterlite DOF-LITE™ range of Single Mode Optical Fibers were enhanced to meet and exceed the newly introduced ITU-T G.655 D & E International Standards. With the increasing demand for bandwidth, networks require an optical fiber solution that can deliver both unprecedented performances and economic values. Single-mode optical fiber G.655D & G.655E has the absolute value of the chromatic dispersion coefficient greater than some non-zero value throughout the wavelength range from 1530 nm to 1565 nm. This dispersion reduces the growth of non-linear effects, which are particularly deleterious in dense wavelength division multiplexing (DWDM) systems. G 655 D & E expand the wavelength of operation to include S band either with CWDM or DWDM technology, apart from C & L bands, which previous G 655 supported.

Sterlite BEND-LITE™ Single Mode Optical Fiber

Sterlite ADSL2+ Modems

Sterlite BEND-LITE™ Single Mode Optical Fiber is beneficial for use in Fiber-to-the-Home (FTTH) applications and is an ideal choice for Triple-Play (voice, video and data) service networks and CATV networks.

Sterlite commenced manufacture of ADSL2+ Modems at its facility in Aurangabad. Sterlite's range of wired and wireless modems were developed in-house and the manufacturing unit has an annual installed capacity of 1.5 Million modems.

Sterlite BEND LITE™ Fiber supports installation with low cable bending radii for cable mounting inside buildings. The fiber's enhanced bend radius capabilities enable tighter routing, higher fiber density for component design and deployment of fiber in central offices, subscriber equipment, back-plane solutions, and premise wiring.

Sterlite's ADSL2+ Modems are available in four models that would cater to single-user and multi-user broadband needs for residential and commercial usage. All Sterlite modems comply with ITU-T G.922.1, G.922.3, G.922.5 and IEEE 802.11b/g international standards.

Sterlite BEND LITE™ Fiber introduces high resistance to additional losses due to macro bending at 1550 and 1625nm wavelength region and exceeds G.657A standard. As a standard single mode fiber, BEND-LITE™ is fully compatible with other standard single mode fibers complying with ITU-T G.652 A, B, C, D Standards, thus ensuring excellent splicing performance and compatibility with legacy networks.

The technical differentiators of Sterlite's modems include SMPS adaptor & small size of the Modems. Additionally Sterlite offers Local (Pre & Post Sales) Technical support and local After Sales Warranty Service Support.

We use a minimum of guidelines and procedures and give our employees a great deal of freedom within company goals to apply their skills, knowledge and initiative in getting things done. We emphasize on working hard, working together and sharing rewards.

Teamwork and Collaboration: We understand the value and challenge of working in teams, and we flexibility, appreciation and respect for others' views, courage to provide ideas and feedback, as well as the ability to make timely decisions and be mutually responsible for the outcome.

Delegation and Accountability: In order to keep pace with the growing complexity of our business, we delegate appropriately and expect that those who know the work best will make sound, timely decisions, explain the decision rationale to those involved and affected, and be accountable for the outcome.

Job Rotation: We encourage job rotation in order to improve the quality of our management. This aims at building competencies for self-development as well as creating multi-faceted managerial talent within the Company.

Internet Culture: We encourage our workforce to exploit the power of the Internet beyond the purpose of mere communication. We emphasize the use of the Internet as a source of knowledge enrichment and for the purpose of carrying on business.

Superior Solutions and Customer Focus: We are committed to developing solutions that meet our customers' needs. Our goal is to be a preferred provider based on our performance, our ethics and integrity, and our unique ability to continually provide innovative solutions to market. We value, actively seek, and are responsive to our customers' input and feedback. Internally, we work together to achieve the operational excellence this requires.

Academic Qualifications of Human Capital 1% 5% 7%

Graduates BE / BTech / ME / MTech MBA / PGDBM (with Engineering Degrees)

23%

CA / ICWA PhDs

64%

Our goal is to recruit and retain people who are the best at what they do people who are motivated to achieve results, have high standards of quality and integrity, possess a flexible, entrepreneurial spirit and are committed to develop to their full potential. We recruit the best management talent from leading business schools and engineering talent from IIT's. We provide a stimulating, challenging, yet supportive environment, and encourage self-initiatives, peer interaction, and open communication. We encourage cultural diversity in all functional areas. Our HR Philosophies are based on:

Trust and Respect: To earn the confidence of those whose lives we touch and those with whom we work, we keep our word and honor our commitments.

Open and Direct Communication: With our customers, vendors, employees, shareholders and all other stakeholders. We welcome new ideas and value them on the basis of merit, not position or level. We encourage feedback, listen carefully, and provide timely, relevant information in order that people are able to make informed decisions.

Open Environment: We strive to create an environment where our employees can enjoy coming to work every day.

Employee Safety and Health We lay a very high emphasis on Employee Safety and Health. In 2006-07, we undertook various initiatives in this area, which included the BSC Five Star Rating and the RoHS Certification for the European Union Directive on Restriction of Hazardous

Human Resources

Our success is fundamental on our ability to recruit and retain highly qualified and motivated people in all areas of the Company. Our entire talent pool of more than 600 employees have college degrees and more than 40% hold advanced degrees, including Ph.D.s, MBAs, Chartered Accountants and Engineers.

Annual Report 2006 - 07

Human Resources

Substances. We also conduct periodic Ergonomics audits, Medical Check-ups and Emergency Mock Drills to ensure that our workforce remains informed and alert at all times.

Training, Development & Career Enhancement ACT-UP: The Accelerated Competency Tracking & Upgradation Program (ACT-UP) is a process for all permanent employees where high performers are identified and bought under the Business Leadership Group (BLG) where a special career progression roadmap is charted for members. Platinum Club: Recognizes outstanding performers in the organization by creating an exclusive club and helps to identify future leaders within the organization. The award recognizes business achievements as well as demonstration of organization values. The members of the Platinum Club are provided with fast track career growth, special increments over and above normal increments and nomination for exclusive training programs including overseas programs. Training & Development: Training is delivered to employees in various modes, depending upon the type of need. We have a mix of seminars, company visits, classroom sessions, conferences, interactive workshops, on the job trainings, knowledge sharing by internal faculty, etc. We maintain an annual Training and Development Calendar and 5 days of training per year are earmarked for each employee based on his training and development needs identified during the halfyearly and annual appraisal process.

Successor Planning Balanced Score Card for PMS was introduced in FY2006-07. Successor planning is covered under this process, where every manager has to identify at least 2 successors from his/her direct or indirect reportees.

Induction of Fresh Talent We look for students with the talent, aptitude and initiative to get involved with us early in their careers. We run an intensive 10-12 week Internship Programs that provides students with a unique opportunity for growth. Interns participate as members of project teams in research, development, manufacturing or business areas that complement their college curricula with relevant hands-on experience. Working side by side with some of the most talented people in technology and telecommunications provides an excellent environment for academic and career growth.

Inclusion of the Family Unit

The Executive MBA Program: The Company invests in the tuition fees for its employees that enables working professionals to acquire a post graduate diploma in Management thereby building on their professional expertise and enhancing their competencies to value add to them when they move into a General Management role. Some of the innovative initiatives launched in 2006-07 were Mentoring, Cross-functional Teams and the Balanced Score Card of Performance Management Systems (PMS).

Rewards and Recognition Monthly Bonus, Employee / Team of the Month Awards, CEO Kitty Award, Core Values Award, Employee Stock Options (ESOP) and Sterlite Management Incentive Scheme (SMIS) are mechanisms built into our Reward & Recognition System.

Movie screenings, Family Day Out, Sterlite Sports Day, celebrations for festivals and parties are some of the exciting events that are organized each month at individual locations. Sterlite Cricket Club is an endeavor to encourage inter-unit camaraderie. Akansha is a Ladies Club that is run and managed by spouses of employees. The Club takes an active role in Sustainability & Community Welfare projects initiated by the Company.

Health & Safety Management Systems We remain committed to providing adequate control of the health & safety risks arising from our work activities by maintaing safe plant & equipments and safe handling & use of substances. In 2006-07, we undertook various initiatives in Health & Safety (H&S) which included the Five Star Audit by the British Safety Council, one of the world's leading occupational health, safety and environmental organisations, whose mission is to support a healthier, safer and more sustainable society. The audit reviewed the health and safety performance of our business, from the management of H&S through to the implementation of associated systems in the workplace. The audit benchmarked of the effectiveness of our health and safety system, outlines associated areas for improvements. Sterlite's Optical Fiber facility was awarded the 'Five Star Rating'. Sterlite's Optical Fiber facility has also been audited by BVQi and certified for OHSAS 18001:1999. OHSAS 18001 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 compatible with the ISO 9001 (Quality) and ISO 14001 (Environmental) management systems standards, in order to facilitate the integration of quality, environmental and occupational health and safety management systems. We also conduct periodic Ergonomics audits, Medical Checkups and Emergency Mock Drills to ensure that our workforce remains informed and alert at all times.

Environment Management Systems

Implementing measures to reduce pollution, waste and energy consumption.

Recycling and working to create innovative recycling opportunities.

Promoting and increasing environmental awareness within our facilities.

Health, Safety & Environment

We are committed to explore the use of environmentallyfriendly technologies and materials within our research, development and manufacturing processes. Sterlite's optical fiber facility has been audited by BVQi and certified for the ISO 14001:2004 Environmental Management System (EMS). ISO 14001 specifies the actual requirements for an EMS and it applies to those environmental aspects which the organization has control and over which it can be expected to have an influence. In 2006-07, our complete range of Single Mode and Multi Mode Optical Fibers were tested by the Institute of Testing & Certification (ITC), Inc. ZlĂn, Czech Republic and were certified as compliant with the applicable requirements of the European RoHS (Restriction of Hazardous Substances) Directive. In July 2006, the European Union issued a RoHS Directive on the restriction of the use of six hazardous materials such as Lead, Mercury, Cadmium Hexavalent chromium (Chromium VI or Cr6+), Polybrominated biphenyls (PBB) and Polybrominated diphenyl ether (PBDE) in the manufacture of various types of electronic and electrical equipment. RoHS is often referred to as the lead-free directive. Sterlite's Optical Fibers were tested in the ITC recognized testing laboratory SPECTRO ANALYTICAL LABS (P) LTD according to the 'Procedures for the Determination of Levels of Regulated Substances in Electrotechnical Products'.

