satyam computer services limited

Satyam Computer Services Limited

2 0 t h A n n u a l R e p o r t, 2 0 0 6 - 0 7

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Key Milestones (1987 - 2007)June 1987 Incorporated as a private limited companyJune 1991 Deere & Co., Satyam's first Fortune 500 Client,

initiates an offshore software projectAugust 1991 Recognized as a Public Limited CompanyJanuary 1992 Installation of 64 kbps satellite link, which paves

the way for online access to global clientsMay 1992 Initial Public Offering oversubscribed 17 timesJuly 1993 Joint Venture with Dun & BradstreetMarch 1995 Awarded ISO 9001 CertificationNovember 1995 Satyam Renaissance foundedDecember 1995 Satyam Infoway incorporatedApril 1996 Satyam Enterprise Solutions comes into being;

Satyam Spark Solutions set upSeptember 1996 Formal inauguration of Satyam Technology

CenterMay 1997 First Indian IT Company to get ITAA Certification

for Y2K SolutionsNovember 1998 Launch of Satyam Infoway's ISP ServiceMarch1999 Assessed at SEI CMM® Level 5June 1999 Launch of Dr. Millennium, the most

comprehensive solution for Y2K problemsAugust 1999 Satyam Spark Solutions Ltd., Satyam Enterprise

Solutions Ltd. and Satyam Renaissance Ltd.Satyam Computer Services Ltd.

September 1999 Satyam's Founder and Chairman, RamalingaRaju, receives Ernst & Young Entrepreneurship(Services) Award

October 1999 Satyam Infoway becomes the first Indian Internetcompany to be listed on NASDAQ

January 2000 Satyam's Joint Venture with Venture EngineeringServices Ltd. goes on stream

February 2000 Declared one of '100 Most PioneeringTechnology Companies' by World EconomicForum, Davos

May 2000 Joint Venture with Computer Associates formedJune 2000 Satyam, Microsoft join hands to speed Web/

e-Commerce Applications; Satyam, TRW formstrategic alliance to service the Automobile Sector

July 2000 Offshore Development Center for the EmiratesGroup established

August 2000 National HRD Award from Government of IndiaDecember 2000 Satyam's Founder and Chairman, Ramalinga

Raju, named "IT Man of the Year" by DataquestFebruary 2001 Satyam Europe launches Enterprise Application

Integration (EAI) initiativeMarch 2001 Becomes first ISO 9001:2000 Company

in the world, certified by BVQI

April 2001 Satyam's Middle East Solutions Centerinaugurated at Dubai Internet City;Asia-Pac Headquarters at Singapore set up;Bags Frost & Sullivan Award for CompetitiveStrategy in ASP

May 2001 Listed on New York Stock ExchangeNovember 2001 Offsite Development Center in Sydney opened;

Satyam and Carnegie Mellon launch world's firstIT- enabled Services Quality Model

December 2001 IMC Ramkrishna Bajaj National Quality AwardTrophy awarded to Satyam

January 2002 Launched operation in ChinaMarch 2002 Certified under BS 7799 International Information

Security StandardsSeptember 2002 Satyam's IT Offshore Service Delivery Program

cited as 'Industry Best Practice' by AberdeenGroup Report; Wins Golden Peacock Award forExcellence in Corporate Governance

October 2002 Satyam's Support To World Bank Intranet WinsWorld-Wide Recognition; B. Ramalinga Raju, winsCorporate Citizen of the Year Award;Inaugurationof Nipuna (Satyam’s BPO company) facility atHyderabad; Strategic alliance with PeopleSoftIndia formed

December 2002 Cited as "Top choice for SAP support" byGiga Research group

February 2003 Announce business continuity center inSingapore, the first-of-its-kind outside India

April 2003 Global Solutions Center in Malaysia launched;Satyam and Microsoft sign MoU to provideworld-class IT outsourcing services in Asia-Pacificregion

December 2003 Awarded IBM Lotus Award in Knowledge &Content Management Solutions category in the10th Annual IBM Lotus Awards

February 2004 New development center inaugurated inMississauga, Canada

April 2005 Acquired London-based Citisoft PlcMay 2005 Sponsored ADR offeringJuly 2005 Acquired Singapore-based Knowledge Dynamics,

a leading Data Warehousing and BusinessIntelligence solutions provider

July 2005 Set up Futurus, a business lab that simulatesfuture business scenarios based on decisionstaken today

2006 - 07• Ranked No. 1 amongst the global Engineering Services

Outsourcing Vendors by The Black Book of Outsourcing, 2006• Recognized as Global No. 2 'Best Managed Outsourcing

Vendor' by Brown and Wilson Group Survey, 2006• Positioned as 'Challenger' in Gartner's Magic Quadrant for

North American ERP Service Providers, 2006

• Recognized by Most Admired Knowledge Enterprise (MAKE) as TopAsian Knowledge Organization, 2006

• First IT Company to receive the Business World, FICCI SEDFCorporate Social Responsibility Award, 2006

• Rated by IR Global Rankings as No. 1 in ‘Best Corporate GovernancePractices’ and in ‘Best Earnings Release & Financial DisclosureProcedures’ across Asia Pacific, for region (India) and industry (technology)

Ranked 15th

forcommitmentto employeelearning

No. 2 in theHewitt IndiaBest EmployersSurvey

No.3 in theBT-MERCER-TNSBest EmployersSurvey, 2006

Only IT servicescompany to featureamongst the top 20best employers inAsia, as adjudged byHewit Asia

Recognized as the topAsian knowledgeorganization by MostAdmired KnowledgeEnterprise (MAKE),2006

First evercompany inAsia to befeatured

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Dear Shareholders,

I am pleased to report that your company hasachieved an annual revenue growth of 35% and netprofit growth of 43% on a consolidated basis as perIndian GAAP for FY 2007. The continued strengthin performance is a result of strategic initiatives takenby us in several important areas. In 2007, we added138 customers. Seven of these are US and GlobalFortune 500 companies taking the total count to 558customers, including 163 US and Global Fortune 500companies. At the start of 2007 we planned to delivera greater proportion of services from offshore. Wehave made quite some progress in this area leadingto an increase in offshore contribution to 49% ofrevenue compared to 45% in FY 2006. The netaddition of associates during the year was about11,000 taking the total organization strength to about40,000. The year featured a reduction in associateattrition from 19.2% to 15.7% in FY 2006. We werechosen as the second ‘Best Employers in India’ inthe Hewitt survey and were also featured among theTop 12 in the Hewitt ‘Best Employers in Asia’ Survey,making us the only IT services company from Indiain the Top 20 rankings. These achievements werepossible on account of adequate focus on developingour deep competencies, associate delight and strongcustomer relationship management. During thecourse of FY 2007, we participated in and wonseveral multi-million dollar multi-year large deals.Our track record of delivering comprehensivesolutions based on demonstrated industry andtechnology expertise has helped in forging strongrelationships with our larger customers and ensuredthat we gain a significant proportion of our revenuefrom repeat business. In the last year, 90.6% of ourrevenues were generated from existing customers.We expect the coming year to bring in many moresuch large deals which are very important to providean annuity view to the visibility of our earnings. Aswe enter FY 2008 we realize that in order to stayahead of our competition it is evident that we needto continue enhancing the breadth and depth of ourcustomer relationships. SatyamWay ensures that weare able to view each relationship from the eyes andears of the person managing the relationship. Our

Chairman’s Communiqué

organization is designed to serve the customersthrough as a cohesive, collaborative support systemand accordingly, we ensure that the best and mostrelevant of our organization is presented to thecustomer and their success. We continuing toimprove the capability of our customer relationshipmanagers by increasing the effectiveness andefficiency of our support. We are truly focused onsignificantly improving the breadth and depth of ourrelationships with the C-suite of executives so thatwe are able to deliver significantly greater value tothem. We are highly encouraged by the continuedexpansion of the addressable market for global ITand BPO services. In our quest to address the marketmore sharply, we have matured the distinctcapabilities required in consulting services, ITservices, infrastructure management services, BPOservices and engineering services. This opens thedoors to a rich pipeline of opportunities across variousservice offerings that we can deliver from large talentpools in several emerging economies. These markets

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are characterized by rapid technological change andever-changing customer preferences towardsintegrated solutions. Our future success is accordinglytied to the transformation we can effect in ourcustomers organizations to bring increasingly greatervalue to them. It is equally important to showcaseour competencies through a focused effort aroundCenters of Excellence which, in addition todemonstrating our capabilities, will act as triggers todevelop futuristic service offerings. As we seek topartner with customers in becoming their trustedadvisors, we will offer integrated business solutionsthat span industries, functional areas and technologyplatforms. We have already created an IntegratedBusiness Solutions Group and instituted a TechnologyOffice to further our endeavors toward these goals.We intend to continue to explore the formation ofnew alliances as well as strengthen existingpartnerships with key technology vendors to enableus to leverage our partners’ strengths. We will alsoconsider acquisitions to gain access to specifictechnologies and exploit synergies with our existingbusinesses. As we focus on more value-addingintegrated business solutions, we continue to expandour global delivery centers in different regions tocapitalize on the growth potential and harnessemerging pools of talent for tomorrow. In 2007, weexpanded with a third development center in China,a 2,000-seat facility in Malaysia, and anotherdevelopment center in Egypt. We believe that thesenew development centers, apart from serving ourexisting customers also help us generate new businessin these locations. We believe that these centers willalso allow us to respond quickly to fulfill customerrequests and interact more closely with them. Wealso believe that the use of locally recruited associatesand managers working from our global developmentcenters will enable us to increase our market sharein these regions and compete effectively bycombining local expertise with our global deliverycapabilities. To sustain the above mentionedcompetitive advantage we will strive to grow leadersfaster than anybody else in our sector. Growth inleaders will result in leadership in growth. In 2007,the Satyam School of Leadership (SSL) did exemplarywork to achieve our objectives on this front.Another critical driver toward sustained competitive

advantage is innovation. We innovate in every aspectof our business that drives our ability to address ourcustomers' business needs and offer unique solutionsto help them stay ahead of their competition. Wehave a history of innovation, starting with pioneeringthe offshoring effort and since, continuouslydeveloping industry-leading practices in recruitment,project planning and knowledge sharing. Thesemoves have further enhanced our brand andreputation in the market. Like all successfulcompanies have their own way of working andcreating value as they capture business opportunities,we take great pride in our SatyamWay of valuecreation. SatyamWay helps align all our associatesand provides 'One Satyam Experience' to the delightof our stakeholders. This model also helps usdifferentiate ourselves in the market and establishesus as a high-performing company that is built tooutlast competitive forces. With these initiatives, weare confident of continuing to grow profitably, therebymitigating most of the impact from changes in fiscalpolicy resulting in special economic zones replacingsoftware technology parks. As we continue to see astrong demand in the market and with our diversecapabilities to address that demand, we look forwardto a revenue growth rate of 28% to 30% and arecord revenue of US $1.9 billion as per USGAAP. The EPADS is expected to grow in therange of 27% to 29%. As per Indian GAAP, theexpected consolidated revenue growth rate is20% to 22% along with the EPS growth of18% to 20% after factoring in a rupee appreciationof 6%.

While each one of us celebrates 20 years of Satyam’sexistence, I take this opportunity to thank all of youfor the extensive support and dedication that you haveprovided to the organization.

Best regards,

B Ramalinga Raju

Place: SecunderabadDate: April 20, 2007

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Highlights

ParticularsFor the year ended For the year ended

March 31, 2007 March 31, 2006

Rs. in crores US$ in million Rs. in crores US$ in million

Export sales 5,961.06 1,321.16 4,461.64 1,009.88

Domestic sales 267.41 59.27 172.67 39.08

Other income 181.61 40.25 377.91 85.54

Total income 6,410.08 1,420.67 5,012.22 1,134.50

Operating profit (PBIDT) 1,710.73 379.15 1,571.42 355.69

Financial expenses 7.61 1.69 2.72 0.62

Depreciation 129.89 28.79 122.81 27.80

Income tax 150.00 33.24 206.14 46.66

Profit after tax (PAT) 1,423.23 315.43 1,239.75 280.61

Earnings per share (EPS) on par value of Rs.2/- Rs. 21.73 $0.48 Rs. 19.26 $0.44

Dividend 175%# 350%

PAT as % to total income 22.20 24.73

Share price (NSE/BSE)

— High Rs. 550.00/524.90 $ 2.18/11.62 Rs. 430.90/431.00 $ 9.75/9.75

— Low Rs. 280.83/270.50 $ 6.22/5.99 Rs. 182.03/182.20 $ 4.12/4.12

— Closing Rs. 470.35/470.10 $ 10.41/10.41 Rs. 424.25/424.60 $ 9.60/9.61

ADS price (NYSE)

— High $ 25.94 $ 21.95

— Low $ 13.98 $ 10.50

— Closing $ 22.70 $ 21.88

US$ exchange rate* (Rs.) 45.12 44.18

As at March 31, 2007 As at March 31, 2006


Share capital 133.44 30.96 64.89 14.59

Reserves and surplus 5,648.07 1,310.46 4,268.75 959.70

Fixed assets (Gross block) & CWIP 1,570.45 364.37 1,230.00 276.53

Current assets 5,936.26 1,377.32 4,468.97 1,004.71

Market capitalization 31,626.82 7,338.01 28,336.25 6,370.56

US$ exchange rate** (Rs.) 43.10 44.48

Number of associates 35,670 26,511

Number of shareholders 252,290 95,356

No. of shares/ADS traded

— NSE 796,981,380 869,686,996

— BSE 217,352,102 289,298,838

— NYSE 157,768,250 117,321,700

Note : Share prices and EPS figures for previous year have been adjusted for issue of bonus shares in the ratio of 1:1 allotted in October 2006.

# On the post-bonus equity share capital.

* The yearly average noon buying rate of Federal Reserve Bank of New York.

** The year end noon buying rate of Federal Reserve Bank of New York.

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 5

Decade at a Glance

Rs. in crores

For the year ended March 31,Particulars

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Total income 190.13 378.45 679.01 1,241.67 1,803.10 2,051.51 2,623.28 3,546.78 5,012.22 6,410.08

Operating profit (PBIDT) 78.54 146.69 252.56 466.71 652.32 646.39 774.31 971.70 1,571.42 1,710.73

Profit after tax 39.08 72.80 134.86 316.16 490.13 459.88 555.79 750.26 1,239.75 1,423.23

EPS on par value of Rs. 2 (Rs.)* 0.75 1.40 2.45 5.62 7.89 7.31 8.82 11.81 19.26 21.73

As at March 31,

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Share capital 26.02 26.02 56.24 56.24 62.91 62.91 63.25 63.85 64.89 133.44

Reserves and surplus 76.68 140.90 293.82 756.66 1,867.49 2,071.97 2,517.52 3,153.17 4,268.75 5,648.07

Fixed assets (Gross block) & CWIP 191.81 338.19 438.63 630.75 777.31 802.88 869.33 1,002.38 1,230.00 1,570.45

Current assets 90.15 183.01 391.25 674.64 1,623.21 2,126.37 2,590.22 3,272.82 4,468.97 5,936.26

Number of associates 2,255 3,582 5,067 8,370 8,634 9,759 14,032 19,164 26,511 35,670

* Adjusted for issue of bonus shares in the ratio of 1:1 allotted in October 2006.

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A session in progress at SatyamWorld Customer Summit 2007, Satyam’s annualcustomer event, which brings together global business and thought leaders.

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John Deere was Satyam's first Fortune 500 customer. A team of 36 Satyamengineers traveled to the United States to demonstrate a proof of concept forthe agricultural and consumer equipment leader. The team rented anapartment directly across the street from John Deere's information technologycenter, and called it ‘Little India’. On the premises of this makeshiftdevelopment center, IT delivery changed for good.

Satyam's engineers linked with John Deere's IT department through a 64 kbpsline. And, without any physical contact with their counterparts, the engineers

successfully simulated offshore software development. Satyam had broken new ground; geographic barrierswere all but eliminated, and the concept of software services was instantly revolutionized. The meteoric riseof offshoring as a business model soon followed, and was quickly adopted by all global IT organizations.