We are committed to protecting the environment everywhere we operate through continuous improvement of our processes, products and services.

Complying with and striving to exceed all applicable laws, regulations and company standards.

Maintaining an environmental management system that assures this policy is implemented, including:

Establishing goals and targets.

Conducting environmental audits and progress reviews.

Communicating policy to everyone involved.

Annual Report 2006 - 07

We achieve this through:

Sustainable Development Report Sterlite's commitment extends beyond business. We aim to develop and manage our telecom & power businesses to provide attractive returns to our shareholders whilst carrying out our activities in a socially and environmentally responsible manner and creating value for the communities where we operate.

in drought-stricken villages, which are now capable of storing about 35 TCM of water, radically changing the economic potential of the villagers.

Sustainable development principles are fundamental to our approach. These principles require us to monitor and reduce social and environmental risks, to improve efficiencies in the use of resources, to minimize pollution and to create partnerships with our local communities.

Our health initiatives include sponsorship of a mobile dispensary, 650 cataract operations for the underprivileged and hearing aids for 100 hearing impaired children. In addition, we also conducted a Health & Nutrition Camp that was attended by 300 villagers. We undertook construction of a water storage tank and a sanitation block for a school, the completion of which would now benefit over 200 students.

The Company undertakes various activities based on an assessment of the needs and aspirations of the community and has allocated 1% of its annual net profits towards these projects. Management of the environment, health care, educations and the community at large is central to the Company's ideology. Our sustainable development initiatives span some of the villages in the remotest locations in Maharashtra & Union Territory of Dadra & Nagar Haveli, India reaching out to more than 26,000 people. Some of our environment management initiatives include construction of 5 check dams

EXPENSE OUTLAY 2006-07

Project

Education

Tailoring Course for underpriviledged women Teachers Training Program Training in manufacturing of Cottage Industry Products

Health

Cataract Operations Mobile Dispensary Health & Nutrition Camp Drinking Water & Sanitation Facilities Hearing Aids for Students

650 13,950 300 200 100

Environment

Construction of Check Dams

11,000

TOTAL

26,393

43% 51%

Environment

Education

In order to assess potential projects to undertake and also to ensure implementation, monitoring and sustenance of the same, we have formed teams at every manufacturing location. The Management and the teams remain committed to the projects we have initiated over the past two years and we would strive to make a positive impact on the community.

Focus

Health

Although a large proportion of our focus has been on environment management and health care, we would continue to develop our support towards education and women's empowerment. Our initiatives in training in tailoring, manufacture of Cottage Industry Products and Teaching have empowered 200 underprivileged women.

Beneficiaries 80 40 80

Auditorâ&#x20AC;&#x2122;s Report

Auditorâ&#x20AC;&#x2122;s Report v.

THE MEMBERS OF STERLITE OPTICAL TECHNOLOGIES LIMITED 1. We have audited the attached Balance Sheet of STERLITE OPTICAL TECHNOLOGIES LIMITED, as at 31st March 2007 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to 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 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. 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 matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph (3) above, we report that: i.

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

On the basis of written representations received from the Directors as on 31st March, 2007 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2007 from being appointed as a Director in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956.

vi. Attention is invited to Note 8 in Schedule 19 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 2005-06. 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. vii. In view of the uncertainty concerning the material issue referred in paragraph (vi) 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, 2007; 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.

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;

For Deloitte Haskins & Sells Chartered Accountants

iii. The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; iv. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

Place: Mumbai Dated: April 30, 2007

Hemant M. Joshi Partner Membership Number: 38019

Annual Report 2006 - 07

Annexure to the Auditor's Report (Referred to in Para 3 of our report of even date on the accounts of Sterlite Optical Technologies Limited for the year ended 31st March 2007) 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.

inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. 4. In our opinion and according to the information and explanations given to us, the Company has not granted or 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.

2. In respect of its Fixed Assets: 5. In our opinion and according to the information and a. The Company has maintained proper records showing full particulars, including quantitative details and situation of Fixed Assets.

explanations given to us, there are generally adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to

b. All the Fixed Assets have been physically verified by the

purchases of inventory, fixed assets and for the sale of

management during the year, but there is a regular

goods and services. During the course of our audit, we have

programme of verification which in our opinion, is

not observed any continuing failure to correct major

reasonable having regard to the size of the company

weaknesses in internal control system.

and nature of its Assets. No material discrepancies 6. According to the information and explanations given to us, were noticed on such verification. we are of the opinion that there are no contracts or c. A substantial part of Fixed Assets have not been

arrangements that need to be entered into the register

disposed off during the year and accordingly the

referred to in Section 301 of the Companies Act, 1956.

question of going concern status being affected does

Accordingly the provisions of Sub Clauses (a) and (b) of

not arise.

Clause 4 (v) of Companies (Auditor's Report) Order, 2003

3. In respect of inventories:

are not applicable to the Company.

a. The inventory has been physically verified during the

7. In our opinion and according to the information and

year by the management. In our opinion, the frequency

explanations given to us, the Company has not accepted

of verification is reasonable.

any deposits within the meaning of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956,

b. The procedures of physical verification of inventories

and the rules framed there under, other than short term

followed by the management are reasonable and unsecured debentures issued to mutual funds which the adequate in relation to the size of the Company and the nature of its business.

company has been advised are not deposits within the meaning of section 58A, 58AA of the said Act.

c. The Company is maintaining proper records of

Auditorâ&#x20AC;&#x2122;s Report

8. In our opinion, the internal audit function carried out during the year by an external agency appointed by the

Name of the Statute

Nature of the Dues

Amount (Rs. In Million)

management has been commensurate with the size of the

Forum where disputes is pending

Central Excise Excise Duty Act, 1944 Excise Duty Excise Duty

291.06 1994-02 28.91 1994-06 1,856.00 2001-02

Commissioner CESTAT Mumbai High Court

to materials, labour and other items of cost to be

Customs Act, 1962

Customs Duty Customs Duty

669.04 13.09

2001-05 2002-04

Commissioner CESTAT

maintained by the Company relating to the manufacture

Service Tax

Service Tax Service Tax

3.55 4.46

2001-03 1999-03

Commissioner CESTAT

Company and nature of its business. 9.

Period to which the amount relates

We have broadly reviewed the books of account relating

of telecommunication cables and power transmission line, pursuant to the Rules made by the Central

11. The Company does not have any accumulated losses as at

Government for the maintenance of cost records under

the end of the year. The Company has not incurred cash

Section 209 (1)(d) of the Companies Act, 1956 and we

losses during the financial year covered by our audit and

are of the opinion that prima facie, the prescribed

the immediately preceding financial year.

records have been maintained except that the prescribed cost statements are in the process of being compiled.

12. In our opinion and according to the information and explanations given to us, the Company has not defaulted in

10 a. The Company has been generally regular in depositing

repayment of dues to financial institutions. The Company

with appropriate authorities undisputed statutory dues

continues to dispute amounts aggregating to Rs. 188.70

including Provident Fund, Employees' State Insurance,

Million debited by one of the bankers in the earlier year,

Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom

towards import consignments under Letter of Credit not

Duty, Excise Duty, Cess and other material statutory dues

accepted by the Company, owing to discrepancies in

applicable to it except for dues in respect of Employees'

documents; at this stage we are unable to determine whether

State Insurance Scheme, Service Tax and TDS where

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

some delays were observed. The Company was not

13. In our opinion and according to the information and

required to deposit any amounts with Investor Education

explanations given to us, the Company has not granted

and Protection Fund.

loans and advances on the basis of security by way of

b. According to the information and explanations given to

pledge of shares, debentures and other securities.

us, no undisputed amounts payable in respect of Income

Accordingly the provisions of Clause (xii) of paragraph 4 of

Tax, Wealth Tax, Sales Tax, Service Tax, Customs Duty,

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

Excise Duty and Cess were in arrears, as at 31st March

applicable to the Company.

they became payable.

14. In our opinion and according to the information and explanations given to us, there are no guarantees given by

c. According to the information and explanations given to

the Company for loans taken by others from banks.

us, disputed Sales Tax, Income Tax, Service Tax, Excise

Accordingly the provisions of Clause (xv) of paragraph 4 of

Duty and Customs Duty not deposited with the

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

appropriate authorities are as under:

applicable to the Company.

Annual Report 2006 - 07

2007 for a period of more than six months from the date

15. In our opinion and according to the information and explanations given to us, term loans have been applied for the purpose for which they were raised other than amounts temporarily invested pending utilization of the funds for the intended use. 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. 17. According to the information and explanation given to us,

paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company. 19. According to the information and explanation given to us, the Company has not raised monies by public issues. Accordingly the provisions of Clause (xx) of paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company. 20. According to the information and explanations given to us, during the year no fraud on or by the Company has been noticed or reported during the course of our audit.

the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Companies Act,

For Deloitte Haskins & Sells

1956. Accordingly the provisions of Clause (xviii) of

Chartered Accountants

paragraph 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company. Hemant M. Joshi 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

Place: Mumbai Dated: April 30, 2007

Partner Membership Number: 38019

Balance Sheet

Balance Sheet STERLITE OPTICAL TECHNOLOGIES LIMITED AS AT MARCH 31, 2007 Schedule

307.97 28.00 18.66

3,811.50

2006 (Rs. in Million)

293.97 56.00 2,969.52 4,166.13

2. Loan Funds Secured Loans Unsecured Loans

3 4

5,653.88 212.73

3. Deferred Tax Liability (Net) (Refer Note 3 of Schedule 19) TOTAL II. APPLICATION OF FUNDS 1. Fixed Assets Gross Block Less: Depreciation and Impairment

Less: Current Liabilities and Provisions Liabilities Provisions

2,233.21 144.24 5,866.61 102.47

2,377.45 183.64

10,135.21

5,880.58

Net Block Capital Work-in-Progress (Refer Note 36 of Schedule 19) 2. Investments 3. Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Loans and Advances

7,924.98 3,580.42

5,701.56 2,831.36

4,344.56 527.62

2,870.20 19.85 4,872.18 63.06

6 7 8 9 10

2,890.05 150.66

1,199.93 4,332.06 789.29 1,212.51

864.41 1,525.26 954.72 979.92

7,533.79

4,324.31

1,997.69 336.13

1,215.65 268.79

2,333.82 Net Current Assets TOTAL Notes forming part of Accounts

3,319.49

1,484.44 5,199.97

2,839.87

10,135.21

5,880.58

As per our attached Report of even date

For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants

Pravin Agarwal Whole-time Director

Dr. Anand Agarwal CEO & Whole-time Director

Anupam Jindal Chief Financial Officer

Sandeep Deshmukh Company Secretary

Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 30, 2007

Annual Report 2006 - 07

I. SOURCES OF FUNDS 1. Shareholders' Funds Share Capital Upfront Payment against Share Warrants Employee Stock Option Outstanding (Refer Note 10 of Schedule 19) Reserves & Surplus

2007 (Rs. in Million)

Profit and Loss Account STERLITE OPTICAL TECHNOLOGIES LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2007 Schedule I.