Satyam evolved its offshoring model into RightSourcing, an approach in which customers benefit from theoptimal combination of onsite, offsite, offshore, and nearshore delivery—maximizing cost, time, resource,and performance advantages. These pioneering efforts brought in additional Fortune 500 customers.

Today, more than 160 Fortune Global 500 and Fortune US 500 corporations partner with Satyam for theiroffshoring needs.

Pioneeringdelivery ofoffshoreservices

As IT services became more and more technology-centric and generic,Satyam foresaw the need to enhance customers' business capabilities.Starting with a deeper focus on insurance, financial services, telecom,manufacturing, transportation, and healthcare, Satyam pioneered the‘verticalization’ of IT service offerings.

In addition to providing mature, customized solutions for specificindustries, this approach enabled Satyam to become more knowledgeableof its customer’s value chain—to understand their businesses more deeply.Verticalization became the basis of Satyam's business-centric practices,applying innovative technology for business benefit.

Adoptingverticalization

of serviceofferings

Since its inception, 20 years ago, Satyam has consistently innovatedacross various aspects of the enterprise—processes, technology,

business and engagement models, and service offerings. With eachinnovation, Satyam has created a greater value for its stakeholders.

While the outcomes of Satyam innovations have been predictable, theway in which these innovations now happen and the way they aremanaged, has undergone a sea change. What began in an inspired

manner in the late 80s is now a culture of leadership and innovation!

Following are some of the paradigms Satyam has created over the years.

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Satyam’s Founder and Chairman, Ramalinga Raju, speaking at the inauguration of Satyam’s BusinessContinuity Center in Singapore. Satyam recently conducted a successful simulation of Country Outagewith this center.

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Satyam built its organization around a unique concept: theNetwork of Circles. The concept uses a non-hierarchical,connected, collaboration-driven approach that features thecustomer as its focal point. This innovative method facilitatedintegration across functional barriers, emphasized individualaccountability, and enhanced customer satisfaction. TheNetwork of Circles approach ensured that Satyam’s businessdrivers remained customer-focused—concentrating on their linesof business, the competencies and applications they require, andthe geographies in which they operate.

The Network of Circles approach reflected Satyam's commitment to place customers in the front and in thecenter, in all that it did. Satyam’s goal was to meet and exceed their objectives—through ideas, innovation,processes, and people. Achieving this goal meant continuously finding and creating synergies, and ensuringmutual gains at every step.

As a result, Satyam designed all of its processes to provide a sharp insight into the customer’s needs. Then, itacted on this information and created tangible customer benefits. By enhancing its competencies, sharing itsskills, and becoming part of the customer’s teams, Satyam enabled them to be at their competitive best at alltimes.

To keep pace with industry opportunities, Satyam’s support unitsneeded to work closely with customer-facing teams. However,enabling that required a fundamental and far-reaching change in theway work was done in the organization. That change took place inthe form of shared services.

Satyam began to offer most of its support services, particularly inadministration, human resources, and finance, in a largely virtualmanner. This approach provided more time for customer-facing unitsand associates to focus on the critical elements of their work:addressing the customer’s needs proactively.

The approach evolved into eSupport, an organization-wide portal that integrates all of Satyam’s processes bydelivering high-quality services through virtual teams.

Creating acustomer-centricorganizationalstructure

Enablingvirtual shared

servicedelivery

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Ram Mynampati, Member of the Board and President, Satyam’s Commercial and HealthcareBusinesses, interacting with financial analysts and investors.

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Since its beginning in 1987, Satyam had developed and refined a unique wayof creating value that reflects its business requirements and principles—theSatyamWay. The SatyamWay features three broad components: transformation,assets, and stakeholders. Each plays a key role in how Satyam executesbusiness.

Real business transformation occurs when associates spend proportionate timeThinking, Doing, and Communicating—at Satyam this proportion is a delicateand important balance. Additionally, Satyam’s most important assets includerelationships, competencies, and processes. Finally, Satyam defines its

stakeholders as Associates, Investors, Customers, and Society. And ensures that all initiatives taken up atSatyam balance the interests of these stakeholders. When that happens, value creation is an obvious result.

Satyam’s visionary approach to consulting crystallized in Futurus, astate-of-the-art business solutions laboratory. Futurus gives customers aclearer picture of their future. As a result, they can often avoid many risksinvolved in business and technology decisions.

The lab uses an integrated ecosystem of customers, technologyprofessionals, and business experts to architect its customers’ futures. Itincorporates sophisticated facilities to design and simulate future businessscenarios, while experimenting with various technology alternatives. Customers can view a ‘snapshot’ ofwhat their business will look like, based on decisions taken, or not taken, today.

Futurus arms customers with information they can use to make meaningful business and technologyinvestments and decisions. At the same time, it enables Satyam to provide considerable business andtechnology insight, and play a larger role in the customer’s success.

Building aculture ofvaluecreation

Ushering anew era inconsulting

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Satyam's Co-founder and CEO, Rama Raju, addressing senior Satyam leaders at Open Minds 2007, Satyam’sannual strategy summit, a platform for leaders to convene and discuss business strategy.

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Satyam’s Innovation Enablers program is evidence of the valueSatyam places on new ideas and thier promotion. The programfeatures two processes that help capture maximum value:

Idea Junction: A platform for Satyam associates to contribute ideas,suggestions, and process improvements, and to track their progress.Contributions are monitored by a real-time, intelligent, web-basedportal, with well-defined SLAs. Additionally, leaders are nominatedto facilitate evaluation, acceptance, and implementation of theseconcepts. Over several years, Idea Junction input has brought abouta host of opportunities and clear improvements across various facets of the organization.

Ideation: Ideation involves taking up cross-functional, complex business issues and conducting intensivebrainstorming by inviting senior associates from different functions. Ideation follows four basic steps forimplementing ideas:

• Theming (issue identification and definition) • Teaming (identifying a cross-functional team to solve theproblem) • Ideating (generating potential solutions) and signing off (reaching at an agreement afteractionable ideas have been identified) • Crystallizing

Laying astrong

foundation forinnovation

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Satyam recognizes that in the knowledge economy, leadership can comefrom anywhere in the organization. As such, Satyam has moved away fromthe traditional business hierarchy. Within Satyam, leaders can emerge and actindependently, with speed and agility. Consequently, the organization issometimes said to be in the business of ‘growing leaders’.

Satyam is organized into five broad functions: Customer Relationships,Alliance Relationships, Service Offerings, Processes, and Projects. These categories cover the entireorganization. Each category has a set of Full Life Cycle Businesses (FLCBs), and each FLCB is led by a FullLife Cycle Leader (FLCL).

FLCLs are encouraged to think and act like entrepreneurs; they are the CEOs of their FLCBs. As such,numerous Satyam associates have end-to-end ownership of their responsibilities, and have been transformedinto superior leaders. Satyam’s FLCL Program represents distributed leadership in its truest sense—theresponsibilities for day-to-day leadership of the company are distributed to these FLCLs, who today numbermore than 1,700.

Creating acommunityof leaders

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Underprivileged children learning in an interactive, technology-based environment.

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Satyam realizes that in today's competitive market, innovation is key.Additionally, Satyam understands that to thrive, it must continue to innovate—in its relationship management, through differentiated services, and in the wayit does business. In the next 20 years, Satyam will strive to solve customer’sbusiness problems with industry-, function-, technology- and integration-specificsolutions. To do so, it will leverage the leadership, partnership,entrepreneurship, and operational excellence, so common within theorganization.

Touching andtransformingmillions oflives

Innovationahead

The velocity with which Satyam identifies and pursues marketopportunities and the proximity of its decisions to where the action is,

will be crucial to achieving profitable, high-speed growth. Innovation tocreate unique and rapid-response value propositions that are truly

actionable will be essential. Collaborative leadership that understandsand is able to deploy rapid responses to market demands is of paramount

importance in the intensely competitive environment alive today.Continuous and timely innovation in all areas of business and a

commensurate ability to rapidly deploy solutions will require a well-oiledleadership engine.

Moving forward, Innovation, Partnership, Entrepreneurship andOperational Excellence will be the key drivers of profitable growth,

investor delight and in a larger sense—Leadership.

Satyam, working through its CSR arm, Satyam Foundation, is proud of itsassociates' strong tradition of contributing substantially to thecommunities in which they work and live. To that end, Satyam hasestablished a ‘fellowship commitment measure’, which calls for 10percent of its people to spend at least 10 percent of their personal timevolunteering.

This simple metric has done wonders for millions of lives. Today, Satyamhas more than 3,000 registered volunteers and 42 ‘Magnificent 7’ (or

‘M7’, a team of seven volunteers who take up specific social transformation projects) contributing to variousinitiatives, in India and other countries.

Volunteers at Satyam lend their expertise and commitment to causes such as:

• Environmental protection • HIV/AIDS prevention • Livelihood creation and enhancement• Education • Healthcare • Care for street children • Slum development• Need-based disaster management

Satyam’s approach is far more involved than simply donating money, as it believes that true societaltransformation and innovation occur when good people unite and act for a common cause.

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Contents

Board of Directors ........................................................... 17

Notice .............................................................................. 18

Directors' Report ............................................................. 21

Report on Corporate Governance .................................... 32

Enterprise Risk Management ............................................ 44

Corporate Social Responsibility ....................................... 47

Indian GAAP Financial Statements .................................. 51

Additional Information to Investors .................................. 93

Indian GAAP Consolidated Financial Statements ............. 99

Proxy Form .................................................................... 131

Route Map ..................................................................... 132

ECS Mandate ................................................................. 133

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Board of DirectorsB Ramalinga RajuChairman

B Rama RajuManaging Director

Ram MynampatiPresident & Whole-time Director

Dr. (Mrs.) Mangalam Srinivasan

Prof. Krishna G Palepu

Vinod K Dham

Prof. M Rammohan Rao

T R Prasad

Prof. V S Raju

Chief Financial OfficerV SrinivasDirector & Sr. Vice President

Company SecretaryG JayaramanSr. Vice President

AuditorsPrice Waterhouse,Chartered Accountants,Hyderabad – 500 082.

BankersBank of BarodaBNP ParibasCitibank N.A.HDFC Bank LimitedHSBC LimitedICICI Bank Limited

Registered OfficeMayfair Centre, I Floor, 1-8-303/36,

S. P. Road, Secunderabad – 500 003. A. P., India

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Notice

Ordinary Business1. To receive, consider and adopt

a) The audited Balance Sheet as at March 31, 2007;

b) The audited Profit and Loss Account for the yearended on that date;

c) The auditors’ report, thereon; and

d) The directors’ report.

2. To declare final dividend on equity shares.

3. To appoint a Director in place of Dr.(Mrs.) MangalamSrinivasan, director, who retires by rotation and, beingeligible, offers herself for reappointment.

4 . To appoint a Director in place of Prof. Krishna G Palepudirector, who retires by rotation and, being eligible,offers himself for reappointment.

5. To appoint M/s. Price Waterhouse, CharteredAccountants, as auditors of the Company for theperiod commencing from the conclusion of thismeeting till the conclusion of the next Annual GeneralMeeting, and to fix their remuneration.

Special Business6. To consider and if thought fit, to pass with or without

modification(s), the following resolution as an ordinaryresolution:

“RESOLVED THAT Mr. T R Prasad who was appointedas an Additional Director of the Company by the

Board of directors to hold office up to the date ofensuing Annual General Meeting as per section 260of the Companies Act, 1956, and in respect of whomthe Company has received a notice in writingproposing his candidature for the office of director,be and is hereby appointed as a director of theCompany, liable to retire by rotation.”

7. To consider and if thought fit, to pass with or withoutmodification(s), the following resolution as an ordinaryresolution:

“RESOLVED THAT Prof. V S Raju who was appointedas an Additional Director of the Company by theBoard of directors to hold office up to the date ofensuing Annual General Meeting as per section 260of the Companies Act, 1956, and in respect of whomthe Company has received a notice in writingproposing his candidature for the office of director,be and is hereby appointed as a director of theCompany, liable to retire by rotation.”

By order of the Board of DirectorsFor Satyam Computer Services Ltd.

G JayaramanPlace: Secunderabad Sr. Vice President–Corp. Governance

Date : June 7, 2007 & Company Secretary

Notice is hereby given that the 20th Annual General Meeting (AGM) of Satyam Computer Services Limited will be heldas per the schedule given below.

Day and Date : Thursday, August 30, 2007

Time : 11.00 AM

Venue : Harihara Kalabhavan, MCH complex, S. P. Road,Secunderabad – 500 003.

Notes

1. A member entitled to attend and vote at the meetingis entitled to appoint a proxy to attend and, on apoll, to vote instead of himself or herself. A proxyneed not be a member of the Company. Proxies inorder to be effective must be received by theCompany, not later than 48 hours before

commencement of the meeting. Completion andreturn of the form of proxy will not prevent a memberattending the meeting and voting in person if he orshe so wishes. A form of proxy is given at the end ofthe Annual report.

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2. The register of members and share transfers books ofthe Company will remain closed from August 27,2007 to August 30, 2007 (both days inclusive).

3. The final dividend of 125% for the year ended March31, 2007 as recommended by the Board, if approvedat the AGM, will be payable to those members whosenames appear on the Company’s register ofmembers on August 27, 2007.

4. While members holding shares in physical form maywrite to the Company for any change in their addressesand bank mandates, members holding shares inelectronic form may write to their depositoryparticipants for immediate updation so as to enablethe Company to dispatch dividend warrants to thecorrect addresses.

5. Members/proxies are requested to bring duly filled inattendance slips sent herewith for attending themeeting.

6. The statutory registers maintained under Sections 301and 307 of the Companies Act, 1956 and thecertificate from the auditors of the Company certifyingthat the Company’s stock option plans areimplemented in accordance with the SEBI (EmployeesStock Option Scheme and Employees Stock PurchaseScheme) Guidelines, 1999, and in accordance withthe resolutions passed by the members in the generalmeetings will be available at the venue for inspectionby members.

7. Route map for the venue of AGM is given at the endof the annual report for the convenience of members.

Explanatory statement pursuant to Section173 (2) of the Companies Act, 1956 andClause 23 (a) of the Articles of Associationof the Company.

Item nos. 6 and 7

Mr. T R Prasad and Prof. V S Raju were co-opted asAdditional Directors of the Company with effect from April20, 2007, pursuant to section 260 of the Companies Act,1956. They hold office of director up to the date of ensuingAGM. The Company has received notices in writing from amember along with required deposit, proposing thecandidatures of Mr. T R Prasad and Prof. V S Raju for theoffice of director under the provisions of section 257 of theCompanies Act, 1956. The profiles of these directors aregiven hereto under the head "Additional information." Yourdirectors recommend the resolutions as set out in itemnos. 6 and 7 of the notice for your approval. Mr. T R Prasadand Prof. V S Raju shall be deemed to be interested to theextent of their respective appointment.

By order of the Board of DirectorsFor Satyam Computer Services Ltd.

G JayaramanPlace : Secunderabad Sr. Vice President–Corp. GovernanceDate : June 7, 2007 & Company Secretary

Additional information

1. Brief profile of Dr. (Mrs.) Managalam Srinivasan,Director who retires by rotation and is eligible forreappointment.

Dr. (Mrs) Mangalam Srinivasan has been on the Boardof the Company since July 1991. She has held seniorresearch and faculty positions in leading US universities(University of California at Berkeley, American Universityin Washington DC, Harvard University, NortheasternUniversity and Tufts University in Boston) for many years.Her Harvard appointments include: Distinguished Fellowat the Center for International Affairs (one of the firstwomen to receive a direct invitation); Advisor, EnergyEfficiency and Finance-related Climate Change Issues,Interdisciplinary Committee on Environment; and SpecialAdvisor, Center for International Development at theKennedy School of Government. Her areas of expertiseinclude: International Financial Management, Role ofInformation Resources and Infrastructure Policies,Government-Business Nexus in Managing Innovationand Technology Assessment, Energy and EnvironmentalJustice.

As Director of the Center for International TechnicalCooperation and as Professor of Cybernetics:Communication and Control at the AmericanUniversity, Dr. Mangalam was involved in workingwith US Government Departments, US NationalAcademy of Sciences and US National ScienceFoundation and the UN. She released a majorpublication on Technology Assessment andDevelopment.

Dr. Mangalam has served in key advisory positions invarious prestigious organizations: Scientific Advisor,the Government of India, (during Late Smt. IndiraGandhi’s tenure); Director, the Center for TechnologyPolicy Council and Center for International TechnicalCooperation at the American University in WashingtonDC; Project Advisor, The World Bank; ResearchAnalyst, Wells Fargo Bank. She has advised severalinternational organizations and governmental andapex bodies: US Department of Energy, the EuropeanUnion, OECD, the Smithsonian Institution, UN andits Specialized Agencies, Organization of the

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American States. Dr. Mangalam holds a Doctorate inTechnology Assessment; is an Advanced SpecialScholar in Astronomy; an MBA in InternationalFinance; an MA in English Literature; and a BA inMathematics and Physics. She also holds Diplomasin International Law; Economics; International Financeand Foreign Exchange; Higher Accountancy andIndustrial Finance from the Indian Institute of Bankers.

In addition to the being a member of the Board ofDirectors at Satyam Computer Services, Dr.Managalam also holds memberships in various otherbodies, including: Trustee, Forsyth Institute, Boston,the largest biomedical research institute in its category;Member, Board of Women and Public Policy,Kennedy School of Government, Harvard University;Commissioner, Women’s Commission, City ofCambridge; and was Chairman and Member of theBoard of Directors, a Washington-based TelecomCompany (1987–92).

Dr. Mangalam has delivered keynote speeches atvarious international conferences and writes books andarticles on literature and management. Dr. Mangalamis also on the Board of Technology Frontier (I) PrivateLtd. Dr. Mangalam does not hold any shares of theCompany.

2. Brief profile of Prof. Krishna G Palepu, Directorwho retires by rotation and is eligible forreappointment.

Prof. Krishna G Palepu has been on the Board of thecompany since January 2003. Prof. Palepu is the RossGraham Walker Professor of Business Administrationat the Harvard Business School. He also holds the titleof Senior Associate Dean, Director of Research. Prof.Palepu joined the Harvard Business School faculty in1983 after receiving a Masters degree in Physics fromAndhra University, a MBA from the Indian Institute ofManagement, and a Ph.D from the MassachusettsInstitute of Technology. He is also a recipient of anhonorary MA from Harvard, and an honoraryDoctorate from the Helsinki School of Economics.

Prof. Palepu teaches finance, control and strategy inHarvard’s MBA and Executive programs. His researchfocuses on analyzing firm’s business strategies, andthe process through which the effectiveness of thesestrategies is communicated to investors. He haspublished numerous research papers and teachingcases on these issues. He is also the co-author of thebook, “Business Analysis and Valuation” which wonthe American Accounting Association’s Wildmanaward for its impact on management practice andnotable contribution to the Accounting LiteratureAward for its impact on research.

Prof. Palepu serves as a Consultant to a wide varietyof businesses, and is also on the Boards of Dr. Reddy’s

Laboratories Ltd., Brooks Automation, USA andPolymedice Corporation, USA. Prof. Palepu does nothold any shares of the Company.

3. Brief profile of Mr. T R Prasad, Additional Directorwhose appointment will be placed in the meetingfor the approval of members.

Mr. T R Prasad holds Master’s Degree in Physics(Electronics) from Banaras Hindu University. He is alifetime fellow of the Institute of Engineers (FIE). Hetook over as Cabinet Secretary, Government of India,on 01.11.2000 and held this post for a 2-year tenureafter which he joined the 12th Finance Commissionas a Member.The other positions held by Mr. T RPrasad prior to this were (i) Defence Secretary,Government of India (ii) Secretary, Industrial Policyand Promotion, Ministry of Industry, (iii) Chairman,Foreign Investment Promotion Board, (iv) Secretary,Heavy Industry and (v) Chairman, Maruti UdyogLimited. Mr. Prasad’s earlier assignments includePrincipal Secretary, Industry and Commerce/UrbanDevelopment/Revenue, Government of AndhraPradesh; Chairman, Vizag Port Trust; Special Officer,Municipal Corporation of Hyderabad; ManagingDirector of Andhra Pradesh State Finance Corporation/Andhra Pradesh State Civil Supplies Corporation;Development Commissioner and Ex-Officio Secretaryto Chief Minister, Secretary, Irrigation and CommandArea Development; Secretary, Planning, Governmentof Andhra Pradesh. He was a Director on the Board ofIDBI, ICICI, EXIM Bank, VIZAG Steel Plant, HindustanShipyard, Nagarjuna Fertilizers and Chemicals Ltd.and Dredging Corporation of India. Mr. T. R. Prasaddoes not hold any shares of the Company.

4. Brief profile of Prof. V S Raju, Additional Directorwhose appointment will be placed in the meetingfor the approval of members.

Prof. V S Raju is an engineer with Bachelor andMasters Degrees from Andhra University and IndianInstitute of Science, respectively and a Dr. Ing. fromUniversity of Karlsruhe,Germany. He is the formerDirector of the Indian Institute of Technology, Delhiand was a professor and Dean at the Indian Instituteof Technology, Madras. During his over 40 year’sacademic career, he interacted extensively withindustry as a consultant and at policy level, promotedIndustry-Academia collaboration. He was a part timemember of Telecom Regulatory Authority of India forthree years and has extensive exposure to issuesrelated to Tele-communications. He is presentlyChairman of the Naval Research Board, DefenseResearch and Development Organization,Government of India and also member of various otherCommittees and Task Forces, concerned with technicaleducation and research. Prof. V S Raju does not holdany shares of the Company.

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Dear Members,

Your directors have pleasure in presenting their twentiethreport for the financial year 2006-07. The financialhighlights of the Company during the year are as follows:

Financial highlights

Rs. in crores

Particulars 2006-07 2005-06

Income from software services 6,228.47 4,634.31

Other income 181.61 377.91

Total income 6,410.08 5,012.22

Operating profit (PBIDT) 1,710.73 1,571.42

Financial Expenses 7.61 2.72

Depreciation 129.89 122.81

Profit before tax 1,573.23 1,445.89

Provision for tax 150.00 206.14

Profit after tax 1,423.23 1,239.75

Equity share capital 133.44 64.89

Reserves 5,648.07 4,268.75

Transfer to general reserve 142.32 124.00

Earnings per share ofRs. 2 each

– Basic (Rs.) 21.73 19.26(1)

– Diluted (Rs.) 21.25 18.51(1)

Dividend rate(Interim and Final) (%) 175(2) 350

(1) Adjusted for issue of bonus shares in the ratio of 1:1 allotted in

October 2006.

(2) On the post-bonus equity share capital.

Overview

For the financial year ended March 31, 2007, yourCompany reported a total income of Rs. 6,410.08 crorescomprising income from software services of Rs. 6,228.47crores, and other income of Rs. 181.61 crores. The incomefrom software services grew by 34.40% over previousfinancial year. The company recorded an operating profitof Rs. 1,710.73 crores and a net profit of Rs. 1,423.23crores representing a growth of 8.87% and 14.80%respectively over previous financial year. North America,Japan, Europe and rest of the world accounted for 64.53%,1.49%, 18.69% and 15.29% of the total revenuesrespectively. The offshore share of the revenues duringthe year was 48.66% while that of the onsite was 51.34%.

Directors’ report Income fromsoftware services

Profit after tax

Revenue by region

64.53%

18.69%

1.49%

Japan Euorpe Rest ofthe world

Revenue by location

Offshore48.66%

Onsite51.34%

NorthAmerica

15.29%

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Connecting with Alumni: Strengthening the belief thatAlumni are part of our extended family, an Alumni Portal“ReMember” was launched by your Company. Thispioneering initiative across the industry provides themperiodic updates about the Company and also enablesthem to participate in the associate referral program fornew hires.

Connecting with family - Work-Life Balance: With a view topromote a culture that enhances work-life balance andprovide flexibility to a larger portion of the workforce, weglobally launched the Tele-working Policy. This enablesthem to operate from home for a majority of their workhours, subject to customer approvals.

Connecting with campus - Industry Exchange and CampusAdoption: Satyam has further strengthened its IndustryCampus interaction by launching SINDEX – a campusadoption program which enables some campuses to becarefully nurtured across a spectrum of issues like coursecontent refinement, pedagogy, creating centers ofExcellence etc.

Leadership development: The launch of Satyam School ofLeadership (SSL) in November 2005, as well as otherleadership initiatives such as the Full Life Cycle Leadershipframework, web seminars involving distinguished andinternational faculty are firm steps that came about as partof Satyam’s goal to strengthen leadership practices andpipeline.

Satyam School of Leadership focuses on growing andgrooming leadership to extend our leadership pipeline.Your Company stepped up efforts towards an integratedfocus for leadership development through its channelFull Life Cycle (FLC) Leadership model, whereinEntrepreneurial Leadership opportunities have beenprovided - for the top 8% of its Associates - in definedareas, such as Relationships (with Customers &Alliances), Service Offerings, Projects and Processes. Thestrategic intent behind the evolution of the Satyam Schoolof Leadership is to create an establishment thatengenders FLC Leadership capabilities – leaders areresponsive in real time, consistent in decision-makingchoice / decisions that delight stakeholders, actionoriented, and have the ability to work collaborative in anetworked environment. Leaders must be able to provideintegrated and innovative business solutions to theirstakeholders and ensure “one Satyam experience”. Indesigning the School of Leadership, Satyam is buildingan enduring institution

Dividend

Your directors recommended a final dividend of Rs. 2.50per share. This coupled with the interim dividend of Re.1per share already paid on the post-bonus share capital,raises the total dividend for the year to Rs. 3.50 per share.

Increase in the share capital

Pursuant to the recommendation of the Board of directorsfor issue of bonus shares including for Americandepositary shares in the ratio of one-for-one upon yourapproval in the last Annual General Meeting, yourCompany issued 327,694,738 equity shares of Rs. 2 eachas bonus shares. Also, during the last year the Companyissued 15,051,732 equity shares of Rs. 2 each under itsstock option plans. Consequently, the share capital of theCompany increased from Rs. 64.89 crores to Rs. 133.44crores as on March 31, 2007.

Further, during the year under review, the authorized sharecapital of the Company was increased to Rs. 160.00 croresconsisting of 800,000,000 equity shares of Rs. 2 each toprovide for issue of bonus shares and exercise of stockoptions.

Human resources

The total number of Associates as on March 31, 2007 was35,670 against 26,511 as on March 31, 2006. The attritionrate for the year 2006-07 was 15.70%.

Year 2006-07 has been the year for “CapabilityEnhancement” and “Connecting – Beyond Satyam” for theHuman resource function at Satyam. The focus was onenhancing the ability of the associate to deliver in multipledomains, technology and geography. To facilitate this,specific initiatives such as Mentoring, Online Communitiesand eMentoring were introduced. Mentoring has helpedshare knowledge and guide associates in a structuredfashion. Online Communities within Satyam like“Mindspace” (a portal for Associates to interact on thetechnology landscape and thus enabling an environmentfor collaborative co-optation) facilitates group mentoring.eMentoring provided greater flexibility for action planning,need based competency development and enabling anenriching experience to the associates. It also enabled onlinetracking with an inbuilt scheduler to facilitate periodic reviews.

It has been our constant endeavor to delight the entirestakeholders within and beyond Satyam with an objectiveto share, connect and build. Towards this, your Companyhas taken many firm steps and some of these include:

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that researches and develops opportunities to nurture thebest-in-class global entrepreneurial leaders. During the pastyear, Satyam School of Leadership has built programs infour key areas:

Leadership Immersion—a one year process of learning,mentoring and coaching welcome newly promoted andhired leaders. This “surround sound” approach ensuresthe long-term success of our leaders.

Global Business Acumen—to be successful in ourinterconnected economies, leaders must be fluent in eightkey areas – regional and global economics; organisationalbehaviour; international business environment; marketingmanagement; finance and financial statements; enterpriseknowledge management; operations management; and,strategic innovative management. The Certificate of GlobalBusiness Leadership, a 32-week virtually delivered programhas been attended by more than 600 Satyam leaders in thepast year. This program is provided as a partnership withHarvard Business School Publishing and U21Global.

People Leadership—Executive presence, giving andreceiving feedback, and strengths-based leadershipprograms are expanding Satyam’s people leadershipcapabilities.

Strategic Business Relationships—Negotiation skills,solution selling, and our proprietary FoCUS (Furtheringour Customers Success) program developed in partnershipwith McKinsey and Associates, is enhancing ourengagement skills as we develop deeper relationships withour customers and partners.

To provide world-class programs for Satyam’s Full Life CycleLeaders, SSL has built a solid team of learning professionalsand industry experts as well as established partnershipswith Harvard Business School Publishing, U21Global andThe Gallup Organization.

Satyam learning center: Our ability to continuously scaleup and sustain, depends on the strength of our wings gainedthrough knowledge and experience. The greater ourknowledge and experience, the faster we can achieve ourobjectives. Satyam Learning Center has been a catalyst ofgrowth for most Satyam Businesses. The focus is onpreparing larger fresh talent to take responsibilities faster,better & steadier. Satyam Learning Center offers learningproducts in the areas of Technology, Project Management,Advanced Management, and Behavioral Education. These

products have directly impacted the key issues of BusinessUnits.

In 2006-07, around 33,806 associates were trained onvarious competencies - both technical and non technical,covering 14,98,326 associate training hours. In comparisonto the FY 2005-06, a significant improvement is theextension of learning interventions to around 5050associates located onsite. Over 24% of all learning wasdelivered using technology. A total of 3,61,709 associatehours of training was delivered using technology assistedmethodology. Senior leaders contributed to a total of 28,486associate hours of training.

Real Time Leadership Center ( RTLC ): The RTLC facilitatestimely identification and resolution of issues and providesFull Life Cycle Leaders with the requisite information thathelps them to steer their businesses towards achievementof business objectives. The RTLC is the center of excellencefounded on the principles of SatyamWay to foster andpropel distributed leadership. It is a virtual shared platformthat is essential for creating Satyam’s next generation of‘CEOs’ by providing them access to critical businessmanagement and measurement tools and leveraging the“best practice” experiences of colleagues across theorganization. It significantly boosts the leader’s chances ofsuccess and helps steer Satyam towards meeting its NorthStar.

Infrastructure

Your Company continued to create best in the class facilitiesin tune with the times and the changing demands acrossthe world to keep abreast with the set growth targets. Yourdirectors feel happy to put on record that your Companyhas added 8,000 spaces during the year under review,double to that of the previous year and this noteworthyexpansion has been achieved in a quick time. Of this morethan 60% of the spaces have been created in owncampuses at different locations, very much in line with theaggressive planning strategy your Company came up withat the beginning of the current fiscal year. We have alsoestablished new office spaces in London, Sydney andChina.

During the current year, we have plans to developinfrastructure in the SEZ campus at two locations inHyderabad and in one location in Chennai. We have alsosigned up for a campus in Nanjing, China and Malaysia.

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Network and systems

Technology plays an integral part in the businesstransformation happening around the world. Corporatestrategies evolve around the newer technology. The Networkand systems group is focused in bringing the latesttechnology to enable data, voice and video communicationacross the enterprise and in turn enable businesses todeliver high end solutions to several world class globalcorporations.

The Network and systems group have taken up manyinitiatives to improve the network infrastructure which isthe backbone for the Satyam’s growth.

Quality

The vision of Quality at Satyam is to institutionalizeexcellence in quality of software and business solutions bydeveloping and deploying simple, efficient and effectiveprocesses using the latest Quality models and Six sigmamethodologies. As part of its continuous improvementprogram, your Company has achieved Global Certificationagainst ISO 27001 (Information Security Management), ISO20000 (IT Service Management) and ISO 9001 standards.In addition to earlier certifications like CMMI, PCMM yourCompany has also achieved AS9100 (Aerospace)certification to realize higher levels of maturity and beconsistent with business and market needs.