2007

2006

(Rs. in Million)

13,008.78 1,027.24

6,239.33 765.61

11,981.54

5,473.72

51.51

194.64

TOTAL

12,033.05

5,668.36

13 14 15 16 17 18

9,684.18 298.17 547.91 297.75 33.36 344.61 18.16 11,224.14 37.63

4,196.07 148.50 340.40 150.55 161.36 4,996.88 -

11,186.51

4,996.88

PROFIT BEFORE DEPRECIATION & TAXATION Depreciation

846.54 315.73

671.48 289.92

PROFIT BEFORE TAXATION Provision for taxation - Current Tax for the year (Including Rs. 0.31 Million (Previous Year Rs. 0.10 Million) for Wealth Tax) (Includes Rs. 0.12 Million for earlier year) - Minimum Alternate Tax Credit Eligible for Set Off (Refer Note 7 of Schedule 19) - Deferred Tax (Net) - Fringe Benefit Tax (Includes Rs. 0.93 Million for earlier year)

530.81

381.56

60.83

32.20

(60.40) 17.18 4.63

(32.10) (28.99) 2.79

PROFIT AFTER TAXATION Balance brought forward from Previous Year

508.57 2,080.12

407.66 1,705.98

AMOUNT AVAILABLE FOR APPROPRIATIONS

2,588.69

2,113.64

25.43 46.20 7.85 2,509.21 2,588.69

29.40 4.12 2,080.12 2,113.64

8.59 7.83

7.27 7.27

INCOME Turnover Less: Excise Duty Turnover (Net) Other Income

II.

EXPENDITURE Manufacturing and other expenses Personnel Selling and Distribution Administration and General Research and Development Interest and Finance charges Provision for Amortisation (Refer Note 17 of Schedule 19) Less: Pre operative expenses of projects

APPROPRIATIONS General Reserve Proposed Dividend on Equity Shares Rs. 0.75 Per Share (Previous Year Rs.0.50 Per Share) Corporate Tax on Proposed Dividend Balance carried to Balance Sheet Earnings Per Share (Face Value Rs. 5 each) (Refer Note 22 of Schedule 19) Basic Earning Per Share Diluted Earning Per Share Notes forming part of Accounts 19 As per our attached Report of even date

For and on behalf of the Board

For Deloitte Haskins & Sells Chartered Accountants

Pravin Agarwal Whole-time Director

Dr. Anand Agarwal CEO & Whole-time Director

Anupam Jindal Chief Financial Officer

Sandeep Deshmukh Company Secretary

Hemant M Joshi Partner Membership Number: 38019

Place: Mumbai Dated: April 30, 2007

Schedules to Accounts

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

Authorised 90,000,000 (Previous Year 90,000,000) Equity Shares of Rs. 5 each Issued, Subscribed and Paid up 61,594,567 (Previous Year 58,794,567) Equity Shares of Rs. 5 each fully paid up TOTAL

2007

2006

(Rs. in Million)

450.00

307.97

293.97

307.97

293.97

Of the above :

55,912,559 Equity Shares of Rs. 5 each were allotted to the shareholders of Sterlite Industries (I) Ltd. upon demerger pursuant to the scheme of arrangement sanctioned by the Honorable High Court of Judicature at Mumbai.

During the year, 28,00,000 Share Warrants were converted into 2,800,000 Equity Shares of Rs. 5 each fully paid up. 2,800,000 Warrants are outstanding as on March 31, 2007 with option to exercise equity conversion by September 28, 2007.

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

2007

2006

(Rs. in Million)

308.96 266.00

General Reserve Balance as per last Balance Sheet Add: Transfer from Profit and Loss Account Add: Deferred Tax Asset arised on Amalgamation of Sterlite Telelink Ltd. Add: Deferred Tax Asset arised on Amalgamation of Sterlite Telecom Ltd. Add: Transfer on Amalgamation of Sterlite Telecom Ltd. Capital Reserve Balance as per last Balance Sheet Add: Transfer on Amalgamation of Sterlite Telelink Ltd.

574.96

42.96 266.00 308.96

735.38

580.44 580.44

0.41

2,500.75

2,080.12 2,080.12

3,811.50

2,969.52

580.44 25.43 88.95 35.56 5.00

0.41

Profit and Loss Account Surplus as per Profit and Loss Account Add: Transfer on Amalgamation of Sterlite Telelink Ltd. Add: Transfer on Amalgamation of Sterlite Telecom Ltd.

2,509.21 94.29 (102.75)

TOTAL

Annual Report 2006 - 07

SCHEDULE 2 RESERVES AND SURPLUS :

Schedules forming part of the Balance Sheet SCHEDULE 3 SECURED LOANS :

(A) Working Capital Loans From Banks (B) Term Loans From Banks (C) Other Loans Housing Development Finance Corporation Limited TOTAL

2007

2006

(Rs. in Million)

4,328.88

2,033.21

1,325.00

5,653.88

200.00 2,233.21

Notes : (A) Working capital loans from Banks are secured by hypothecation of Raw Materials, Work in Progress, Finished Goods and 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. (C) 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 Twin Star International Limited.

SCHEDULE 4 UNSECURED LOANS :

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

2007

2006

(Rs. in Million)

207.18

24.12

38.72

5.55

81.40

212.73

144.24

22.00

131.27

Office Equipments

Electric Fittings

5,665.59

Previous Year

157.16

1.35

2.82

0.17

1.38

101.80

30.70

18.93

758.98

0.36

51.83

1.52

7.30

3.40

536.00

126.67

31.90

Additions

2.77

4.12

37.50

6.52

21.40

4.55

310.56

16.87

696.39

415.10 81.03

*** Addition on Purchase of "Power Transmission line" Business (PTL).

** Addition on Amalgamation of Sterlite Telelink Limited (STLL).

Annual Report 2006 - 07

0.38

As at 01.04. 2006

6.57

0.66

0.02

2.77

38.96

267.28

38.03

107.88

48.39

6.43

50.97

8.30

55.26

9.27

4.23 6,310.18 2,020.84

Deduc- As at tions 31.03. 2007

46.79 10.82 5,701.56 1,951.66

623.71 695.06 11.48 7,924.98 2,232.48

24.75

45.33

5.83

8.11

20.80

259.39

205.61

53.89 290.77

Addition on Purchase of "PTL" Business ***

* Addition of Fixed Assets of ICOMM Tele Limited (formerly ARM Limited) (Refer Note 17 of Schedule 19).

Land includes Leasehold Land of Rs. 1.62 Million.

Note:

5,701.56

TOTAL

Software/Licenses

16.30

70.92

Data Processing Equipments

Vehicles

18.26

5,106.66

Plant and Machinery

Furniture and Fixture

316.54

19.61

As at Addition from Addition on 01.04. ICOMM Tele Amalga2006 Limited* mation of STLL**

Building

Land

Nature of Assets

GROSS BLOCK AT COST

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

440.65

0.27

31.06

0.78

5.94

2.30

351.47

48.83

Addition on Amalgamation of STLL**

289.92

315.73

0.05

3.62

12.38

1.63

8.45

3.00

263.19

23.39

0.02 153.25

0.40

As at 31.03. 2007

0.05

6.91

94.41

10.39

69.63

14.57

9.10 2,232.48

5.33 2,983.53

3.41

0.32

0.02

1.58 2,633.92

For the DeducYear tions

DEPRECIATION

598.88

596.89

11.38

585.51

As at 31.03. 2007

IMPAIRMENT

2,870.20

4,344.56

2.72

32.05

161.49

27.64

38.25

33.82

3,090.75

543.14

414.70

As at 31.03. 2007

Schedules to Accounts

2,870.20

9.87

68.93

13.70

15.66

8.99

2,498.31

235.51

19.23

As at 31.03. 2006

NET BLOCK

(Rs. in Million)

SCHEDULE 6 INVESTMENTS :

LONG TERM INVESTMENT (UNQUOTED) (At Cost) (A) Trade Investments (i) In Equity Shares of Subsidiary Companies Nil (Previous Year 10,000,000) Equity shares of Sterlite Telecom Limited of Rs. 10 each, fully paid up. Nil (Previous Year 60,070) Equity Shares of Sterlite Telelink Limited of Rs. 10 each, fully paid up. (ii) In Preference Shares of a Subsidiary Company Nil (Previous year 5,000,000 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. 5,200 Equity Shares of Rs. 10 each fully paid up. (B) Other Than Trade In National Savings Certificate (Deposited with Sales Tax office) CURRENT INVESTMENT (UNQUOTED) (At Cost or Market Value whichever is lower) In Units of Mutual Funds : 1,301,091.15 units of Rs. 10 each of ICICI Prudential Institutional Liquid Plan of ICICI Prudential Mutual fund. 5,000,000 units of Rs. 10 each of Reliance Fixed Horizon Fund II of Reliance Mutual Fund. TOTAL

2007

2006

(Rs. in Million)

100.00

0.60

50.00

0.05

0.01

13.01

50.00

63.06

150.66

Note : The following Current Investments were purchased and sold during the year :

Mutual Fund Units Birla Cash Plus - Instl Prem - Daily Dividend - Reinvestment ICICI Prudential Liquid Plan Institutional Plan - Daily Dividend Option ING Vysya Liquid Fund Institutional - Daily Dividend Option Kotak Liquid (Institutional Premium) - Daily Dividend Lotus India Liquid Fund - Institutional Daily Dividend Reliance Fixed Horizon Fund II - Quarterly Plan Series VI - Institutional Growth Plan Reliance Liquid Fund - Cash Plan - Daily Dividend Reinvestment Reliance Liquidity Fund - Daily Dividend Reinvestment Option Reliance Mutual Fund Standard Chartered Liquidity Manager - Plus - Daily Dividend

Face Value (Rs.)

Units (Nos.)

Amount (Rs. in Million)

10 10 10 10 10 10 10 10 10 10

33,963,771 11,095,642 1,997,403 11,187,347 1,000,000 4,971,859 5,475,222 399,876 2,097,040 37,460,000

340.30 131.50 20.00 136.80 10.00 50.00 61.00 4.00 21.10 374.60

Schedules to Accounts

Schedules forming part of the Balance Sheet SCHEDULE 7 INVENTORIES :

(At Cost or Net realisable value, which ever is lower) Raw Materials (Including Goods in Transit Rs. 11.06 Million (Previous Year Rs. 127.00 Million) (Refer Note 2 of Schedule 19) Work-in-Progress Finished Goods Stores, Spares, Packing Material and Others TOTAL

2007

2006

(Rs. in Million)

374.44

416.37

293.70 422.50 109.29

57.11 328.04 62.89

1,199.93

864.41

SCHEDULE 8 SUNDRY DEBTORS (Unsecured) :

(A) Due for a period exceeding 6 months - Considered good - Considered doubtful Less: Provision for Doubtful Debts (B) Others - Considered good TOTAL

2007

2006

(Rs. in Million)

930.25 196.48

72.70 157.19

1,126.73 196.48

229.89 157.19

930.25 3,401.81

72.70 1,452.56

4,332.06

1,525.26

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

2007

2006

(Rs. in Million)

0.84

0.37

121.48 658.79 4.89 1.48

6.58 642.75 4.68 300.00

1.81

0.34

789.29

954.72

* Includes Rs. Nil (Previous Year Rs. 336.00 Million) Unutilised Money out of the Preferential Issue. ** Balance with Non Scheduled Banks is maintained with: Industrial Bank of China (Maximum Amount Outstanding during the year Rs. 0.32 Million), Dubai Bank (Maximum Amount Outstanding during the year Rs. 2.46 Million), Bangkok Bank PCL (Maximum Amount Outstanding during the year Rs. 3.53 Million).

Annual Report 2006 - 07

SCHEDULE 9 CASH AND BANK BALANCES :

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

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

2007

2006

(Rs. in Million)

25.00 683.52 153.27 253.76 92.50 4.46

344.95 174.45 213.53 77.83 136.66 32.10 0.40

1,212.51

979.92

SCHEDULE 11 CURRENT LIABILITIES AND PROVISIONS :

(A) Current Liabilities Acceptances Sundry Creditors (i) Small Scale Industrial undertakings (Refer Note 34 of Schedule 19) (ii) Others Interest accrued but not due on Loans Unclaimed Dividend Advance from Customers Other Liabilities (B) Provisions For Taxation [including for Wealth Tax Rs. 0.31 Million (Previous Year Rs. 0.10 Million)] For Contingencies For Employee Benefits Proposed Dividend Equity Shares Corporate Tax on Proposed Dividend

TOTAL

2007

2006

(Rs. in Million)

401.77

664.82

1,037.43 14.94 4.89 398.27 140.39

414.83 15.70 4.68 115.62

1,997.69

1,215.65

168.67 95.00 18.41 46.20 7.85

131.17 95.00 9.10 29.40 4.12

336.13

268.79

2,333.82

1,484.44

Note : The Company had made a provision of Rs. 100.00 Million towards contingencies in the earlier year against various disputed excise matters and disputed claim with Bank including Rs. 50.00 Million towards disputed excise matter. Rs. 5.00 Million has been utilised during the Previous Year against redemption fine for release of seized fiber stock in excise case.

Schedules to Accounts

Schedules forming part of the Profit And Loss Account SCHEDULE 12 OTHER INCOME :

Profit on Sale of Asset Unclaimed Liabilities written back Provision no longer required Gain on Prepayment of Deferred Sales Tax Liability (Refer Note 9 of Schedule 19) Miscellaneous Income TOTAL

2007

2006

(Rs. in Million)

0.13 5.23 20.55 3.48 22.12

1.49 40.83 146.60 5.72

51.51

194.64

SCHEDULE 13 MANUFACTURING AND OTHER EXPENSES :

Raw Materials Consumed Decrease/(Increase) in stock Opening Stock Work-in-Progress* Finished Goods** Closing Stock Work-in-Progress Finished Goods

2007

2006

(Rs. in Million)

8,763.41

3,795.94

222.72 876.18

37.22 471.43

1,098.90

508.65

293.70 422.50

57.11 328.04

716.20 Decrease/ (Increase) in stock Excise Duty on stock Stores and Spares Power, Fuel and Water Repairs and Maintenance Building Machinery Others Carriage Inward Other Manufacturing Expenses TOTAL

385.15 382.70 (64.14) 159.39 273.77

123.50 (32.39) 106.61 124.35

4.17 47.71 3.89 37.13 76.15

4.54 20.36 1.13 20.72 31.31

9,684.18

4,196.07

Includes Rs. 157.06 Million Opening Stock transfer on acquisition of "Power Transmission Line" business from Sterlite Industries (I) Ltd. and Rs. 8.55 Million Opening Stock transfer upon Amalgamation of Sterlite Telelink Ltd. ** Includes Rs. 538.00 Million Opening Stock transfer on acquisition of "Power Transmission Line" business from Sterlite Industries (I) Ltd. and Rs. 10.14 Million Opening Stock transfer upon Amalgamation of Sterlite Telelink Ltd.

Annual Report 2006 - 07

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

Salaries, Wages, Bonus and Commission Contribution to Provident Fund and other Funds Employees' Welfare and Other Amenities Employees Stock Option Expenses (Refer Note 10 of Schedule 19) TOTAL

2007

2006

(Rs. in Million)

222.77 15.18 41.56 18.66

117.29 6.84 24.37 -

298.17

148.50

SCHEDULE 15 SELLING AND DISTRIBUTION :

Sales Commission Sales Promotion Packing Expenses Carriage Outward Other Expenses TOTAL

2007

2006

(Rs. in Million)

79.87 5.36 271.67 157.06 33.95

52.54 122.60 125.26 40.00

547.91

340.40

SCHEDULE 16 ADMINISTRATION AND GENERAL :

Rent Insurance Rates and Taxes Conveyance and Travelling Expenses Loss on sale of Fixed Assets Loss from Management of ICOMM Tele Limited (Refer Note 17 of Schedule 19) Directors Sitting Fees and Commission General Expenses TOTAL

2007

2006

(Rs. in Million)

8.12 21.97 7.46 67.52 1.23 3.31 0.45 187.69

7.04 14.50 7.46 24.67 0.08 96.80

297.75

150.55

Schedules to Accounts

Schedules forming part of the Profit And Loss Account SCHEDULE 17 RESEARCH AND DEVELOPMENT :

Salaries, Wages, Bonus and Commission Stores and Spares Raw Materials Consumed Rates and Taxes General Expenses TOTAL

2007

2006

(Rs. in Million)

8.41 0.15 17.28 3.79 3.73

33.36

On Fixed Loans Others Bank charges Less: Interest Received from Customers [Tax Deducted at Source Rs. 6.34 Million (Previous Year Rs. 3.78 Million)] TOTAL

2007

2006

(Rs. in Million)

39.68 295.20 40.60 375.48 30.87

134.19 43.16 177.35 15.99

344.61

161.36

Annual Report 2006 - 07

SCHEDULE 18 INTEREST AND FINANCE CHARGES (Net) :

SCHEDULE 19

at the rates specified in Schedule XIV of the Companies Act, 1956.

NOTES FORMING PART OF THE ACCOUNTS 1. Significant Accounting Policies (a) Basis of Preparation of Financial Statements 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 reported amount of revenues and expenses during the reporting year. Difference between the actual result and estimates are recognized in the year in which the results are known/ materialized. (c) Fixed Assets Fixed Assets are stated at cost (net of Cenvat) less accumulated depreciation and impairment. Expenditure during construction period (including financing cost relating to borrowed funds for construction or acquisition of fixed assets) incurred on projects under implementation are treated as Preoperative expenses, pending allocation to the assets, and are included under â&#x20AC;&#x153;Capital work in Progressâ&#x20AC;?. (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 and Depreciation on Fixed Assets acquired on Amalgamation of the erstwhile Sterlite Telelink Limited is provided on written down value method

(ii) Cost of leasehold land is amortised in proportion to the period of lease. (iii) Cost of Intangible Assets is depreciated over a period of five years. (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. Current investment are carried at the lower of costs and quoted/fair value. (f) Inventories (i) Inventories are valued at lower of cost or net realizable value except for scrap which is valued at net realizable value. (ii) Cost of inventories of Finished Goods and Work-InProgress includes material cost, cost of conversion and other costs. (iii) Cost of Raw Material and Stores and Spares 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 recognized as exchange differences and the premium paid on forward contract has been recognised over the life of the contract. (iii) T h e e x c h a n g e d i f fe r e n c e s a r i s i n g o n settlement/translation are recognized in the

(h) Borrowing Costs Borrowing costs that are directly attributable to the acquisition or construction of qualifying assets are capitalized 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 recognized when it is earned and no significant uncertainty exists as to its ultimate realization or collection. Revenue is recognized on dispatch 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 on actuarial basis. (k) Leave Encashment Leave encashment liability is accounted on actual liability basis. (l) Employee Stock Option In respect of stock option granted pursuant to the company's Employee Stock Option Scheme, the fair value of the option (excess of market price of the share over the exercise price of the option) is treated as discount and accounted as employee compensation cost over the vesting period. (m) Research and Development Revenue expenditure on research and development (R&D) is expensed as incurred. Capital expenditure on Research and Development is capitalised with Fixed Assets.

Schedules to Accounts

(n) Export Incentives Advance licences are issued to the Company under 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. (o) 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 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 realization. (p) 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. (q) Earnings Per Share The Company reports basic and diluted earnings per share in accordance with Accounting Standard 20

Annual Report 2006 - 07

revenue accounts, except those pertaining to Fixed Assets, which are adjusted to the cost of such Fixed Assets.