Further, to keep pace with the organizational growth anddeliver value proposition to customers, your Company hasinstitutionalized an enterprise wide project managementtool, Optima (Operational Projects Real Time Management).Optima is based on 'C' Projects, a new Enterprise ProjectManagement solution from SAP. 'C' Projects has beencustomized to meet Satyam specific needs and has beenimplemented across the organization.

Your Company has deployed a well researched BusinessContinuity Management system in place to prevent andcontain potential business disruptions in the event of anydisaster and quickly resume services to the customer atacceptable service levels. Satyam simulated a first-of-its-kind, cross-border country outage test in September andrevived business operations from its Global BusinessContinuity and Disaster Recovery Center in Singapore.

Moving forward, your Company shall continue to furtherstrengthen its processes by adopting best-in-classstandards.

Awards and recognitions

The following are some of the recognitions that yourCompany won during the year 2006-07

‘Best Companies to Work For’ by BT–Mercer–TNS: In therecently concluded BT-Mercer-TNS Best Employer Survey2006, Satyam was ranked as the 3rd Best Place to Workfor in India. This prestigious survey is an acknowledgedbenchmark that recognizes outstanding people, processesand practices across industries. Satyam’s top ranking is areflection of its commitment to Associate Delight andLeadership Development within the organization.

The global No. 2 outsourcing vendor: Satyam has beenranked by the Brown-Wilson Group as the number twooutsourcing vendor globally. This was as per the BlackBook of Outsourcing’s Top 50 Best Managed Companiesand 2006 survey of over 870 IT and ITES companiesworldwide. This year, Satyam figured as the leading IndianIT services Company in the outsourcing list.

Global Certified Advantage Partner by Oracle: Satyam hasbeen certified as a Global Certified Advantage Partner(CAP) by Oracle. This partnership leverages end-to-endservices ranging from Satyam‘s global delivery model tothe best-in-class applications and technology solutionsfrom Oracle. This is the highest level of partnership atOracle.

Best Practice Award from the TDWI: Satyam was the winnerof the Customer Relationship Management category inthe 2006 Best Practices in Data Warehousing competitionconducted by the The Data Warehousing Institute (TDWI).The 2006 TDWI best practice award demonstratesSatyam’s maturity in terms of process, quality and skill indeveloping, deploying, and maintaining large andcomplex data warehouses. This is the second instance ofSatyam winning this coveted award.

Asian MAKE Award: Satyam has won the prestigious AsianMost Admired Knowledge Enterprise (MAKE) Award. TheMAKE Study is an established benchmark to recognizeorganizations for their ability to leverage enterpriseknowledge to deliver superior performance in the areasof innovation, operational effectiveness and excellencein products and services.

Satyam wins ASTD.s BEST Award: Satyam was ranked15th among 78 organizations, in the American Societyfor Training & Development’s (ASTD) 2006 BEST Awardsprogram, which recognizes organizational commitmentto employee learning. Satyam is among 39 organizations

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from India, South Africa, and the United States to receivethe ASTD BEST Award.

Integrated Engineering Services Practice ranked NumberOne by Brown & Wilson: Satyam’s Integrated EngineeringServices Practice has been ranked Number One by TheBlack Book of Outsourcing – 2006, amongst 50Engineering Services Outsourcing vendors, comprisingnational and international players. The ranking has beencarried out by Brown & Wilson Group Inc., Florida, andUSA.

BML Munjal Award for Excellence: Satyam has beenawarded the BML Munjal Award for Excellence in Learning& Development for 2006. The focus on expandingentrepreneurial energy and transforming individuals alongwith a strong social orientation, enhancing human skills ofthe Company and encouraging distributed leadership weresome of the reasons cited by the jury for Satyam winningthis coveted award.

Partner Network Award from Oracle: Satyam was awardedthe Partner Network Award for Business Excellence byOracle for the Middle East region.

Corporate Governance

Your Company has been rated by IR Global Rankings asNo. 1 in ‘Best Corporate Governance Practices’ for Indiaand also in ‘Best Earnings Release & Financial DisclosureProcedures’ across the Asia Pacific, for both categories viz.region (India) and industry (technology). We also continueto be amongst the Top 5 companies in the Asia-Pacific/Africa region, with the best earnings and disclosurepractices, consecutively for two years.

A report on Corporate Governance along with Auditors’certificate on compliance with the conditions of CorporateGovernance as stipulated in clause 49 of the listingagreement, is provided elsewhere in the Annual report.

Subsidiaries

Ministry of Company Affairs vide their letter dated April 13,2007 granted approval under section 212 (8) of theCompanies Act, 1956 exempting the Company fromattaching the documents of subsidiaries as specified undersection 212 (1) of the Companies Act, 1956. Thesummarized financial information of the subsidiaries ispublished separately in the Annual Report for informationof members of the Company.

Your directors approved setting up of a subsidiary Companyin Cairo, Egypt to service customers in and around MiddleEast region and to tap further potential business

opportunities. Also it has been proposed to incorporateanother subsidiary in China in the province of Nanjing forsetting up a development center.

Nipuna Services Limited, Satyam’s BPO subsidiary, hasrecorded revenue of Rs. 171.69 crores and a net (loss) ofRs. 17.61 crores for the year ended March 31, 2007.

Satyam Computer Services (Shanghai) Company Limited,Satyam’s 100% subsidiary in China, recorded revenue ofRs. 31.12 crores and a net loss of Rs. 7.01 crores for theyear ended December 31, 2006.

Satyam Technologies, Inc., our 100% subsidiary, recordedrevenue of Rs. 8.08 crores and a net income of Rs. 0.58crores for the year ended December 31, 2006.

For the year ended March 31, 2007 Citisoft Plc. recordedrevenue of Rs. 48.04 crores and a net loss of Rs. 1.25crores.

Knowledge Dynamics Pte Ltd. recorded revenues of Rs.3.41 crores and a net profit of Rs. 2.25 crores for the yearended March 31, 2007.

Joint ventures

CA Satyam ASP Pvt. Ltd., a joint venture between Satyamand Computer Associates engaged in areas such asKnowledge & document management, e-learning,e-collaboration and smart card solutions. CA Satyamrecorded revenue of Rs. 7.71 crores and a net loss ofRs. 0.34 crores for the year ended March 31, 2007.

Satyam Venture Engineering Services Pvt. Ltd., a jointventure between Satyam and Venture Global Corporation,US, earned revenue of Rs. 69 crores and a net profit ofRs. 6 crores for the year ended March 31, 2007.

Social programs

Your Company believes that society is one of its importantstakeholders and approaches its social responsibility as acorporate citizen in much the same way it approaches therest of its business – with zeal, commitment, andforethought. Reaffirming its role as a contributing memberof the social and economic milieu it occupies, theCompany aligns its business operations with social values.As a responsible corporate citizen, the Company iscommitted to leverage the power of IT to bridge the ‘digitaldivide’ that limits opportunities for success and prosperity,and thereby, transform lives of the less privileged.

The Company reaches out through focused socialinterventions, through its CSR arm – Satyam Foundation,

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to uplift the lives of the urban underprivileged, andoperates out of five cities in India.

Additionally, the Company also partners with like-mindedorganizations to reach out wider and better. One suchexample is your Company’s unique partnership with theEmergency Management and Research Institute (EMRI).EMRI aims to provide emergency management on theoccurrence of any sudden event that threatens to life. YourCompany is lending its knowledge, specifically –technology expertise, to aid EMRI in its cause of takingemergency management in India to world-class standards.

During the year under review your Company contributedRs. 3.48 crores to Satyam Foundation. A report on the“Corporate Social Responsibility” is given elsewhere inthe Annual report.

Fixed deposits

Your Company has not accepted any deposits and, as such,no amount of principal or interest was outstanding on thedate of the balance sheet.

Directors

Mr. T R Prasad and Prof. V S Raju were co-opted on Boardof the Company as Additional Directors to hold office upto the date of ensuing Annual General Meeting, at whichtheir appointment as director will be placed for yourapproval. Dr. (Mrs.) Mangalam Srinivasan, Non-executiveand independent director and Prof. Krishna G Palepu, Non-executive director retire by rotation at the ensuing AnnualGeneral Meeting and are eligible for re-appointment.

With profound grief, your directors inform you the saddemise of Mr. V P Rama Rao, Non-executive andindependent director, on May 2, 2007. Mr. V P Rama Raowas the senior member of the Board and served asChairman of Audit committee and member ofCompensation and Investors’ grievance committees. Yourdirectors place on record their deep sense of appreciationand gratefully acknowledge the active participation andvaluable services rendered by him during his long tenurein the Company.

Board committees

The Audit, Compensation and Investors’ grievancecommittees have been reconstituted by inductingadditional members. Mr. T R Prasad and Prof. V S Raju

have been co-opted as additional members on Audit andInvestors’ grievance committees and Prof. V S Raju hasbeen inducted as an additional member on Compensationcommittee.

Auditors

The auditors M/s Price Waterhouse, CharteredAccountants, Hyderabad retire at this Annual GeneralMeeting and your directors recommend their re-appointment at the ensuing Annual General Meeting asstatutory auditors.

Conservation of Energy, TechnologyAbsorption and Foreign Exchange earningsand outgo

The particulars as prescribed under sub-section (1)(e) ofSection 217 of the Companies Act, 1956 read withCompanies (Disclosure of particulars in the report of Boardof Directors) Rules, 1988 are given in the Annexure A tothis Report.

Employee particulars

Particulars of employees as required under Section217(2A) of the Companies Act, 1956 and the Companies(Particulars of Employees) Rules 1975 as amended formspart of this report. However, in pursuance of Section219(1) (b) (iv) of the Companies Act, 1956 this report isbeing sent to all the shareholders of the Companyexcluding the aforesaid information and the saidparticulars are made available at the registered office ofthe Company. The members interested in obtaining suchparticulars may write to the Company Secretary at theregistered office of the Company.

Directors’ Responsibility Statement

As required by the provisions of Section 217 (2AA) of theCompanies Act, 1956, Directors’ Responsibility Statementis attached as Annexure – B.

Associate Stock Option Plan (ASOP)

As required by clause 12 of SEBI (Employee Stock OptionScheme and Employee Stock Purchase Scheme)Guidelines, 1999, the particulars of the stock options arefurnished as Annexure–C.

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Annexure-A to the Directors’ report

Acknowledgements

Your directors thank all investors, customers, vendors,banks, and service providers as well as regulatory andgovernment authorities for their continued support. Yourdirectors greatly appreciate and thank the significant

contributions of Associates in the initiatives of theCompany.

For and on behalf of the Board of directors

Place : Secunderabad B Ramalinga RajuDate : June 7, 2007 Chairman

Particulars pursuant to Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988.

A) Details of Conservation of Energy

Satyam uses electrical energy for its equipment suchas air-conditioners, computer terminals, lighting andutilities at work places. As an ongoing process, wecontinue to undertake the following measures toconserve energy:

• Incorporating new technologies in the air-conditioning system in upcoming facilities tooptimize power consumption.

• Identification and replacement of low-efficientmachinery (AC) in a phased manner.

• Identification and replacement of outdated andlow-efficient UPS systems in a phased manner.

• Conducting continuous energy-conservationawareness and training sessions for operationalpersonnel.

B) Technology Absorption

a. Research and Development (R&D)

1. Specific areas of R&D and benefits expected:The Company believes that technologicalobsolescence is a practical reality. Our researchand development activities will help us gear forfuture opportunities. We invest and encouragecontinuous innovation. Our R&D is alwaysfocused to provide unique benefits to ourcustomers and other stakeholders by workingboth proactively (self-driven research) andreactively (customer-driven research). Ourvision is to be recognized as an R&D partnerin selected areas of communication andcomputation leading to the design anddevelopment of algorithms. Our objectives areto (a) carry out applied research in the areasthat are closely related to the business objectivesof our Company; (b) present and publish papersin international conferences; (c) publish papers

in refered journals; (d) file patent applications,mostly in the United States Patent andTrademark Office (USPTO); and (e) help buildshowcase solutions based on research results.We participate in international conferences (a)as program committee members; (b) asreviewers; and (c) to present our papers. Duringthe year 2006-07, we successfully collaboratedwith a major Japanese IT and NetworkTechnology integrated solutions Company todeliver solutions on four research problems inthe areas of optical core networks, networktraffic analysis, and reconfigurable architectures.We published about twelve peer reviewedpapers in international conferences andjournals mainly in the areas of (a) Networkingand Quality of Services (QoS); (b) Contentdistribution networks; (c) Media andEntertainment; and (d) Information processingalgorithms (in the areas such as grid computingand image processing). Additionally, about sixpapers have been submitted to variousinternational conference and journals. Further,we are in the final stages of revising twelvetechnical reports related to various of oursolutions under development and researchacademic collaborations. We filed response tooffice action reports related to seven patentapplications filed in USPTO. We worked onfour algorithms to create our own reusable IPand created initial versions of four end-to-endsolutions based on these algorithms in the areasof deep packet analysis, ad creation andtargeting, and text and video analyses. In total,we have published about one hundred andseventy five technical papers in internationalconferences and journals, and have filed aboutseventeen patent applications. The full versionof our publications is available on CD and ismade available to the R&D groups of ourcustomers for their perusal. In order to expand

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our reach of technology and expertise, wecollaborate with academic institutions andresearch laboratories, both within India (IndianInstitute of Science, Bangalore and IndianInstitute of Technology, Bombay), and abroad(mostly in USA).

2. Future plan of action: During the year 2007-08,we will continue our applied research focus inthe communication and computation areas tocreate reusable IP and build reusable solutionsaround the created IP. We plan to publishtechnical papers and file patent applicationsaround the created solutions, and developprototypes for demonstration purposes. Also, wetarget to use some of the published algorithmsand ideas described in patent applications aspart of customer related solutions. Furthermore,we also plan to undertake customer drivenresearch activities leading to the state-of-the-artsolutions for our customers.

3. Expenditure on R&D:

a. Capital : Nil

b. Recurring : Rs. 1.29 crores

c. Total : Rs. 1.29 crores

d. Total R&D expenditureas a percentage of totalrevenues : 0.02%

b. Technology absorption, adaptation andinnovation

1. Technology absorption, adaptation &innovation and benefits derived: The algorithmsand systems developed as part of the appliedresearch activities are used to build showcasesolutions. The technology and domainknowledge obtained during R&D work, andalgorithms, frameworks, and solutionsdeveloped as part of R&D work are quite usefulin effectively executing customer projects.Further, the algorithms are also to be used aspart of demo software and solutions such as (a)ad creation and targeting; (b) context awaremobile solutions; (c) text analysis and processingengine; and (d) deep packet inspection for IPS/IDS systems.

2. Information about imported technologyNil

c. Foreign exchange earnings and outgo

1. Initiatives like increasing : More thanexports, development of 95% of totalnew export markets etc., revenues ofto increase foreign the Companyexchange. are from

exports.

2. Foreign exchange earned : Rs. 4,728.55crores

3. Foreign exchange outgo : Rs. 3,185.92crores

Annexure-B to the Directors’ report

Directors’ Responsibility Statement

To the Members,

We the Directors of Satyam Computer Services Limited,confirm the following:

i. that, the applicable accounting standards had beenfollowed along with proper explanation relating tomaterial departures in the preparation of the annualaccounts;

ii. that, the directors had selected such accountingpolices and applied them consistently and madejudgements and estimates that are reasonable andprudent so as to give a true and fair view of the stateof affairs of the Company at the end of the financialyear and of the profit of the Company for that period;

iii. that, the directors had taken proper and sufficientcare for the maintenance of adequate accountingrecords in accordance with the provisions of theCompanies Act, 1956 for safeguarding the assets ofthe Company and for preventing and detecting fraudand other irregularities.

iv. that, the directors had prepared the annual accountson a going concern basis.