(AS)-20 issued by The Institute of Chartered Accountants of India on 'Earnings Per Share'. Basic earning 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. (r) 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 year in which an asset is identified as impaired. An impairment loss recognized in prior accounting periods is reversed if there has been a change in the estimate of the recoverable amount. (s) Commodity Hedging Transactions 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 and Loss accounts. (t) Provisions, Contingent Liabilities and Contingent Assets As per Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets (AS)-29, 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 as and when a reliable estimate of the amount of the obligation 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

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 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. 2. Change In Accounting Policy During the year, the method of determining the cost of valuation of Raw Material inventory has been changed from FIFO to weighted average basis. Consequently, the Inventory as at March 31, 2007 and Profit Before Tax for the period is lower by Rs. 0.31 Million. 3. 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 deferred tax asset recognised in respect of unabsorbed tax depreciation of the erstwhile subsidiaries amalgamated during the year has been adjusted to general reserve in accordance with Accounting Standards Interpretation (ASI) - 11 on Accounting for Taxes on Income in case of an Amalgamation, issued by the Institute of Chartered Accountants of India in connection with Accounting Standard 22, Accounting for Taxes on Income (AS) - 22.

Particulars

Current Year Previous Year (Rs. in Million) (Rs. in Million)

.Deferred Tax Liability (a) Depreciation (b) On export benefit

619.77 16.55

548.63 20.28

53.43

52.91

479.61

332.36

Deferred Tax Asset (a) On provision for doubtful debts. (b) On unabsorbed tax depreciation carried forward. (c) On Gratuity provided as per revised AS-15 Net Deferred Tax Liability

5. Derivative Instruments The company has entered into the following derivative instruments: (a) The following are the outstanding Forward Exchange Contracts entered into by the company, for hedge purpose, as on March 31, 2007 : Year

0.81

Schedules to Accounts

(a) The break-up of closing net deferred tax liability is as under:

Currency in Amount Buy/Sell No. of Millions (Rs. in Million) Contracts

Current Year US $ 49.97

2,178.21

Buy

187

US $ 56.97

2,483.27

Sell

178

Euro 5.75

334.17

Sell

Euro 1.87

108.56

Buy

687.70

Buy

Previous Year US $ 15.42 102.47

183.64

Options: (b) Deferred tax charged for the year :

Opening Deferred Tax Liability Add : - Net Deferred Tax balances taken over upon Merger of Sterlite Telelink Ltd. and Sterlite Telecom Ltd. Less : - Deferred Tax Asset arising on Amalgamation of Sterlite Telelink Limited and Sterlite Telecom Limited adjusted to General Reserve Subtotal Less : Closing Deferred Tax Liability Deferred Tax charged/ Credited for the year.

Current Year (Rs. in Million) 183.64 26.16

Previous Year (Rs. in Million)

Current Year

US $ 3.45

150.39

Sell

Previous Year

Nil

N.A

Nil

212.63

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

(124.51)

85.29

212.63

102.47

183.64

17.18

Currency in Amount Buy/Sell No. of Millions (Rs. in Million) Contracts

Amounts receivable in foreign currency on account of the following:

Year

Particulars

Currency in Millions

Amount (Rs. in Million)

Current Year

Export of goods

US $ 31.15

1,357.93

Export of goods

Euro 1.87

108.87

Import of goods and services

Euro 0.01

0.49

(28.99) Previous Year

4. 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. 2.03 Million (Previous Year Rs. 1.23 Million) and (credited) / debited to respective heads of accounts in Profit and Loss Account is Rs. (60.91) Million (Previous Year Rs. (7.73) Million); premium on forward exchange contract to be recognised in the Profit and Loss account of subsequent accounting period is Rs. 5.61 Million (Previous Year Rs. 0.47 Million).

Fixed Assets

Euro 0.02

0.98

Export of goods

US $ 3.17

141.52

Annual Report 2006 - 07

Particulars

Year

ii.

Amounts payable in foreign currency on account of the following:

Particulars

Currency Amount Currency Amount in Millions (Rs. in Million) in Millions (Rs. in Million) Current Current Previous Previous Year Year Year Year

Import of goods and US $ 9.98 services

434.88

US $ 11.84

528.26

Import of goods and services

Euro Nil

Euro 0.01

0.50

Import of goods and services

GBP Nil

GBP 0.04

2.82

Loans payable

US $ 57.36

2,500.21

US $ 21.95

979.15

Loans payable

Euro 0.25

14.33

(c) Commodity Future Contract to hedge against fluctuation in commodity prices. The following are the outstanding Futures contracts entered into by the company as on March 31, 2007:Year

No. of Contracts

Contracted Quantity

Buy/ Sell

Current Year

105

9,975 MT

Buy

Previous Year

575 MT

Sell

6. In terms of accounting policy (refer accounting policy â&#x20AC;&#x153;nâ&#x20AC;?) for the accrual of export incentives, estimated benefits of Rs. 28.97 Million (Previous Year Rs. 78.88 Million) have been taken into account under the DEPB / Target Plus Entitlement scheme/Duty Drawback scheme. 7. In view of book profits and no taxable profits, as per computation of income, the provision for tax has been made as per MAT under section 115JB of the Income Tax Act 1961. The Company is entitled to avail Credit under section 115JAA(1A). Accordingly it has considered MAT credit 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 years based on various incentives/ deductions allowable under the Income Tax Act, 1961 and following various judicial decisions. 8. 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. 1,982.00 Million for alleged use of imported machinery of Export Oriented Unit (EOU)

for 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. 30.00 Million without prejudice to its claim in the year 2004-05. In the year 2005-06, CESTAT has upheld the demand of Rs. 1,886.00 Million and interest thereon. The Company has filed an appeal before the Hon'ble High Court, Mumbai 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 Rs. 5.00 Million. Upon completion of the export of the Finished Stock the demand will be abated by Rs. 430.00 Million. 9. Other Income includes Rs. 3.48 Million (Previous Year Rs. 146.60 Million) on account of the prepayment of deferral sales tax liability in accordance with the scheme framed by the Government of Maharasthra. 10. Employee Stock Option Scheme The Company has granted Employee Stock Option Plan, 2006 (ESOP) to its employees pursuant to the resolution passed by the shareholders at the Extraordinary General Meeting held on March 13, 2006. The Company has followed the fair value method (Black Scholes Options Pricing Model) for the valuation of these options. The Compensation Committee of the Company has approved two grants vide their meeting held June 14, 2006 and March 19, 2007 respectively. As per the plan, Options granted under ESOP would vest in not less than one year and not more than five years from the date of grant of such options. Vesting of options would be subject to continued employment with the company. The plan will be equity settled plan.

Grant date June 14, 2006

Grant date March 19, 2007

465,700

127,200

Forfeited during the year

Expired / Lapsed during the year

127,200

Options outstanding at the beginning of the year Granted during the year

Outstanding at the end of the year

465,700

Exercisable at the end of the year

Exercise Price (Rs. Per Share)

The fair value as per the Black Scholes Options Pricing Model was measured based on the following input : Date of grant June 14, 2006 Variables

Vest 1 June 14, 2007

Vest 2 Vest 3 June 14, June 14, 2008 2009

Weighted average Stock Price Expected Volatility (*) Risk free Rate Exercise Price Time To Maturity Dividend yield

89.25 59.78% 7.07% 5.00 1.50 0.57%

89.25 58.90% 7.16% 5.00 2.50 0.57%

Outputs Option Fair Value Vesting Percentage

83.99 30.00%

83.81 83.62 30.00% 40.00%

Option Fair Value Date of grant March 19, 2007 Variables

89.25 60.52% 7.26% 5.00 3.50 0.57%

83.79

Vest 1 March 19, 2008

Vest 2 March 19, 2009

Stock Price Expected Volatility (*) Risk free Rate Exercise Price Time to Maturity Dividend yield

179.00 62.90% 8.07% 5.00 1.50 0.57%

179.00 57.75% 8.06% 5.00 2.50 0.57%

Outputs Option Fair Value Vesting Percentage

173.04 60.00%

172.37 40.00%

Option Fair Value

172.77

(*) The measure of volatility used in the above model is the

Schedules to Accounts

annualized standard deviation of the continuously compounded rates of return on the stock over a period of time. The volatility periods considered above, corresponding to the respective expected lives of the different vests are prior to the grant date. The daily volatility of stock prices is considered as per the National Stock Exchange (NSE) prices over these years. 11. In view of Accounting Standard 28 on Impairment of Assets (AS)-28 issued by the Institute of Chartered Accountants of India, the Company has reviewed its fixed assets and does not expect any loss as on March 31, 2007 on account of impairment in addition to the provision already made in the books. 12. Amalgamation of Sterlite Telelink Limited & Sterlite Telecom Limited with the Company: (a) Pursuant to the Scheme of Amalgamation ('the Scheme') of Sterlite Telelink Limited (STLL) and Sterlite Telecom Limited (STL), erstwhile wholly owned subsidiaries, with the Company, as sanctioned by the Hon'ble High Court of Mumbai on April 16, 2007, the assets, liabilities, duties and obligations of both STLL and STL were transferred to and vested in the Company with retrospective effect from April 1, 2006. The Scheme has accordingly been given effect to in these financial statements. Pending completion of the relevant formalities of transfer of assets and liabilities acquired pursuant to the Scheme mentioned above, such assets and liabilities continue to remain in the name of STLL and STL. (b The Amalgamation has been accounted for under the â&#x20AC;&#x153;pooling of interestsâ&#x20AC;? method as prescribed by Accounting Standard 14 Accounting for Amalgamation (AS)-14 issued by the Institute of Chartered Accountants of India. Accordingly, the assets , liabilities and other reserve of STLL and STL have been taken over at their respective book values as at April 1, 2006. (c) The core business of erstwhile STLL and STL was to manufacture of Optical Fibre Cable / Copper Telecom Cable and Broadband Access Networks. 13. The Company has Nil Investment in Current Year (Previous Year Rs. 150.00 Million) in the equity and preference share

Annual Report 2006 - 07

Other details of the options are as follows :

capital of its wholly owned subsidiary namely Sterlite Telecom Limited (STL). 14. Loans and Advances to subsidiaries, associates etc (a) Outstanding Loans/Advances is to subsidiary, associates etc is Nil (Previous Year 100% subsidiary Sterlite Telelink Limited (STLL) is Rs. 344.95 Million). The maximum amount outstanding (towards)/ from subsidiaries during the year is Nil (previous year Rs. 349.61 Million); the detail of the same is as under: Sterlite Telecom Limited - Nil (Previous Year Nil.) Sterlite Telelink Limited-Nil (Previous Year Rs. 349.61 Million) (b) Employee loans as per Company policy are not considered. 15. There are no amounts due and outstanding to be credited to Investor Education and Protection Fund.

usage over the estimated useful life of the assets pending capitalisation of the same. On Amalgamation with the company from April 1, 2006, the advance and provision for amortization was accounted in the company's books in accordance with the pooling of interests method. On February 1, 2007, substantial completion of terms and conditions of the agreement was achieved. Accordingly the Company has recognised the total transactions and capitalized the net book value of Fixed Asset. The balance of provision for amortization on that date was Rs. 323.27 Million (including Rs. 18.16 Million for current year) [Previous Year Rs. 305.11 Million (including Rs. 23.36 Million for Previous Year)]. The Company has capitalized the net book value of assets Rs. 157.16 Million i.e. gross amount of assets lying in advances Rs. 480.43 Million (including Rs. 116.92 Million for purchase of Fixed Assets subsequent to the acquisition of the division) less amortisation Rs. 323.27 Million. The company is in the process of getting the conveyance deed registered with the concerned authorities. 18. Payment To Auditors

16. As approved by the Board of Directors at its meeting held on August 21, 2006, the Company has purchased â&#x20AC;&#x153;Power Transmission Businessâ&#x20AC;? (manufacturing facilities of which are situated at Silvassa and Pune) from Sterlite Industries (I) Ltd. (SIIL) on a going concern basis for a net consideration of Rs. 1,485.10 Million with effect from July 1, 2006. The Company has not recognised any capital reserves/goodwill as the business was purchased at book value. 17. On April 24, 1998 the erstwhile Sterlite Telecom Ltd (STL) had entered into an agreement for purchase of the Cable Division undertaking of ICOMM Tele Limited (formerly ARM Limited) on a going concern basis for a lump sum consideration of Rs. 380.00 Million. A management agreement dated April 24, 1998 was made and in terms of this agreement all profits, losses, liabilities, commitments, benefits and risk of the undertaking after April 24, 1998 had accrued to the company. In accordance with the legal form of the agreement, STL had recognised the cash losses in its administration and general expense and as a prudent accounting policy, STL had provided in the Profit and Loss Account for the erosion in the value of the assets due to

Particulars

Current Previous Year Year (Rs. In Million) (Rs. In Million)

a) Audit Fees

3.35

1.32

b) Tax Audit Fees

0.35

0.33

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

0.06 3.76

1.65

* The payment is inclusive of Rs. 0.70 Million paid for Previous Year & exclusive of Service tax.

Particulars

(i) Salary

Current Previous Year Year (Rs. In Million) (Rs. In Million) 13.88

3.87

(ii) Contribution to Provident and Other Funds

0.69

0.19

(iii) Other Benefits / Perquisites

0.49

1.55

15.06

5.61

TOTAL

In addition, Dr. Anand Agarwal has been granted 41,300 Stock Options, each option convertible in one equity share of Rs. 5 each. The option would vest as per the vesting conditions approved by the Compensation Committee. The Company has accrued an expenditure of Rs. 18.66 Million towards total options granted till March 31, 2007 out of which Rs. 1.60 Million are attributable to the options granted to Dr. Anand Agarwal. Managerial remuneration of Rs. 7.36 Million is subject to shareholders' approval at General Meeting.

20. Related Party Disclosures

Schedules to Accounts

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

Related party disclosures as required by Accounting Standard 18 â&#x20AC;&#x153;Related Party Disclosuresâ&#x20AC;?, (AS)-18 issued by the Institute of Chartered Accountants of India are given below:(a) Name of related party and its relationship: (i) 100% Subsidiaries of the Company Sterlite Telelink Limited and Sterlite Telecom Limited (For Previous Year) (ii) Key Management Personnel Dr. Anand Agarwal Mr. Pravin Agarwal appointed with effect from October30, 2006. (iii) Associate Company Twin Star International Limited upto July 13, 2006. Twin Star Overseas Limited with effect from July14, 2006. (b) There are no provisions for doubtful debts or no amounts have been written off in respect of debts due to or from related parties. (c) The following transactions were carried out with the related parties:

Computation of Net Profit in accordance with Section 309 (5) of the Companies Act, 1956 : Current Year (Rs. in Million)

Net Profit Before Tax As Per Profit and Loss Account Add : Depreciation as per books Profit / (Loss) on sale of fixed assets (net) Commission to Non-Executive Directors Managerial Remuneration Less : Depreciation under Companies Act, 1956

530.81

Net Profit for the year as per section 309 (5)

544.96

Commission payable to Non-Executive Directors restricted to 1%

315.73 (1.10) 0.20 15.06 315.73

0.20

Annual Report 2006 - 07

Particulars

Sr No Transaction

1.a 1.b 2.a 2.b 3 4 5 6.a 6.b 6.c 6.d 6.e 7 8 9 10 11 12 13

Purchase of Raw Materials & Stores Purchase of Semi Finished Goods Sale of Raw Material and Stores Sale of Semifinished Goods Sale/(Purchase) of Fixed Assets Rent Paid Corporate Guarantee Commission received Opening Balance of Loans (Given) / Taken as on April 1. Loans (Given) / Taken during the year (Net) Loans (repaid)/received during the year Interest paid/(received) on Loans Outstanding Balance of Loans (Given) / Taken as on year end Remuneration* Investments Share Application Money Equity Share Capital Issue Equity Share Premium Upfront Receipt on Share Warrant Issued Dividend

Subsidiary Companies Sterlite Sterlite Telelink Ltd Telecom Ltd. 06-07 05-06 06-07 05-06

Twin Star International Limited 06-07 05-06

Twin Star Ovearseas Limited 06-07 05-06

(Rs. in Million) Key Management Personnel 06-07 05-06

12.90

148.44 191.77 267.99 (7.67) 4.20 -

3.31

(244.12)

59.57

(84.00)

(25.08)

(16.83) (344.95)

4.23 38.72

0.60 149.50

150.00 -

14.00 14.00 266.00 266.00 56.00 -

15.06 -

5.61 -

11.79

19.00

*It includes payment to Dr. Anand Agarwal of Rs. 7.70 Million (Previous Year Rs. 5.61 Million) and Rs. 7.36 Million paid to Mr. Pravin Agarwal (Previous Year Nil). In addition, Dr. Anand Agarwal has been granted 41,300 Stock Options, each option convertible in one equity share of Rs. 5 each. The option would vest as per the vesting conditions approved by the Compensation Committee. The Company has accrued an expenditure of Rs. 18.66 Million towards total options granted till March 31, 2007 out of which Rs. 1.60 Million are attributable to the options granted to Dr. Anand Agarwal. 21. Operating Leases Disclosures in respect of Operating Leases of office and factory buildings as per the requirement of Accounting Standard 19 on Leases, (AS)-19 issued by The Institute of Chartered Accountants of India, is as under: (a) Lease payments recognised in the statement of Profit and Loss for the period is Nil (Previous Year Rs. 4.20 Million). (b) The future minimum lease payments payable over the next one-year is Nil (Previous Year Rs. 4.20 Million).

22. Earnings Per Share (EPS) The earnings per share, computed as per the requirement under Accounting Standard 20, (AS)-20 on Earnings per Share issued by The Institute of Chartered Accountants of India, is as follows :

III

Earning Per Share - EPS

Net Profit as per Profit and Loss Account available for Equity shareholders Weighted Average Number of equity shares For Basic Earning Per Share For Diluted Earning Per Share No. of Shares for Basic EPS Add: Potential Equity Shares (a) Convertible Warrant (b) Employee Stock Option No. of Shares for Diluted Earning Per Share Earning Per Share (Weighted Average) Basic (On Nominal Value of Rs. 5 Per Share) Diluted (On Nominal Value of Rs. 5 Per Share)

March 31, 2007 (Rs. in Million)

March 31, 2006 (Rs. in Million)

508.56

407.66

59,231,827

56,017,581

59,231,827

56,017,581

5,162,740 563,098 64,957,665

46,027 56,063,608

8.59 7.83

7.27 7.27

Schedules to Accounts

Sr. No.

23. The Company had allotted Nil (Previous Year 5,600,000 warrants on March 29, 2006 on preferential basis, Rs. 10 per warrant had been received upfront) to Promoter Group. The warrant holders had 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. During the year, 2,800,000 Share warrants were converted into 2,800,000 Equity Shares. In respect of the balance 2,800,000 Equity Warrants, option can be exercised on or before September 28, 2007. 24. The disclosures as per the revised Accounting Standard 15 on â&#x20AC;&#x153;Employee Benefitsâ&#x20AC;?, (AS)-15 issued by the Institute of Chartered Accountants of India are as follows:Change in defined benefit obligation :

Particulars Projected benefit obligation at the beginning of the period Service cost Interest cost Actuarial loss Benefits paid Projected benefit obligation at the end of the period

(b)

Rs. in Million 14.36 2.13 1.15 2.72 (1.57) 18.79

Change in fair value of plan assets :

Particulars Fair value at the beginning of the year Expected return on plan assets Contributions Benefits paid Actuarial gain Fair value at the end of the year

Rs. in Million 15.38 1.23 0.22 (1.57) 1.13 16.39

The Company's gratuity plan is a defined contribution plan and the liability is provided for the shortfall of fair value of plan assets as compared to the projected benefit obligation. Defined benefit asset is recognized only to the extent of projected benefit obligation as no economic benefit available in the form of refunds from the plan or reductions in the future contributions to the plan.

Annual Report 2006 - 07

(a)

Net periodic gratuity cost

Rs. in Million

Service cost Interest cost Net actuarial loss Expected return on plan assets Net periodic gratuity cost

2.13 1.15 1.59 (1.23) 3.64

Assumptions: Discount rate Rate of increase in compensation levels of covered employees Expected rate of return on plan assets

8.00 % 5.00 % 8.00%

Since this is the first year of adoption of (AS) - 15 (Revised), previous year's figures have not been given. 25. Details regarding licensed/registered, installed capacity and actual production (as certified by the Management)

(a) Capacity Copper Telecom Cables Fiber Optic Cables * Optical Fiber Broadband Access Networks Power Transmission & Distribution Conductor**

UNIT CKM FKM KM NOS. MT

Licensed /Registered Capacity Current Year Previous Year Per Annum 9,500,000 3,222,528 5,000,000 1,500,000 N.A

Per Annum 7,500,000 2,400,000 5,000,000 1,500,000 N.A.