Place : Secunderabad B Ramalinga RajuDate : June 7, 2007 Chairman

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Annexure-C to the Directors’ report

Associate Stock Option Plan (ASOP)

The details of ASOP – B and ASOP-ADS are given below.

a) No. of options granted ASOP – B 55,516,499

ASOP – ADS 2,915,425

ASOP – RSUs 3,293,140

ASOP – RSUs (ADS) 236,620

b) The pricing formula:

the closing price of the shares on the date of the meeting of the Compensation committee convened to grant thestock options, on the stock exchange where highest volumes are traded;

or

the average of the two weeks high and low price of the share preceding the date of grant of option on the stockexchange on which the shares of the Company are listed; whichever is higher.

ASOP – RSUs and ASOP – RSUs (ADS):

Not less than the face value of the equity shares or such other price as may be calculated in accordance with theapplicable statutory rules, regulations, guidelines and laws, on the date of grant.

c) The maximum vesting period under ASOP – RSUs and ASOP– RSUs(ADS) 5 years

d) Options vested ASOP–B 37,153,420

ASOP–ADS 3,014,959

ASOP–RSUs Nil

ASOP–RSUs (ADS) Nil

e) Options exercised ASOP–B 26,027,598

ASOP–ADS 1,089,436

ASOP–RSUs Nil

ASOP–RSUs (ADS) Nil

f) The total number of shares arising as a result of exercise of option.

ASOP–B 2,60,27,598

ASOP–ADS 21,78,872

ASOP–RSUs Nil

ASOP–RSUs (ADS) Nil 28,206,470

g) Options lapsed Nil

h) Variation of terms of options Not applicable

i) Money realized by exercise of options on receipt basis Rs. 546.72 cr.

j) Total number of options in force ASOP–B 19,976,210

ASOP–ADS 1,461,064

ASOP–RSUs 3,293,140

ASOP–RSUs (ADS) 236,620

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k) Employee wise details of options granted to:

i) Key management personnel

Name of the Associate ASOP-RSUs ASOP – RSUs(ADS)

Mr. Anand T R 35,000 –

Mr. Hari T 30,000 –Mr. Joseph Abraham 10,000 –

Mr. Murty A S 40,000 –

Dr. Keshab Panda 35,000 –

Mr. Manish Sukhlal Mehta 30,000 –Mr. Murali V 30,000 –

Mr. Ram Mynampati – 25,000

Mr. Ravi Shankar Bommakanti 25,000 –Mr. Shailesh Shah 20,000 –

Mr. Srinivas V 40,000 –

Mr. Subramanian D 40,000 –

Mr. Virender Aggarwal 35,000 –Mr. Vijay Prasad Boddupalli – 15,000

Total 3,70,000 40,000

(ii) Any other employee who receives a grant in any one year of options amountingto 5% or more of options granted during that year. No

(iii) Identified employees who were granted options, during any one year, equal toor exceeding 1% of the issued capital (excluding outstanding warrants andconversions) of the Company at the time of grant. Nil

l) Diluted Earnings Per Share (EPS) (on par value of Rs. 2 per share) Rs. 21.25

m) In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999, had compensation cost for associate stock option plans been recognized based on the fair value at the dateof grant in accordance with Black Scholes’ model, the pro-forma amounts of the Company’s net profit andearnings per share would have been as follows:

Year ended March 31,Particulars

2007 2006

1. Profit after taxation and before Non-recurring/Extraordinary items

– As reported (Rs. in crores) 1,423.23 1,239.75

– Proforma (Rs. in crores) 1,373.05 1,142.11

2. Earnings per share:

Basic

– No. of shares 654,853,959 643,784,984

– EPS as reported (Rs.) 21.73 19.26

– Proforma EPS (Rs.) 20.97 17.74

Diluted

– No. of shares 669,705,425 669,626,864


– Proforma EPS (Rs.) 20.50 17.06

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n) Weighted-average exercise price of stocks and weighted-average fair values of options, which are equal to marketprice on the date of grant:

ASOP–ADS – Rs. 863.66

Weighted-average exercise price of stocks and weighted-average fair values of options, which are less than marketprice on the date of grant:

Options Weighted-average exercise price Weighted-average fair valueRs. Rs.

ASOP–RSUs 2.00 475.35

ASOP–RSUs (ADS) 4.00 1,036.54

o) A description of the method and significant assumptions used during the year to estimate the fair values ofoptions, including the following weighted-average information:

The fair value of options has been calculated by using Black Scholes’ method. The assumptions used in the aboveare:

1. Risk-free interest rate – 8%

2. Expected life – 0.96 Years

3. Expected volatility – 59.01%

4. Dividend yield – 0.78%

5. The price of the underlying shares in market at the time of option grant:

Grant date ASOP-ADS (Rs.) ASOP-RSUs (Rs.) ASOP-RSUs (ADS) (Rs.)

28-04-2006 863.66 – –

28-01-2007 – 476.50 519.26

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Report on Corporate Governance

Company’s philosophy

Corporate Governance assumes a great deal of importance in the business life of Satyam (“the Company”). The drivingforces of Corporate Governance at Satyam are its core values – Associate Delight, Investor Delight, Customer Delight andthe Pursuit of Excellence. The Company’s goal is to find creative and productive ways of delighting its stakeholders, i.e.,Investors, Customers, Associates and Society, thereby fulfilling the role of a responsible corporate representative committedto best practices.

Satyam believes that sound Corporate Governance practices provide an important framework to assist the Board infulfilling its responsibilities. The Board of directors is elected by shareholders with a responsibility to set strategic objectivesto the management and to ensure that the long term interests of all stakeholders are served by adhering to and enforcingthe principles of sound Corporate Governance. Thus, the management is responsible to establish and implement policies,procedures and systems to enhance long-term value of the Company and delight all its stakeholders (Associates, Investors,Customers and Society). The principle of “Delighting stakeholder” is imbibed in everything we do at Satyam and isdepicted in our value emblem given below as a mark of our commitment towards this principle.

Board of directors

The current policy is to have an optimum combination of Executive and Non-executive directors, to ensure the independentfunctioning of the Board.

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Composition and Category of Directors:

No. of No. of Attendancemeetings memberships of Director

held No. of in other at lastName of the Director Category Designation during meetings Companies Annual

the last attended Generalfinancial Boards Committees Meeting

year (AGM)

Mr. B Ramalinga Raju Promoter and Chairman 4 4 2 – YesExecutive Director

Mr. B Rama Raju Promoter and Managing 4 4 3 3 YesExecutive Director Director

Mr. Ram Mynampati1 Director in whole- President & 4 2 3 – Yestime employment Whole-time

Director

Mr. V P Rama Rao Independent and Director 4 3 3 – YesNon-executiveDirector

Dr. (Mrs.) Mangalam Independent and Director 4 3 1 – –Srinivasan2 Non-executive

Director

Prof. Krishna G Non-executive Director 4 3 3 – –Palepu2 Director

Mr. Vinod K Dham2 Independent and Director 4 3 7 – –Non-executiveDirector

Prof. M Rammohan Independent and Director 4 4 5 6 YesRao Non-executive

Director

Mr. T R Prasad3 Independent and Director – – – – –Non-executiveDirector

Prof. V S Raju3 Independent and Director – – – – –Non-executiveDirector

1. Mr. Ram Mynampati was appointed as whole-time director in the last AGM held on August 21, 2006.

2. In addition, participated in one meeting through video conference.

3. Inducted as additional director on April 20, 2007.

Meetings of the Board of directors

During the financial year 2006-07 the Board of directors met 4 times on April 21, July 21, October 20, 2006 and January19, 2007.

Audit committee

The Audit committee consists of 100% independent and non-executive directors and provides assistance to the Boardof directors in fulfilling its oversight responsibilities.

The functions of Audit committee include:

1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure thatthe financial statements are correct, sufficient and credible.

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2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of thestatutory auditor and the fixation of audit fees.

3. Approval of engagement of and payment to statutory auditors for any other non-audit services rendered by thestatutory auditors.

4. Reviewing with the management, the quarterly financial statements before submission to the Board for approval.

5. Reviewing with the management, performance of statutory and internal auditors, and adequacy of the internalcontrol systems.

6. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department,staffing and seniority of the official heading the department, reporting structure coverage and frequency of internalaudit.

Composition and other details

1. Mr. V P Rama Rao, Chairman

2. Dr. (Mrs.) Mangalam Srinivasan, Member

3. Prof. M Rammohan Rao, Member

During the year, the Audit committee met 8 times on April 21, April 28, July 21, October 19, October 20, December 12,2006, January 19 and March 29, 2007. Mr. V P Rama Rao attended seven meetings, Dr. (Mrs.) Mangalam Srinivasanattended four meetings and Prof. M Rammohan Rao attended all the meetings. In addition, Mangalam Srinivasanparticipated in four meetings through tele/video conference.

The meetings of the Audit committee were attended by the Head of Finance, Head of Internal Audit and Statutory Auditorsas invitees. The quarterly and annual audited financial statements of the Company were reviewed by the Audit committeebefore consideration and approval by the Board of directors. The Audit committee reviewed the adequacy of internalcontrol systems and internal audit reports and their compliance thereof.

The Chairman of the committee, Mr. V P Rama Rao, was present at the previous AGM held on August 21, 2006.

During the current financial year the Audit committee was reconstituted in the Board meeting held on April 20, 2007, asfollows:



3. Mr. T R Prasad, Member

4. Prof. V S Raju, Member

Compensation committee

The Compensation committee consisting of 100% independent and non-executive directors evaluates compensationand benefits for executive directors and frames policies and systems for Associate Stock Option Plans, as approved bymembers of the Company.

Composition and other details

1. Mr. V P Rama Rao, Member


3. Mr. Vinod K Dham, Member


During the year, the committee met 3 times on October 19, 2006, January 20 and 28 of 2007. Mr. V P Rama Rao attendedtwo meetings, Dr. (Mrs.) Mangalam Srinivasan and Mr. Vinod K Dham attended one meeting. Prof. M Rammohan Raoattended all the meetings. In addition Dr. (Mrs.) Mangalam Srinivasan and Mr. Vinod K Dham participated in two meetingsthrough tele/video conference.

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Remuneration policy

The Compensation committee is responsible for devising policy for compensation and benefits for Executive directorsand frames policies and systems for Associate Stock Option Plans.

Details of remuneration to directors for the year 2006-07

a) Executive directors

Ram Mynampati *Particulars B Ramalinga Raju B Rama Raju President & Whole-time

Chairman Managing director directorRs. Rs. Rs.

Salary 18,00,000 16,80,000 2,10,51,266

Commission 18,00,000 16,80,000 –

Contribution to PF 2,16,000 2,01,600 –

Superannuation 1,80,000 1,68,000 –

Others 13,61,589 4,44,996 –

Total 53,57,589 41,74,596 2,10,51,266

* Granted during the year 25,000 ADS linked Restricted Stock Units (equivalent to 50,000 shares) at a grant price of $ equivalent INR 4/-

b) Non-executive directorsParticulars V P Rama Rao Dr. (Mrs.) Mangalam Krishna G Palepu Vinod K Dham M Rammohan

Srinivasan RaoRs. Rs. Rs. Rs. Rs.

Commission 12,00,000 12,00,000 12,00,000 12,00,000 12,00,000

Sitting fees 1,30,000 80,000 30,000 40,000 1,50,000

Professional fee – – 87,18,000 – –

Total 13,30,000 12,80,000 99,48,000 12,40,000 13,50,000

During the current financial year the Compensation committee was reconstituted in the Board meeting held on April 20,2007, as follows:


2. Mr. Vinod K Dham, Member



Investors’ grievance committee

a) The functions of Investors’ grievance committee focuses on shareholders’ grievances and strengthening of investorrelations, specifically looking into redressal of grievances pertaining to:

1) Transfer of shares

2) Dividends

3) Dematerialization of shares

4) Replacement of lost/stolen/mutilated share certificates

5) Non-receipt of rights/bonus/split share certificates

6) Other related issues

b) Composition of Investors’ grievance committee

1) Mr. V P Rama Rao, Chairman

2) Mr. B Rama Raju, Member

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During the year, the committee met on December 12, 2006 to review the investor grievances.

c) Others

i) Name and designation of compliance officer: Mr. G JayaramanSr. Vice President - Corp. Governance & Company Secretary

ii) Details of complaints:

Number

S. No. Nature 2006-07 2005-06

Received Attended Received Attended

1. Bonus 4 4 2 2

2. Dematerialization/Rematerialization 5 5 13 13

3. Dividend 170 170 85 85

4. Issue of duplicate share certificates 2 2 3 3

5. Split 1 1 2 2

6. Transfer of shares 10 10 4 4

7. Others 39 39 8 8

Total 231 231 117 117

iii) There are no valid requests pending for share transfers as at the year-end.

iv) Members may contact Secretarial circle of the Company for their queries, if any, on:+91 40 3065 4343/3065 4211 and Fax: +91 40 2789 7769.

During the current financial year the Investors' grievance committee was reconstituted in the Board meeting held onApril 20, 2007, as follows:

1. Mr. T R Prasad, Member


3. Mr. B Rama Raju, Member

Venue and time of the last three AGMs

Date Venue Time No. of Members present inSpecial

resolutions Person Proxy

August 21, 2006 Sri Sathya Sai Nigamagamam(Kalyana Mandapam),8-3-987/2, Srinagar Colony,Hyderabad – 500 073 11.00 a.m. Four 874 165

July 22, 2005 - do - 11.00 a.m. None 430 131

July 23, 2004 - do - 11.00 a.m. One 461 133

In the last AGM, there were no resolutions required to be passed through postal ballot. The resolutions were passed byshow of hands with requisite majority. The venue of AGM was chosen for its central location, prominence and capacity.

Disclosures

There are no materially significant related party transactions i.e., transactions material in nature, with its promoters, thedirectors or the management, their subsidiaries or relatives, etc., having potential conflict with the interests of the Companyat large.

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There has not been any non-compliance by the Company and no penalties or strictures imposed on the Company byStock Exchanges or SEBI or any statutory authority, on any matter related to capital markets, during the last three years.

The Company has adopted the Whistle Blower Policy approved by Audit committee of the Company and the Companyaffirms that no personnel has been denied access to the audit committee.

Pursuant to sub-clause VII of clause 49 of the listing agreement, the Company confirms that it has complied with allmandatory requirements prescribed. As regards non-mandatory requirements, the following are adopted:

1. Compensation committee

2. Whistle Blower Policy

Means of communication

The audited quarterly, half-yearly, nine months and annual financial statements viz., balance sheet, profit and lossaccount, including schedules and notes thereon, press releases, and presentations are posted on the Company’s website.The Company’s quarterly, half-yearly, nine months and annual audited financial results are also uploaded on the EDIFAR(Electronic Data Information Filing and Retrieval System) website maintained by National Informatics Center (NIC). Theperiodical filings of the Company with Securities and Exchange Commission (SEC), US are also available on the Company’swebsite and at www.sec.gov.

The quarterly, half-yearly, nine months and annual audited financial results are generally published in Business Standard,The Hindu and in Eenadu (Telugu) Daily.

All material information about the Company is promptly sent through facsimile to the Stock Exchanges where theCompany’s shares are listed and released to wire services and the press for information of the public at large. Besides, theCompany disseminates information through press and analyst meets.

As required by sub-clause IV (F) of clause 49 of the listing agreement, management discussion and analysis report isprovided elsewhere in the annual report.

General shareholders information

a) The AGM of the Company will be held on August 30, 2007, at 11.00 A.M.at Harihara Kalabhavan, MCH complex,S. P. Road, Secunderabad - 500 003.

b) Financial calendar for the year 2007-08 (tentative):

Audited financial results First quarter July 2007Second quarter October 2007Third quarter January 2008Fourth quarter April 2008

Payment of final dividend (subject to the approval of the members) September, 2007

Interim dividend, if any November, 2007

c) Dates of book closure for AGM and final dividend : August 27, 2007 to August 30, 2007for the financial year 2006-07 (both days inclusive)

d) Registered office : Mayfair Centre, I Floor1-8-303/36, S. P. RoadSecunderabad – 500 003.Phone: (91-40) 3065 4343/3065 4211Fax: (91-40) 2789 7769Web site: www.satyam.comEmail: [email protected]

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e) Listing details:

Stock Exchanges

Equity Shares Bombay Stock Exchange Ltd., National Stock Exchange of India Ltd.Phiroze Jeejeebhoy Towers, Dalal Exchange Plaza, 5th Floor,Street, Mumbai – 400 001 Plot No. C/1, G Block,

Bandra-Kurla Complex,Bandra (E), Mumbai – 400 051

ADS New York Stock Exchange, Inc. (NYSE)20 Broad Street, New York, NY 10005.