Installed Capacity Current Year Previous Year Per Annum 9,500,000 3,222,528 4,000,000 720,000 75,000

Per Annum 7,500,000 2,400,000 4,000,000 600,000 N.A.

* Based on Average FKM ** N.A.-Delicenced vide notification No. 477 (E) Dated July 27, 1991.

(b) Production (including for Captive Consumption) Copper Telecom Cables Fiber Optic Cables Optical Fiber * Power Transmission & Distribution Conductors (AAC/ACSR) **

UNIT

Current Year

Previous Year

CKM FKM KM MT

Per Annum 1,924,895 1,205,441 3,905,548 58,199

Per Annum 3,794,403 1,082,510 2,729,892 N.A.

*It includes 1,150,015 KM (Previous Year 792,923 KM) produced for captive consumption. ** Current year 91,426 KM, Previous Year N.A.

(a) Opening Stock

Copper Telecom Cables * Fiber Optic Cables * Optical Fiber Power Transmission & Distribution Conductors** (AAC/ACSR) (Current Year 6,055 KM Previous Year is NA)

UNIT

Current Year Quantity Value (Rs. In Million)

Previous Year Quantity Value (Rs. In Million)

CKM FKM KM MT

206,324 58,087 414,165 4,077

213,885 39,404 658,971 N.A.

TOTAL

121.86 82.26 134.06 538.00

876.18

Schedules to Accounts

26. Quantitative information in respect of Opening Stock, Closing Stock, Sales of Finished Goods and Consumption of Raw Materials (As Certified by Management)

138.56 60.94 271.93 N.A.

471.43

*Opening stock of Copper Telecom Cables include 9,551 CKM (Rs. 6.52 Million) and Fiber Optic Cables include 2,832 FKM (Rs. 3.62 Million) on account of Amalgamation of Sterlite Telelink Ltd. and Nil on account of Sterlite Telecom Ltd. **Transfer on purchase of “Power Transmission Line” Business on July 1, 2006.

Copper Telecom Cables Fiber Optic Cables Optical Fiber Power Transmission & Distribution Conductors (AAC/ACSR) (Current year 2,032 KM Previous Year is NA) Others TOTAL

Copper Telecom Cables Fibre Optic Cables Optical Fiber Power Transmission & Distribution Conductors (AAC/ACSR) Current Year 95,449 KM, Previous Year is NA) Others TOTAL

UNIT

Current Year Quantity Value (Rs. In Million)

Previous Year Quantity Value (Rs. In Million)

CKM FKM KM MT

96,769 62,239 446,485 1,038

196,773 55,255 414,165 N.A.

78.03 69.44 146.51 128.48

0.04 422.50

UNIT

CKM FKM KM MT

Current Year Quantity Value (Rs. In Million)

115.34 78.64 134.06 N.A.

328.04

Previous Year Quantity Value (Rs. In Million)

2,034,450 1,201,289 2,723,213

1,798.33 1,568.27 974.50

3,811,516 1,066,659 2,181,774

2,673.85 1,611.03 788.00

61,238

8,463.93

N.A.

203.75

1,166.45

13,008.78

6,239.33 Annual Report 2006 - 07

(b) Closing Stock

(d) Raw Material Consumed

Aluminum/ Alloy Copper Rods Polyethylene Compounds Galvanised Steel Wire/ Steel tape Resin Access Products and Services Others

UNIT

Current Year Quantity Value (Rs. In Million)

Previous Year Quantity Value (Rs. In Million)

MT MT MT MT KG NOS

58,199 3,147 2,376 422,042 207,974

N.A. 5,639 8,095 5,355 143,430 540,000

6,423.31 958.40 152.03 64.66 111.90

TOTAL

1,053.10

N.A. 1,061.94 436.22 214.10 92.82 493.20 1,497.66

8,763.40

3,795.94

27. CIF Value of Imports Particulars

Current year (Rs. in Million)

Previous year (Rs. in Million)

Raw Material Stores, Spares & Consumables Capital Goods

3,834.57 56.64 223.71

2,537.10 29.57 3.68

TOTAL

4,114.91

2,570.35

28. Expenditure in Foreign Currency Particulars

Current year (Rs. in Million)

Travel Sales Commission Interest Others TOTAL

Previous year (Rs. in Million)

9.20 51.11 74.47 50.65

2.25 61.64 33.50 5.63

185.43

103.02

29. Earnings in Foreign Currency Particulars

Current year (Rs. in Million)

FOB value of Exports

2,964.39

Previous year (Rs. in Million) 847.93

30. Value of Raw Material Consumed Description

Current year (Rs. in Million)

% of Total Consumption

Previous year (Rs. in Million)

% of Total Consumption

Indigenous Imported

5,273.08 3,490.32

60.17 39.83

1,294.27 2,501.67

34.10 65.90

TOTAL

8,763.40

100.00

3,795.94

100.00

Schedules to Accounts

31. Value of Components, Stores and Spare Parts Consumed Description

Current year (Rs. in Million)

% of Total Consumption

Previous year (Rs. in Million)

% of Total Consumption

Indigenous Imported

120.73 38.66

75.75 24.25

83.36 23.25

78.19 21.81

TOTAL

159.39

100.00

106.61

100.00

32. Contingent Liabilities Sr. No. Description

2 3 4 5 6 7

Disputed Liabilities in Appeal a) Sales Tax b) Excise Duty c) Customs Duty d) Service Tax e) Claims lodged by a Bank Against the company f) Excise Duty Case in High Court (Refer Note 8 supra) Outstanding Bank Guarantees Outstanding amount of Export obligation against Advance License Export Obligation under EPCG Scheme Bond in Favour of Excise Department Estimated Amount of contracts remaining to be executed on Capital account and not provided for (Net of Advances) Bills Discounted

Previous year (Rs. in Million)

5.90 319.97 682.14 8.01 188.70

24.20 364.42 372.21 6.00 188.70

3,978.95 372.01 3,887.06 67.83 347.78

443.88 23.29 2,338.76 10.61 -

193.22

The company 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.

The Company has been made a party to the litigation in United States of America by USA based company for the alleged infringement of three patents by the company for sales in previous years in the USA and for alleged misappropriation of trade secrets by engaging some of ex-employees of the claimant. The company is contesting this matter in USA and believes that no significant liability would occur to the company. At present due to uncertainty amount is not ascertainable.

Annual Report 2006 - 07

Current year (Rs. in Million)

33. In accordance with the Accounting Standard-17 on “Segment Reporting” (AS)-17, issued by the Institute of Chartered Accountants of India, the Company has identified three reportable Business Segments i.e. Optical Fiber (cabled/uncabled), Access Business and Power Transmission Business, which are regularly evaluated by the Management, in deciding the allocation of resources and assessment of performance. The segment performance as follows: (Rs. in Million)

Segment Reporting as required under AS 17 for the year

(i) Particulars

Optical Fibre

Copper Cables /

Transmission

Business Access Business Cabled / Uncabled) 2006-07 2005-06 2006-07 2005-06 2006-07 2005-06 Segment Revenue Less : Excise Net Revenue Segment Results (PBIT) Less : Interest Profit / (Loss) Before Tax Provision for Tax (Net) Profit / (Loss) After Tax Segment Assets Segment Liabilities Capital Expenditure Incurred Depreciation Amortisation Significant non cash expenditure Provision for Contingencies

(ii)

2,572.54 2,413.73 1,947.52 3,825.60 8,488.72 190.17 330.50 192.03 435.11 645.04 2,382.37 2,083.23 1,755.49 3,390.49 7,843.68 140.89 193.52 114.74 202.80 584.32 4,439.41 4,261.05 1,859.83 1,944.80 5,071.81 493.29 377.96 860.87 937.09 761.82 157.46 26.49 60.02 20.30 1,101.28 233.07 206.01 42.37 83.91 40.29 -

Particulars

Segment Revenue -External Turnover Within India Outside India Total Revenue Segment Assets Within India Outside India Total Assets Capital Expenditure Within India Outside India Total Capital Expenditure

Others

Unallocable

2006-07 2005-06 2006-07 (17.76) 18.16 -

Total

2005-06 2006-07

2005-06

- 13,008.78 6,239.33 - 1,027.24 765.61 - 11,981.54 5,473.72 24.02 146.60 846.21 542.92 315.40 169.36 315.40 161.36 530.81 381.56 22.24 (26.10) 22.24 (26.10) 508.57 407.66 1,097.98 1,159.17 12,469.03 7,365.02 338.97 353.03 2,454.95 1,668.08 - 1,318.77 46.79 315.73 289.92 18.16 -

Current year (Rs. in Million)

Previous year (Rs. in Million)

10,044.39 2,964.39 13,008.78

5,391.40 847.93 6,239.33

11,658.40 810.64 12,469.04

7,255.95 109.07 7,365.02

1,318.77 1,318.77

46.79 46.79

34. Small Scale Industrial undertaking - Nil whom amount is due for more than 30 days has been determined based on the information available with the Company. 35. The Company has not a receive any intimation from "Suppliers" regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence the Disclosure, if any, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act have not been given. 36. Expenditure of Rs. 31.28 Million on account of financing cost relating to borrowed funds for construction or acquisition of fixed assets on projects under implementation is debited to “Capital work in Progress”.

Schedules to Accounts

37. Remittances in Foreign Currency On account of dividend to non-resident shareholders Final Dividend: No. of Shareholders No. of Equity Shares Amount Remitted, net of tax (Rs. in Million) Year to which it pertains

Current year

Previous year

1 22,530,550 11.27 2005-2006

Nil Nil Nil Nil

38. Comparative 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. During the current year, pursuant to the scheme of Amalgamation of Sterlite Telelink Ltd and Sterlite Telecom Ltd. figures are not comparable with those of the previous year. Figures of the previous year have been regrouped/reclassified wherever necessary to correspond to figures of the current year.

Place: Mumbai Dated: April 30, 2007

Pravin Agarwal Whole-time Director

Dr. Anand Agarwal CEO & Whole-time Director

Anupam Jindal Chief Financial Officer

Sandeep Deshmukh Company Secretary

Annual Report 2006 - 07

For and on behalf of the Board

Cash Flow Statement STERLITE OPTICAL TECHNOLOGIES LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007

Cash flow from Operating Activities Net Profit/(Loss) after tax as per Profit And Loss Account Adjustment for Taxation

2007

2006

(Rs. in Million)

508.57 22.24

407.66 (26.10) 530.81

Adjustments for : - Depreciation - Provision for amortisation - Gain on prepayment of Deferred Sales Tax Liability - Provision for debtors written back - Interest Expenses (net) - Exchange Difference - (Profit) / Loss on Sale of Assets - Employees Stock Option Expenses amortised

315.73 18.16 (3.48) (5.00) 344.61 (48.84) 1.10 18.66

381.56 289.92 (146.60) 161.36 (1.49)

640.94 Operating profit before working capital changes

1,171.75

684.75

209.52

(661.23) (85.14) (161.14)

1,381.27

(222.76)

(72.37)

(35.25)

1,308.90

(258.01)

Purchase of Fixed Assets (Including Capital Work in Progress) Proceed from Sale of Fixed Assets Purchase of Investments Sale of Investments Purchase consideration for PTL Business of Sterlite Industries (India) Ltd Investment in Bank Fixed Deposits Application money Paid pending allotment Interest received from Subsidiary Companies Loan to Subsidiary Companies

(983.24) 3.07 (1,149.30) 1,086.30 (1,485.10) (167.15) -

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

Net cash flow from Investing Activities

(2,695.42)

(647.22)

Adjustments for : - (Increase)/Decrease in Trade and other receivables - (Increase)/Decrease in Inventories - Increase/(Decrease) in Trade payables

(941.64) 1,265.57 (114.41)

Cash generation from operations Direct taxes (paid / TDS deducted) / Refund received Net cash flow from Operating Activities B.

Cash flow from Investing Activities

Cash Flow Statement

STERLITE OPTICAL TECHNOLOGIES LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2007 2006 (Rs. in Million)

Cash flow from Financing Activities 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)

955.04 252.00 100.24 (346.05) (33.31)

1,175.73 336.00 (117.62) (163.43) (0.03)

927.92

1,230.65

Net Increase/(decrease) in cash and cash equivalent

(458.60)

325.42

Cash and cash equivalent as at beginning of the year

463.08

137.66

Cash and cash equivalent taken over on merger of subsidiaries and purchase of PTL Business.

126.02

Cash and cash equivalent as at end of the year

130.50

463.08

Net 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. As per our attached Report of even date

For and on behalf of the Board

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

Pravin Agarwal Whole-time Director

Dr. Anand Agarwal CEO & Whole-time Director

Anupam Jindal Chief Financial Officer

Sandeep Deshmukh Company Secretary

Place: Mumbai Dated: April 30, 2007

Annual Report 2006 - 07

2007 (Rs. in Million)

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

Registration Details Registration No.

1 2 5 2 2 5

1 1

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

III

State Code 2 0 0 7

0 3

Balance Sheet Date 3 1

Right Issue

N I L

Private Placement

N I L

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

1 2 4 6 9

Total Assets

1 2 4 6 9

Sources of Fund Paid by Equity Share capital

3 0 8 Share Warrant

Reserve & Surplus

3 8 1 2 Secured Loans

Unsecured Loans

2 1 3 Deferred Tax

2 8 Employee Stock Option Outstanding

1 9

5 6 5 4 1 0 2

Application of Funds Net Fixed Assets Miscellaneous Expenses

6 3 Net Current Assets

4 8 7 2 Investments N I L

5 2 0 0

N I L

Accumulated Losses

IV Performance of Company (Amount in Rs. Million) Turnover

1 1 9 8 2

Profit Before Tax

5 3 1

Basic EPS in Rs.

8 . 5 9

Other Income Profit after Tax Diluted EPS in Rs.

5 2

Total Expenditure

1 1 5 0 2

5 0 9

Dividend rate %

1 5

7 . 8 3

Generic Names of Four Principal Products of the Company 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 Item Code no. ( ITC Code) Product Description

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

Item Code no. ( ITC Code) Product Description

7 6 1 4 1 0 A L UM I N I UM (A A C/ A C S R)

Item Code no. ( ITC Code) Product Description

8 5 1 7 6 2 3 0 BR O A D B AN D N E T WO R K S

A C C E S S

C A B L E

T E L E P H O N E

C O N D U C T O R S

For and on behalf of the Board

Place : Mumbai Dated : April 30, 2007

Pravin Agarwal Whole-time Director

Dr. Anand Agarwal CEO & Whole-time Director

Anupam Jindal Chief Financial Officer

Sandeep Deshmukh Company Secretary

E-3, MIDC, Waluj Aurangabad - 431 136 Maharashtra, INDIA Phone: +91-240-2564597 Fax: +91-240-2564598 Level 27, Bangkok City Tower 179/114-116 South Sathorn Road Kwaeng Thungmahamek Khet Sathorn Bangkok 10120, THAILAND Phone: +66-2343 1858 Fax: +66-2343 1818 Room 1802, China Merchants Tower No 118 Jian Guo Road Chao Yang District Beijing 100022, CHINA Phone: +86-10-59233898 Fax: +86-10-59233705 PO Box 123472, LOB04, Office 019 Jebel Ali Free Zone, Dubai UNITED ARAB EMIRATES Phone: +971-4-8817917 Fax: +971-4-8873025 16, Berkeley Street, London WIJ 8DZ, England, UNITED KINGDOM Phone: +44-1352-810201 Fax: +44-1352-810201 90, bid.3 Krasnobogatyrskaya St 107076 Moscow, RUSSIA Phone: +7-495-579 2337 Fax: +7-495-579 2337 601, Samarpan Complex New Link Road Chakala, Andheri (East), Mumbai 400 099 Maharashtra, INDIA Phone: +91-22-67022260 Fax: +91-22-67022265

Scope Office Complex Core - 6, 6th Floor, C/o BALCO 7 Lodhi Road New Delhi 110 003, INDIA Phone: +91-11-24366087 Fax: +91-11-24364076 Atur Chambers 2A Moledina Road Pune 411 001 Maharashtra, INDIA Phone: +91-20-30512700 Fax: +91-20-26124340 B2002, Far East International Plaza 317, Xianxia Road Shanghai - 200051, CHINA Phone: +86-21-62351469 Fax: +86-21-62351470

Manufacturing Locations OPTICAL FIBER E-2, E-3, MIDC, Waluj Aurangabad 431 136 Maharashtra, INDIA Phone: +91-240-2564599 Fax: +91-240-2564598 FIBER OPTIC CABLES Survey No 68/1, Madhuban Dam Road, Rakholi 396230 Union Territory of Dadra & Nagar Haveli, INDIA Phone: +91-260-6612000 Fax: +91-260-2644078 COPPER TELECOM CABLES Survey No 209Phase 2, Piparia Industrial Estate Silvassa, Union Territory of Dadra & Nagar Haveli, INDIA Phone: +91-260-2641116 Fax: +91-260-2640394

POWER TRANSMISSION CONDUCTORS, ALUMINUM & ALLOY RODS Survey No. 99 Madhuban Dam Road, Silvassa - 396 230 Union Territory of Dadra & Nagar Haveli, INDIA Phone: +91-260-6612201 Fax: +91-260-6612260 P.O. Karanjawane, Nasrapur Velhe Road, Off Pune-Satara Highway, Taluka Velhe Pune - 412 305, INDIA Phone: +91-2130-236113 / 114 Fax: +91-2130-236117 Plot 2D, Sector 10 IIE - BHEL, SIDCUL Haridwar, Uttarakhand Phone: +91-1334-323016 Fax: +91-1334-239375 STRUCTURED DATA CABLES Survey No. 33/1/1 Waghdara Road Dadra, Union Territory of Dadra & Nagar Haveli, INDIA Phone: +91-260-2668598 Fax: +91-260-2644078 CUSTOMER PREMISE EQUIPMENT E-1, MIDC, Waluj Aurangabad 431 136 Maharashtra, INDIA Phone: +91-240-2564599 Fax: +91-240-2564598

Annual Report 2006 - 07

Marketing / Sales & Representative Offices

Locations

Optical Fiber Plant, Aurangabad, India

Chief Financial Officer

Annual General Meeting

Anupam Jindal

Date, Day & Time : July 13, 2007, Friday at 1130 hrs

Company Secretary

Venue : E-1, MIDC, Waluj, Aurangabad - 431 136, Maharashtra, India.

Sandeep Deshmukh

Auditors Deloitte Haskins & Sells Chartered Accountants

Bankers Bank of Maharashtra Citibank Corporation Bank HDFC Bank Limited ICICI Bank Limited Oriental Bank of Commerce Punjab National Bank

Registered Office

State Bank of India

E-1, MIDC Waluj

Union Bank of India

Aurangabad 431 136

Yes Bank

Maharashtra, 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 a leading global provider of Optical Fibers, Telecommunication Cables and Power Transmission Conductors. The Company is India's only integrated Optical Fiber manufacturer and is among the select few globally. Sterlite Optical Technologies Limited is a Public Limited Company, listed on the Bombay Stock Exchange and National Stock Exchange in India. Deloitte has nominated Sterlite Optical Technologies as the '6th Fastest Growing Technology Company in India' and '73rd Fastest Growing Technology Company in AsiaPacific' in 2006. The Company was also among the winners of the 'Deloitte Technology Fast 50 India & Fast 500 Asia Pacific awards for 2005. Sterlite's experience with the varying requirements of customers in global markets has ensured continuous improvement and customer orientation of the company. Sterlite's customer list includes some of the most prominent companies in the Telecom and Energy world. In India, Sterlite Optical Technologies is a significant market leader. The Company currently sells its telecom and power products in over 60 countries and currently supplies 4% of the global demand for Optical Fibers. All Sterlite's telecom products comply with ITU-T recommendations and BS EN 188000, EIA/TIA & CEI-IEC 60793 Test Standards. All Sterlite's power transmission products comply with IS, IEC, BS, ASTM, NFC, Din, AS, JIS & CSA International Specifications.

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

REGISTERED OFFICE E-1, MIDC, Waluj, Aurangabad - 431 136, Maharashtra, INDIA. Phone: +91-240-2564597 Fax: +91-240-2564598

June 2007

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