Depositories ISIN/CUSIP*

Equity Shares National Securities Depository Ltd. INE275A01028Central Depository Services (India) Ltd.

ADS Citibank N.A., New York 804098101

* Committee on Uniform Securities Identification Procedures, (CUSIP) supplies a unique nine-character identification,

called a CUSIP number, for each class of security approved for trading in the U.S., to facilitate clearing and settlement.

These numbers are used when any buy and sell orders are recorded.

f) Listing fee for the financial year 2007-08 has been paid to all the Indian stock exchanges, where the shares of theCompany are listed and listing fee to NYSE has been paid for the calendar year 2007.

g) Stock Code: 1. BSE Code : 500376

2. NSE Code : SATYAMCOMP

3. Reuters Code : SATY.BO (BSE); SATY.NS (NSE)

4. Bloomberg : SCS IN5. ADS Symbol (NYSE) : SAY

h) The monthly high and low stock prices during the financial year 2006-07 and performance in comparison to broadbased indices, are given below.

i. Market Price and Indices data:

Month

*Price-BSE SENSEX *Price-NSE NIFTY Price-ADS- Dow Jones IndexNYSE

& Year High Low High Low High Low High Low High Low High LowRs. Rs. Rs. Rs. US$ US$

Apr-06 445.00 356.30 12,102.00 11,008.43 459.20 355.05 3,598.95 3,290.35 22.25 17.59 11,468.16 11,017.43

May-06 399.50 270.50 12,671.11 9,826.91 400.00 289.00 3,774.15 2,896.40 18.83 15.38 11,709.09 10,980.29

Jun-06 358.48 280.28 10,626.84 8,799.01 358.50 280.83 3,134.15 2,595.65 16.85 13.98 11,329.28 10,653.23

Jul-06 382.40 325.68 10,940.45 9,875.35 382.50 326.05 3,208.85 2,878.25 17.73 15.34 11,301.58 10,658.35

Aug -06 413.20 366.88 11,794.43 10,645.99 413.45 367.00 3,452.30 3,113.60 19.60 16.94 11,452.95 10,998.06

Sep-06 432.00 384.50 12,485.17 11,444.18 431.00 385.00 3,603.70 3,328.45 20.50 18.60 11,782.49 11,273.89

Oct-06 453.00 396.00 13,075.85 12,178.83 458.00 400.05 3,782.85 3,508.65 22.67 19.29 12,236.10 11,608.23

Nov-06 484.00 412.05 13,799.08 12,937.30 486.15 412.00 3,976.80 3,737.00 24.42 20.70 12,409.31 11,928.97

Dec-06 498.10 435.30 14,035.30 12,801.65 499.00 430.10 4,046.85 3,657.65 24.50 22.11 12,566.17 12,070.52

Jan-07 524.90 454.00 14,325.92 13,303.22 550.00 454.00 4,167.15 3,833.60 25.94 22.28 12,685.54 12,313.01

Feb-07 495.50 404.00 14,723.88 12,800.91 505.00 405.10 4,245.30 3,674.85 24.55 20.55 12,845.76 12,078.85

Mar-07 474.80 409.30 13,386.95 12,316.10 474.70 410.00 3,901.75 3,554.50 23.33 19.35 12,550.07 11,926.79

* Adjusted for issue of bonus shares in the ratio of 1:1 allotted in October 2006.

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ii) Monthly closing share price at BSE, NSE and NYSE Vs. monthly closing BSE Sensex, NSE Nifty and Dow JonesIndex

iii) Premium (%) on ADS at NYSE compared to share price quoted at BSE

0

250

500

750

1000

1250

Mar-07Feb-07Jan-07Dec-06Nov-06Oct-06Sep-06Aug-06Jul-06Jun-06May-06Apr-060

1500

3000

4500

6000

7500

9000

10500

12000

13500

15000

BSE SensexDow Jones Index NSE Nifty BSE NSE NYSE

379.

55

379.

63

404.

51

345.

58

345.

83 381.

77

355.

70

354.

83 381.

77

377.

63

377.

18 409.

87

404.

10

404.

18 444.

20

409.

25

409.

20 444.

55

440.

55

439.

80

497.

70

459.

25

459.

50

522.

57

483.

95

483.

40 530.

98

472.

35

472.

45 514.

14

412.

50

414.

40

477.

80

470.

10

470.

35

494.

75

0

5

10

15

20

25

30

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

AD

S Pr

emiu

m %

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

a) ADS Price – US $ 17.99 16.09 16.57 17.63 19.09 19.35 22.11 23.35 24.01 23.28 21.57 22.70

b) ADS price-INR 807.03 743.68 760.07 819.62 886.35 889.13 992.74 1,041.18 1,059.08 1,025.95 950.81 978.37

c) NSE Share Price (Rs.) 379.63 345.83 354.83 377.18 404.18 409.20 430.90 459.50 483.40 472.45 414.40 470.35

d) Premium – (Rs.) (b/2-c) 23.89 26.01 25.21 32.63 39.00 35.37 65.47 61.09 46.14 40.52 61.00 18.84

e) Premium – % 6.29 7.52 7.10 8.65 9.65 8.64 15.19 13.29 9.55 8.58 14.72 4.00

Each ADS represents two equity shares. The ADS price has been converted by applying monthly closing noon buyingrate of federal reserve.

i) The Company has in-house facilities for share transfers and redressal of related grievances, and in this regard,members may contact the Sr. Vice President - Corp. Governance & Company Secretary, Satyam Computer ServicesLimited, I Floor, Mayfair Centre, S.P. Road, Secunderabad - 500 003. Ph: 040-3065 4343/3065 4211e-mail: [email protected].

j) The Company’s shares are covered under the compulsory dematerialization list and are transferable through thedepository system. As per the internal quality standards, the Company has put in processes for physical sharetransfers.

k) As on March 31, 2007, the distribution of the Company’s shareholding was as follows:

Category (No. of shares) No. of shareholders No. of shares held (Rs. 2/-) % to total no. of shares

From To Physical Demat Physical Demat Physical Demat

1 500 642 2,27,570 1,36,958 1,68,88,606 0.02 2.53

501 1,000 819 8,068 7,80,020 64,06,226 0.12 0.96

1,001 2,000 1,928 6,677 38,04,570 1,10,14,718 0.57 1.65

2,001 3,000 198 1,904 5,61,380 49,00,100 0.08 0.73

3,001 4,000 258 1,234 10,16,700 45,65,525 0.15 0.68

4,001 5,000 9 517 45,200 23,66,996 0.01 0.35

5,001 10,000 84 1,133 6,08,390 80,44,008 0.09 1.21

10,001 & above 36 1,212 29,20,383 47,29,26,757 0.44 70.88

ADS* 1 74,020 13,01,35,452 0.01 19.50

Total 3,974 2,48,316 99,47,621 65,72,48,388 1.49 98.51

Grand Total 2,52,290 66,71,96,009 100

* Beneficially held by owners outside India

l) Dematerialization of shares: The Company has the necessary infrastructure in-house for dematerialization of shares.As per the defined norms for dematerialization process, shares received for dematerialization are generally confirmedwithin a period of three working days from the date of receipt, if the documents are clear in all aspects. As on March31, 2007, 98.51% of outstanding shares of the Company are held in electronic form.

m) The Company has earmarked 8,34,54,280 equity shares under the Associate Stock Option Plan (ASOP)–B, 51,49,330ADSs under ASOP–ADS and 1,30,00,000 equity shares under ASOP-RSUs and ASOP – RSUs (ADS). As on March31, 2007, options outstanding under ASOP–B 1,99,76,210, ASOP–ADS 14,61,064 , ASOP-RSUs 32,93,140 andASOP – RSUs (ADS) 2,36,620. The vesting period and exercise period for the stock options shall be determined bythe Compensation committee, subject to the minimum vesting period being one year.

n) The addresses of global offices of the Company are given elsewhere in the annual report.

o) Address for correspondence:

i) Satyam Computer Services Limited, I Floor, Mayfair Centre, 1-8-303/36, S. P. Road, Secunderabad-500 003.

ii) E-mail: [email protected]

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p) The comparative summary of Company’s principal corporate governance practices to those required of U.S.Companies under NYSE listing standards is available on our website at www.satyam.com.

q) Other useful information to shareholders:

i) Pursuant to provisions of section 205A of Companies Act, 1956, the dividend declared by the Companywhich remains unclaimed for a period of seven years, shall be transferred by the Company to Investor Education& Protection Fund (IEPF) established by the Central Government under section 205C of the said Act.

ii) The dividend for the financial years up to 1998-99 and the interim dividend for the year 1999-00 whichremained unclaimed have been transferred by the Company to IEPF.

iii) The due dates for transfer of unclaimed dividends to IEPF, pertaining to different financial years are given below.Members, who have not claimed the dividend for these periods are requested to lodge their claim with theCompany, as no claim shall be entertained for the unclaimed dividends once transferred to IEPF.

Financial year Type of dividend Book closure/Record dates Due date for transfer to IEPF

2000-01 Interim 01.12.2000 28.11.2007

2000-01 Final 25.06.2001-29.06.2001 05.08.2008

2001-02 Interim 09.11.2001 30.11.2008

2001-02 Final 24.06.2002-01.07.2002 07.08.2009

2002-03 Interim 08.11.2002 29.11.2009

2002-03 Final 16.07.2003-25.07.2003 31.08.2010

2003-04 Interim 12.11.2003 29.11.2010

2003-04 Final 19.07.2004-23.07.2004 29.08.2011

2004-05 Interim 04.11.2004 25.11.2011

2004-05 Final 18.07.2005-22.07.2005 27.08.2012

2005-06 Interim 04.11.2005 24.11.2012

2005-06 Final 16.08.2006 – 21.08.2006 26.09.2013

2006-07 Interim 10.11.2006 25.11.2013

iv) To prevent fraudulent encashment of dividend warrants, members are requested to provide their bank accountdetails (if not provided earlier) to the Company (if shares are held in physical form) or to Depository Participants(DPs) (if shares are held in electronic form), as the case may be, for printing of the same on their dividendwarrants.

v) Members holding shares in electronic form are advised that in terms of the bye-laws of NSDL & CDSL, theirbank account details, as furnished to the DP, will be printed on their dividend warrants. The Company will notentertain requests for change of such bank details printed on their dividend warrants.

vi) Members are requested to send the duly filled in ECS mandate to depository participant with a copy to theCompany’s registered office address provided in this annual report to enable the Company to credit thedividend into their bank account through Electronic Clearing Service mechanism.

vii) Shares received for physical transfer are generally registered within a period of three working days from thedate of receipt, if the documents are clear in all respects. In case no response is received from the Companywithin fifteen days of lodgment of transfer request, the transferee may write to the Company with full details sothat necessary action could be taken to safeguard the interest of the concerned against any possible loss/interception during postal transit.

viii) Members holding shares in physical form are requested to notify to the Company, any change in their registeredaddress and bank account details promptly by written request under the signatures of sole/first joint holder.Members holding shares in electronic form are requested to send their instructions regarding change of name,change of address, bank details, nomination, power of attorney, etc., directly to their Depository Participant(DP) as the same are maintained by them.

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ix) Non-resident members are requested to immediately notify to the Company or to the DPs as the case may be:

• change in their residential status on return to India for permanent settlement;

• particulars of their NRE bank account with a bank in India, if not furnished earlier

x) In case of loss/misplacement of shares, a complaint shall be lodged with the police station, and an intimationto this effect shall be sent to the Company along with an original or certified copy of FIR/acknowledgment of thecomplaint.

xi) For expeditious transfer of shares, shareholders should fill in complete and correct particulars in the transferdeed. Wherever applicable, the registration number of the power of attorney should also be quoted in thetransfer deed at the appropriate place.

xii) Equity shares of the Company are under compulsory demat trading by all investors. Considering the advantagesof scrip-less trading, members are encouraged to consider dematerialization of their shareholding so as toavoid inconvenience in future.

xiii) Members are requested to quote their folio/DP and client ID nos., as the case may be, in all correspondencewith the Company. All correspondence regarding shares of the Company should be addressed to Secretarialcircle of the Company at the registered office at 1-8-303/36, I Floor, Mayfair Centre, S. P. Road, Secunderabad-500 003, and not to the address of the erstwhile registrars and transfer agents or any other offices of theCompany.

xiv) Members are requested to keep record of their specimen signature before getting the shares transferred, toobviate possibility of difference in signature at a later date.

xv) Members who have multiple folios in identical name(s) or holding more than one share certificate in the samename under different ledger folio(s) are requested to apply for consolidation of such folio(s) and send therelevant share certificates to the Company.

xvi) Section 109A of the Companies Act, 1956 extends nomination facility to individuals holding shares in physicalform in companies. Members, in particular those holding shares in single name may avail of this facility byfurnishing the particulars of their nominations in the prescribed nomination form.

xvii) Members are welcome to give us their valuable suggestions for improvement of investor services.

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Declaration regarding compliance with the code of conduct and ethics policyof the Company by Board members and senior management personnel

This is to confirm that the Company has adopted Code of Conduct and Ethics Policy for the Board of Directors andAssociates of the Company, which is available at www.satyam.com.

I declare that the Board of Directors and senior management personnel have affirmed compliance with the Code ofConduct and Ethics policy of the Company.

B Rama RajuPlace : Secunderabad Managing DirectorDate : April 20, 2007

Auditors' certificate regarding compliance of conditions of Corporate Governance

To the Members ofSatyam Computer Services Limited

We have examined the compliance of conditions of Corporate Governance by Satyam Computer Services Limited (‘theCompany’), for the year ended March 31, 2007, as stipulated in clause 49 of the Listing Agreement of the saidCompany with stock exchanges in India.

The compliance of conditions of Corporate Governance is the responsibility of the Company’s management. Ourexamination was carried out in accordance with the Guidance Note on Certification of Corporate Governance (asstipulated in clause 49 of the Listing Agreement), issued by the Institute of Chartered Accountants of India and waslimited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of theconditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements ofthe Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that theCompany has complied with the conditions of Corporate Governance as stipulated in the above mentioned ListingAgreement.

We state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency oreffectiveness with which the management has conducted the affairs of the Company.

S GopalakrishnanPartner

Membership No: 18863for and on behalf of

Place: Hyderabad Price WaterhouseDate : April 20, 2007 Chartered Accountants

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Strategic

Operations

ReportingCompliance

Enterprise Risk Management (ERM)Our ERM framework is aligned to organizational design to keep pace with the basic philosophy of organization andensure the achievement of its core values. We believe that systematic approach towards mitigating risks will help inachieving the stated objectives in Satyamway. The Company devised roll up model for its risk management framework,wherein the residual risks at each level are rolled up to the next level for mitigation. The framework aims to mitigate risksassociated with accomplishment of entity’s objectives – Strategic, Operations, Reporting and Compliance.

Strategic

We set organizational objectives after evaluating strategic alternatives to manage the associated risks. The strategicalternatives may reduce, share, avoid or accept the risks. The risk strategy of management is disseminated to businessand support units to align their objectives with that of organizational goals.

Operations

The inherent operational risks of business processes within the Company are managed with regulated internal controlpolicies and procedures. The operation of risk policies of the organization are the primary responsibility of respectiveunits. The evaluation of risk status is carried out at regular intervals after collating the risk information from respectiveunits.

Reporting

Effective and robust reporting system within the organization is in place and enables management of the Company fortaking informed decisions in achieving the objectives. Reporting risks within and outside organization are addressedby devolving primary responsibility of compliance to concerned business and support units. The Company has a welldefined internal control system that is adequate and commensurate with the size and nature of its business. Regularperiodical reviews by RTLC team evaluate the efficiency and performance of the businesses. Clear roles responsibilitiesand authorities, coupled with robust internal information systems, ensure appropriate information flow to facilitateeffective monitoring. Adequate controls are established to ensure that assets of the Company are safeguarded andtransactions are executed in accordance with documented policies.

Compliance

Compliance to regulatory policies, procedures and guidelines deal with the risk compliance. Compliance with theCompany policies is monitored through regular internal audits of processes as well as underlying transactions. Periodicalcompliance is certified by designated officials and a comprehensive report is submitted to the management. The statusof compliance is periodically reported to the Board of directors/Audit committee.

Fig.1

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Enterprise Risk Management Process

ERM process

Satyam identified Risk Assessment, Risk Management and Risk Monitoring as three key elements of the ERM. Riskmanual was documented with guidelines and procedures to proliferate risk identification, risk assessment and riskmonitoring across the organization to review the status of risks.

(i) FLCB : Full Life Cycle Business (ii) BU : Business Unit(iii) SU : Support Unit (iv) FLCL : Full Life Cycle Leader(v) Integrators : Heads of BUs/SUs (vi) PL : Project Leader

Fig. 2

Risk assessment

The Full Life Cycle Leaders (FLCLs) are empowered with end-to-end responsibility for running their businesses. Toensure and sustain growth, the leaders are responsible to identify potential risks for their businesses and devisemitigation plans thereto. The identification and assessment of risks shall be on the basis of the impact and probabilityattached to the risk at different levels namely Project, FLCB, Unit and the Company. The measurement of risk is on thebasis of its impact and probability of occurrence.

Risk management

Our Risk management strategy envisages the risk appetite of potential events which has a significant impact on theCompany. The mitigation strategies may include risk control, risk sharing / risk transfer, risk treatment, avoidance etc.The cycle includes appropriate identification of related risks, mitigation plans applied thereof and necessary escalationsto address the challenges. The Internal controls set out in the form of policies and procedures ensure that the risk responseis carried out effectively. Risk compliance addressed by the business units will bear the responsibnility of ensuringregulatory compliance by the Company.

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Risk Management Levels

Corporate LevelRisk Management

BU LevelRisk Management

SU LevelRisk Management

FLCB RiskManagement

FLCB RiskManagement

FLCB RiskManagement

FLCB RiskManagement

Project RiskManagement




Fig.3

Risk monitoring

The status of identified risks and assignments made for mitigation of risks at different levels are monitored to identify thesource of risk for resolution. Automated mails are generated at regular intervals to the assignees for mitigation of risks.The non compliance of mitigation plans of the identified risks leads to an automatic escalation for necessary action.The repository of mitigated risks is maintained for knowledge sharing and replication. The Forum reviews the status ofrisks from time to time, performance measured against tolerance of risks and recommends corrective actions.

Fig.4

The Company is compliant with Section 404 of US Sarbanes Oxley Act, 2002 for the year ended March 31, 2007. Ourquarterly filings with Securities and Exchange Commission, US on form 6-Ks and Annual filing on form 20-F, containdetailed discussion on risks associated with our business. These filings are available at www.sec.gov.

The diagram given below depicts our structure of risk assessment, risk management and risk monitoring with underlyingprinciple of delighting our stakeholders.

The levels of risk management are depicted in the diagram given below:

BOD/Audit

Committee

FLCL ERMFORUM

Project FLCB SU/BU Company

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Corporate Social Responsibility

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Satyam Foundation supports and strengthens the vulnerableand underprivileged sections of the society. The vision ofthe Foundation is to bridge the increasing gap for theunderprivileged and to transform the quality of life in urbanareas.

As the Foundation does not believe in cheque book charity,associates are invited, encouraged and supported toparticipate in CSR-related activities. Known as the “WeekendWarriors”, our volunteers take on an activity, own it andimplement it. The positive outcomes of these initiatives

confirm our conviction that, when people come together,remarkable things happen.

The Foundation has 6 Chapters located at Hyderabad,Pune, Bangalore, Bhubaneshwar, Gurgaon and Chennai,and will be opening chapters shortly in the UK, Australia,China and the USA.

Satyam Foundation focuses all its activities in the 6 coreareas of HIV/AIDS, Health, Livelihoods, Street Children,Education, and Environment.

Corporate social responsibility

SatyamCSRActivities

Satyam Volunteers donating Blood at Blood donationcamp at Gurgaon Chapter

Mr Krishna Manohar, a Satyam volunteer, receiving theStar award for Best Volunteer for 2006., at the Star Awardsfunction held at Hyderabad

Solar lamp distribution at Seetharam Thanda village, nearHyderabad on 7th March, organized by 400 associates ofEnergy and Utilities Vertical with the support of SatyamFoundation

Inauguration of 1056 Health Information Helpline facilityby Shri K Rosaiah, Ex.Minister for Health, on 21 February,2007 at Gagan Mahal, Hyderabad

Mr. Anjan Kumar Yadav, MP, Shri K Rosaiah, Ex Minister forHealth, Mr. A S Murthy, Chairman, Satyam Foundation,Dr. Balaji Utla, Director Satyam Foundation and Dr. A P RangaRao, Advisor - Health, Satyam Foundation at the inauguration

Underprivileged Youth undergoing Training in InformationTechnology at our IT school in Hyderabad

Students from a Govt. Boys School on aMotivational Tour visit the Satyam Training Center

Underprivileged children at the Kidsmartcenter set up with the help of IBM and Byrrajuat a Govt. Girls Upper Primary School,Ameerpet, Hyderabad

Computer Lab set up at Dwaraka Upper PrimarySchool, Kavadiguda

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Key differentiators• Use of technology and processes – Satyam’s core

strength – to bring in corporate competencies andfocus to the social sector, to create the maximum impactwith optimized resources

• Focus on volunteering to reach out to society

• Creating scalable solutions

• Creating enabling platforms – in all the areas wechoose to work in – where people with focus on socialtransformation can come together, to create synergy

Technology has been leveraged by many of the Foundation’sinitiatives, like:

1. Developing low-cost biometric solutions using fingerprinting technology and webcams, and installing them

at the Urban Health Posts for tracking patientregistration, identification and tracking health records

2. Software application for electronic vision acuity forassessing the vision acuity developed forophthalmologists and optometrists

3. Automation of Anti-Retroviral Treatment processundertaken in a Government Hospital for HIV/AIDSpatients

4. State-of-the-art technology used for 1056 HealthInformation Helpline contact center

VolunteeringSatyam has a “fellowship commitment measure” forvolunteering by its associates, where the target is that 10%of Satyam associates spend at least 10% of their freepersonal time in CSR activities.

Mrs Nandini Raju interacting with school children at thescience exhibition organized at Musheerabad, Hyderabad,for 25 Govt. Upper Primary Schools

Volunteers of Chennai Chapter with orphaned children atthe two-day “Eureka Children’s Festival”

Senior Satyam Associates interacting with runawaychildren, at the shelter for boys, Hyderabad

Bart Dhondt, A Belgian Intern at Satyam dressed as SantaClaus, spreading cheer among Street children at “SIDUR”at Secunderabad on Christmas Eve

Notebook distribution by Satyam volunteers ofBhubaneshwar Chapter for children of the Village Primaryschools, Chandrashekarpur, Orissa

Minister for Health and Family Welfare Mr. Duryodan Maihi and Minister for Finance Mr G Praful Chandra signing the banneron World AIDS Day on 1st Dec 2006 at our Bhubaneswar Chapter

Satyam associates participating in the distribution of saplingsfor enhancement of green cover at Hyderabad

Awareness Rally taken out by community members ofKukatpally, Hyderabad, where a solid waste managementproject has been implemented

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10,344 Satyam associates registered as volunteers andformed 130 M7 teams, clocking a cumulative total of2,50,000 volunteer hours, touching 12,92,872 lives.

Magnificent Seven: a unique approach to Volunteering.

In line with Satyam’s standards for doing quality work, theSatyam Foundation has initiated a creative process toimprove efficiency in volunteering projects, by using thefull-cycle leadership concept.

The Magnificent Seven (M7) are a team of about sevenvolunteers, who take ownership of a project under a forum.The team identifies requirements and provides full-cycleleadership to the identified project, and implements it withother volunteers and Foundation forum members.

Key impacts during 2006-07Health: Over 2,00,000 beneficiaries get free healthcareand medicines in the 4 Urban Health Posts adopted. 500Thalassaemia children are supported with fresh bloodwhenever required. Satyam is the most consistent and thesingle largest corporate blood donor to Red Cross andJeevan Jyothi, across the three cities of Hyderabad, Chennaiand Bangalore.

1056: A Health Information Helpline contact center in apublic-private partnership with the Government of AndhraPradesh, has been facilitated with a single toll-free number1056. It is a unique venture integrating multiple functionson one platform – telephone, fax, e-mail, chat, mobile phoneand instant messaging. This is one among a few of its kindin the world – in terms of technological innovation andapplication, and a first in Asia in terms of services offered.Highlights of the services include:

• Delivering universal access to health information

• Availability of Services round the clock 24/7/365

• Communication in the desired vernacular languagetriage and advise services

• Telephone counseling services

• HIV helpline

• Suicide counseling

• Platform to register complaints/grievances on publichealth services

• Information directory services

HIV/AIDS: Satyam is among the first IT companies to adopta comprehensive workplace policy on HIV/AIDS in thecountry. It is the first corporate to form “Red Ribbon Clubs”at all Satyam locations to take up critical issues related toHIV/AIDS. Over 18 international and national NGOsworking in similar areas and the Government of AndhraPradesh were brought together on one platform on WorldAIDS Day, impacting over a million lives across the state ofAndhra Pradesh – another example of public-privatepartnership. Satyam pioneered the formation of the

“Hyderabad Hub”, a consortium of NGOs to jointly takeup HIV/AIDS related issues. The College Education Programon HIV/AIDS targeting students in engineering colleges inAndhra Pradesh, with the active participation of JawaharlalNehru Technological University and the Andhra PradeshState AIDS Control Society has successfully covered 53engineering colleges. 11,000 students attended thisprogram. A total of 16,62,262 lives were touched duringthe year, making Satyam one of the most aggressivecorporates to take up HIV/AIDS awareness among youth.

Livelihoods: Through its three main service offerings – SkillBuilding, Business Consultancy and Technology forCommunity – the forum has taken up 11 projects. A total of4,132 lives have been impacted this year, mainly throughthe 8 IT schools imparting training and soft skills tounderprivileged youth and sponsorships to variousvocational training programs. More than 80% of thebeneficiaries have been placed with an average income ofRs.4,000.

Education: Satyam Foundation has adopted 217Government schools in the 4 cities of Hyderabad,Bangalore, Chennai and Bhubaneshwar, impactingapproximately 55,000 school children, by providing themwith writing material, through computer education, sciencekits, taking them on motivational tours, conducting summercamps and science exhibitions. Teachers are also motivatedthrough training in computer education workshops toenhance teaching methods. Two Kidsmart centers havebeen set up in collaboration with IBM, benefiting 2,000primary school children approximately.

Street Children: 1,600 children in 16 shelters/transit homes/juvenile homes (both boys and girls) have been catered to,during 2006-07. More than 1,000 Satyam volunteersmentored the children with compassion, spending timewith the children, counseling them, teaching them to read,sing, act, draw, play games and by taking them onmotivational tours. A campaign on Ban Child Labor hasbeen taken up on a large scale in all Satyam locations.

Environment: To sensitize communities on environmentalissues and take concrete measures to improve green cover,effective solid waste management, water, land and energyconservation was the main focus this year. Enthusiasticvolunteers participated in large numbers in the plantationdrive and 13,000 saplings were distributed for green coverimprovement. 12 tons of waste material has been collectedfrom all Satyam premises under the Waste Paper RecyclingProject, in partnership with a well known paper boardscompany. A comprehensive eco-friendly Solid WasteManagement program has been implemented as a pilotproject in one of the largest municipalities in Hyderabad,covering approximately half a million population, to createa zero waste environment. A film on “Ban on Plastics” isbeing screened in 40 theaters in Hyderabad. 60,000 stickershave been distributed under the black spot campaign inChennai to reduce the number of accidents.

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Indian GAAP Financial Statements• Management's discussion and analysis

• Auditors' report

• Description of business and statement onsignificant accounting policies

• Balance Sheet

• Profit and Loss Account

• Schedules

• Cash Flow statement

• Balance sheet abstract and Company'sgeneral business profile

• Statement pursuant to Section 212(e) of theCompanies Act, 1956 relating to subsidiarycompanies

• Statement pursuant to exemption receivedunder Section 212(8) of the Companies Act,1956 relating to subsidiary companies

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Industry structure and developments

Global IT services overview

Global IT services spending is projected to grow at a compound annual growth rate of 5.8% to reach US$589.0 billionby 2010, from an estimated IT services spending of US$444.0 billion in 2005 according to International Data Corporation.Satyam believes that the growth of global IT services spending is driven by the following factors and trends:

� Increased importance of IT to businesses. In today’s increasingly competitive business environment, companieshave become dependent on information technology not only to conduct day-to-day operations, but also as astrategic tool to enable them to re-engineer business processes, restructure organizations and react quickly tocompetitive, regulatory and technological changes. As information systems continually become more complexwith the use of multiple applications and rapidly changing technologies, companies are increasingly turning toexternal IT service providers to develop and implement new technologies and integrate them with existingapplications in which they may have already made considerable investments.

� Impact of the Internet and other new technologies on business. Businesses are increasingly using the Internetto interact with new and existing customers and create new revenue opportunities. Businesses conductedelectronically over the Internet extend beyond Internet-based applications to include packaged software tools,such as customer and supply chain management software, that need to be integrated with a company’s enterprisesystems. These initiatives are often large and difficult to manage in-house and need to keep pace with constantlyevolving business processes and technological innovations leading to demand for IT services companies.

� Managing and upgrading existing systems. Managing and upgrading existing systems has become critical giventhe importance of IT and related systems to new business initiatives. Internal IT departments often do not have theappropriate resources or breadth of skills necessary to manage or upgrade existing systems. As a result, companiesare increasingly looking to external service providers to design, integrate, implement and maintain their applicationsbased on new technologies.

� Increasing trend towards offshore outsourcing. The increasing complexities and costs of IT services, togetherwith an increasing need for highly skilled technology professionals and tightening IT budgets for companies, aredriving demand for professional IT services companies who are able to provide a cost effective, high quality,comprehensive range of services. The offshore delivery model is enabling companies to increasingly outsourcecomplex assignments and generate not only cost savings in IT services but also greater efficiencies in theirbusiness processes. In addition, companies are increasingly using the “utility computing” or “pay for what youuse”, model for infrastructure, data- warehousing and IT system usage, which is further fueling growth ininfrastructure, network outsourcing and network management services.

Indian IT services industry overview

As organizations realize the cost effectiveness of offshoring their outsourced services, they are increasingly makingoffshoring a part of their business strategy.

India is considered to be the most favored destination for offshore IT service delivery. The NASSCOM-McKinsey Reportof 2002 estimates that export revenue generated from the software and service industry in India was approximatelyUS$17.7 billion in 2005 and is expected to reach US$60.0 billion by 2010 representing a compound annual growthrate of 27.7%. The key factors that are expected to contribute to this growth are:

� High quality delivery record. Indian companies have developed high quality delivery processes. As of December2006, over 440 Indian companies had acquired quality certifications with 90 companies certified at SEI-CMMLevel 5 which is the highest in the world. Indian companies follow the Information Technology Act 2000 legislationthat outlines the broad policy framework for ensuring the safety of information in India.

� Large supply of English-speaking IT professionals. We believe that India ranks second only to the United Statesas the country with the largest population of English-speaking IT professionals. According to the NASSCOM

Management’s discussion and analysis

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strategic review 2007, educational institutes in India will produce approximately 500,000 technically trainedgraduates (Engineering degree/Diploma/MCA) will pass out by the end of 2007. Approximately 2.3 million graduatesin arts, commerce and general science streams and 300,000 post graduates and doctoral candidates are expectedin 2007. Given the shortage of technical labor in the United States and other developed economies, the availabilityof technically skilled personnel is proving to be a competitive advantage for Indian IT service companies.

� Significant cost advantage. Satyam believes that the cost of employing IT professionals in India is significantlylower than in developed countries such as the United States. The use of high quality, low cost resources providesa significant opportunity for companies to realize cost savings by off shoring IT services to India.

Trends

The Indian IT services industry has been witnessing changes in customer demands and Satyam believes that serviceproviders who are best able to adapt to these changes will succeed in the long run. Some key emerging industry trendsare described below:

� Enhanced expectations. Increasingly, companies are expecting more value from their IT service providers thanjust the traditional cost advantages derived by offshoring the delivery of IT services. Companies increasinglyprefer service providers that can provide strategic advice related to designing and increasing efficiencies ofbusiness processes and also assist in implementing their recommendations. Also, service providers with strongindustry expertise are favored over those who can only provide strong technical skills.

� Large, multi-year, end-to-end contracts. Companies are increasingly looking for IT service providers that canprovide end-to-end solutions over a long period of time. In addition, companies, which have a presence acrossvarious geographies, need IT support on a global scale and often seek a single service provider that can offer acomprehensive range of services on a long-term basis across the world, and understand and integrate a widespectrum of emerging technologies with existing systems.

� Relationships with customers’ key senior management. As outsourcing contracts increasingly gain strategicimportance to businesses, customers’ senior management teams have become more involved in outsourcingcontract negotiation and monitoring. As a result, IT service providers need to ensure that their senior accountmanagers develop strong and lasting working relationships with customers’ senior management.

� Performance measurement. Companies are increasingly demanding transparency in performance measurement.IT service providers with their own well developed benchmarks, frameworks and models to measure performanceor demonstrate potential benefits are likely to have significant advantage over their competitors who offer moregeneric IT services.

Business Process Outsourcing

Outsourcing to India has provided companies with significant benefits over the arbitrage in labor costs - throughbusiness process enhancements and improvements. Indian vendors are expanding their service offerings, enablingcustomers to deepen their offshore engagements; the shift from low-end business processes to higher-value, a knowledge-based process is having a positive impact on the overall industry growth. In spite of the rising elements of cost, Indianoffshore operations provide cost savings of 40-50 per cent; in spite of wage inflation averaging 10-15 per centannually, companies are able to leverage declines in telecom and other overhead costs, productivity gains and economiesof scale to sustain the cost arbitrage. India has already registered its mark on the globe in ITES-BPO sector. There wassteady growth across the key service categories of finance and accounting, customer interaction and human resourceadministration. These three segments accounted for an estimated 89 per cent of the industry revenues. According to arecent study by Forrester, IT spending and staff hiring by businesses and government agencies in India is growingrapidly, at higher rates compared to their North American, European, and Asia Pacific counterparts.

Opportunities, Threats, Risks and Concerns

Satyam’s ability to identify, nurture and accelerate growth in new business practices has helped create a footprint inthese chosen areas, which has resulted in a strong platform for future growth. For instance, new verticals such as

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Healthcare, Retail and Transportation - in which we have invested in the last four years - have grown 20 times during theperiod, and now contribute around 13.21% of Satyam’s revenue. Even within the traditional stronghold verticals Satyamcontinues to increase its service offerings. Over the last four years Satyam increased the breadth of services provided bythe Telecom Infrastructure Media & Entertainment Semiconductor (TIMES) vertical to accelerate the revenue growth fromthe equipment manufacturers segment. This expansion of services played a major role in increasing the revenuecontribution of this vertical to 20.58% in fiscal 2007 from 9.1% in fiscal 2002 and Satyam expects it will unfold greateropportunities in the future. On the services front, the increasing portfolio of high value services led to strengthening of ourdominance in Enterprise Business Solutions. Satyam’s focus on Infrastructure Management Services would enable it tocapitalize on the increasing demand in this area. A recent study by the Yankee Group has revealed that with the highpriority accorded to mitigating risk and reducing network complexity by a large number of enterprises, managed servicesmarket is set to grow at a Compound Annual Growth Rate (CAGR) of 8 percent from 2005 to 2008, exceeding US$ 25billion by 2008.

The domestic IT market too is coming into its own and witnessing a high degree of merger and acquisitions activity,involving some of the key players in the market. Increasing IT usage and adoption within the country is enhancingcompetitiveness of the Indian economy and the user community. Indian businesses, that are using IT, as an enabler, arebecoming increasingly competitive in the global arena.

It is reassuring to note the enhanced business potential for integrated business solutions in the global market place andwe are hopeful that the growth momentum would continue.

The demand environment will continue to remain buoyant due to increased IT spend by organizations as well as greateracceptance of the global delivery model. To address the available opportunities, we are strengthening our businesssolutions capability by hiring best-in-class associates from across the world, and are making a focused attempt atenhancing our competence in new service areas that would be the drivers of growth going forward.

The next phase of evolution of the Indian IT-ITES industries will be led by innovation, which will pervade almost allaspects of these segments. Companies will focus on innovation to create significant differentiators in the global markets.The Indian IT-ITES sectors will build an eco-system for innovation in order to sustain its leadership in these domains aswell as stave off competition from emerging, alternate offshore outsourcing destinations. The latest NASSCOM-McKinseyStudy 2005 indicates that India has the potential to accelerate export growth and achieve an additional US$ 15-20 billionin revenues by 2010, provided its places, its chips on innovation.

The recent 2005 Appropriations Bill in the United States precludes foreign companies from obtaining L1 visas foremployees with specialized knowledge: (1) if such employees will be stationed primarily at the worksite of anothercompany in the U.S. and the employee will not be controlled and supervised by his employer, or (2) if the placement isessentially an arrangement to provide labour for hire rather than in connection with the employee’s specialized knowledge.The U.S. Citizenship and Immigration Services, or CIS, has also issued new guidelines to more closely verify the qualifyingcriteria to restrict the liberal usage of L1 visas. The CIS announced on April 3, 2007 that it had received sufficientapplications to fill up all 65,000 visas that were available for the year. The CIS announced that it was consideringincreasing the H1B by an additional 65,000 visas; however this proposal has not yet been enacted.

Indian Rupee has depreciated by 2.20% (approx.) against US dollar during fiscal 2007. The exchange rate between therupee and the US dollar has changed substantially in recent years and may fluctuate in the future. Satyam has sought toreduce the effect of exchange rate fluctuations on its operating results by entering into foreign exchange forward andoptions contracts to cover a portion of outstanding accounts receivable. As of March 31, 2007, forward and optionscontracts outstanding amounted to Rs. 1,978.98 crores (Equivalent US$452.63 million).

Outlook

The outlook for the fiscal year ending March 31, 2008 is as follows:

For fiscal 2008, income from services is expected to be between Rs. 7,793 crores and Rs. 7,916 crores, implying a growthrate of 20.0% to 22.0% over fiscal 2007 income of Rs. 6,485 crores. Earnings Per Share (EPS) for the fiscal 2008 is

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expected to be between Rs. 25.32 and Rs. 25.73, implying a growth rate of 18.00% to 20.00% over fiscal 2007 EPS ofRs. 21.45.

Internal control systems and their adequacy

The philosophy we have with regard to internal control systems and their adequacy has been formulation of effectivesystems and their strict implementation to ensure that assets and interests of the Company are safeguarded; checks andbalances are in place to determine the accuracy and reliability of accounting data.

The Internal Audit, an independent appraisal function to examine and evaluate the adequacy and effectiveness of theinternal control system, appraises periodically about activities and audit findings to the audit committee, statutoryauditors and the top management.

Internal audit ensures that systems are designed and implemented with adequate internal controls commensurate withthe size and operations; transactions are executed and assets are safeguarded and deployed in accordance with thepolicies; existence of adequacy of internal controls in all existing policies and procedures.

The Audit committee was constituted as a sub-committee to Board of Directors and it consists solely of independentdirectors. The meetings of the committee are held periodically to review and recommend, inter alia, the quarterly, halfyearly, nine months and annual financial statements. The committee also holds discussions with statutory auditors,internal auditors and the Management on matters pertaining to internal controls, auditing and financial reporting. Thecommittee reviews with the statutory auditors the scope and results of the audit.

M/s. Price Waterhouse, Chartered Accountants, Hyderabad have been re-appointed as statutory auditors to audit financialstatements under Indian GAAP and US GAAP and conduct such tests and related procedures as they deem necessary inaccordance with generally accepted accounting principles. The reports of the statutory auditors based upon their auditof the financial statements, are contained elsewhere in the Annual report.

Financial performance

Share capital and Reserves and surplus

During the year, we allotted 327,694,738 equity shares of Rs. 2 each as bonus shares and 15,051,732 equity shares ofRs. 2 each pursuant to exercise of stock options under Associate Stock Option Plan – B (ASOP – B) and Associate StockOption Plan – ADS (ASOP – ADS). Consequently, the total outstanding equity shares increased to 667,196,009 as atMarch 31, 2007 from 324,449,539 as at March 31, 2006 and the paid up share capital increased to Rs. 133.44 croresfrom Rs. 64.89 crores and the share premium account increased to Rs. 1,321.18 crores from Rs. 1,028.63 crores duringthe same periods respectively. During the year, Satyam recorded a net profit after tax of Rs. 1,423.23 crores andRs. 142.32 crores was transferred to general reserve account.

Secured loans

The secured loans, comprising of vehicle loans, increased to Rs. 13.79 crores as of March 31, 2007 from Rs. 12.57 croresas of March 31, 2006.

Fixed assets

To keep pace with the expansion plans of the Company, world class infrastructure facilities are being developed atvarious locations. The capital expenditure during fiscal 2007 amounted to Rs. 345.82 crores as compared toRs. 234.27 crores in fiscal 2006. This primarily comprised of expenditure on plant and machinery including computersand software which amounted to Rs. 85.06 crores during fiscal 2007.

Investments

Investments increased by Rs. 45.41 crores to Rs. 201.15 crores in fiscal 2007 from Rs. 155.74 crores in fiscal 2006.DuringMay 2005, Satyam acquired a 75% interest in Citisoft Plc or Citisoft, a specialist business and systems consulting firmthat has focused on the investment management industry since 1986. Citisoft is a UK-based firm, with operating

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presence in London, Boston and New York.

Satyam acquired 75% of the shareholding in Citisoft for an initial cash consideration of Rs. 62.35 crores (inclusive ofacquisition costs) and a deferred consideration of Rs. 13.63 crores (equivalent GBP 1.75 million). Satyam is alsorequired to pay a maximum earn out consideration amounting to Rs.19.25 crores (equivalent GBP 2.25 million) basedon achievement of targeted revenues and profits.

On June 29, 2006, the Company acquired the remaining 25% shareholding for a consideration of Rs. 27.47 crores(equivalent GBP 3.26 million). The Company is also required to pay a maximum earn-out consideration amounting toRs. 30.28 crores (equivalent GBP 3.54 million) based on achievement of targeted revenues and profits and to fund anEmployee Benefit Trust (EBT) formed by Citisoft. The obligation to fund the EBT amounting to maximum of Rs. 15.40crores (equivalent GBP 1.80 million) is contingent on Citisoft achieving certain revenue and profit performance targets.During the quarter ended September 30, 2006, the company has paid Rs. 7.82 crores (equivalent GBP 0.90 million) toEmployee Benefit Trust. During the year Satyam made additional investments amounting to Rs. 9.83 crores in SatyamComputer Services (Shanghai) Co Ltd., China, a wholly owned subsidiary.

Deferred tax assets

We account for the deferred tax in compliance with the Accounting Standard 22 issued by the Institute of CharteredAccountants of India. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequencesattributable to differences between financial statements carrying amounts of existing assets and liabilities and theirrespective tax bases. The deferred tax assets (net) were Rs. 43.36 crores as of March 31, 2007, as compared to Rs. 4.29crores as of March 31, 2006. The deferred tax assets were primarily in respect of debtors, advances and gratuity andleave encashment whereas deferred tax liabilities were in respect of fixed assets.

Net current assets

Net current assets comprised primarily of cash and bank balances, sundry debtors, loans and advances, interestaccrued on fixed deposits, current liabilities and provisions. The net current assets increased to Rs. 4,918.64 crores asof March 31, 2007 from Rs. 3,761.7 crores as of March 31, 2006, primarily on account of increase in the cash andbank balances by Rs. 907.49 crores, increase in debtors by Rs. 527.05 crores and loans and advances by Rs. 78.51crores. Debtors increased primarily as a result of an increase in revenues and increase in collection period. Loans andadvances increased primarily as a result of increase in advances to suppliers by Rs. 20.4 crores and salary advances byRs. 20.2 crores. These increases in current assets were offset by increase in current liabilities and provisions byRs. 161.46 crores and Rs. 148.89 crores respectively. Current liabilities increased primarily on account of increase insalaries payable and accruals for sub-contracting charges. Provisions increased primarily on account of increase inprovision for gratuity and leave encashment by Rs. 109.9 crores.

During the year, net cash flow from operating activities amounted to Rs. 1,029.83 crores, net cash flow used ininvesting activities amounted to Rs. 1,678.58 crores including investment in subsidiary company of Rs. 32.76 crores,investments in long term deposits of Rs. 3,308.41crores which is offset by proceeds from maturity of long term depositsof Rs. 1,795.50 crores. Net cash flow provided by financing activities amounted to Rs. 34.10 crores. Exchange differenceson translation of foreign currency cash and cash equivalents amounted to Rs. 9.23 crores. Due to the foregoing, cashand cash equivalents decreased by Rs. 605.42 crores to Rs. 651.41 crores as of March 31, 2007 from Rs. 1,256.83crores as of March 31, 2006. Long term bank deposits increased by Rs. 1,512.91 crores to 3,308.41 crores as of March31, 2007 from 1,795.50 crores as of March 31, 2006. Consequently, cash and bank balances increased by Rs. 907.49during the fiscal 2007.

Sundry debtors, loans and advances and current liabilities and provisions increased primarily on account of increasein the operations. Interest accrued on fixed deposits decreased primarily on account of maturity of deposits with banksduring fiscal 2007.

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Total Income

Total income comprised of income from IT services, a majority of which is from exports, and other income. Totalincome increased to Rs. 6,410.08 crores in fiscal 2007 from Rs. 5,012.22 crores in fiscal 2006, signifying an increaseof 27.89% primarily on account of increase in export services revenues.

Income from IT services were Rs. 6,228.47 crores and Rs. 4,634.31 in fiscal 2007 and 2006 respectively. Other incomeamounted to Rs. 181.61 crores and Rs. 377.91 crores in fiscal 2007 and 2006 respectively. Other income in fiscal2006 is primarily on account of gain on sale of entire stake in Sify, amounting to Rs. 262.83 crores.

IT services revenues

Revenues from IT services increased by 34.40 % to Rs. 6,228.47 crores for the year ended March 31, 2007 fromRs. 4,634.41 crores for the year ended March 31, 2006.

During the year, we added 138 new customers including 7 Fortune Global 500 and US 500 companies. There washealthy addition in the mature verticals (Manufacturing, Banking and Finance, TIMES and Insurance) as well as nascentverticals (Healthcare, Retail and Transportation). The expanding global nature of our business has been truly reflectedin the customer additions of current year with significant additions in Europe and Asia Pacific regions. Our ability toidentify and nurture new business practices resulted in creating a footprint in chosen areas thus assisting the processof customer acquisition. Our dominance in Enterprise Business Solutions enhanced our ability to compete successfullywith global players resulting in significant customer additions.

On the services front, the increasing portfolio of high value services led to strengthening of our dominance in EnterpriseBusiness Solutions. Our focus on Infrastructure Management Services would enable us capitalize on the increasingdemand in this area.

Analysis of revenue growth (in percentages)


2007 2006

Increase/(Decrease) in revenue in US$ terms 32.28 35.23

Increase/(Decrease) in revenue due to change in:

– Volume (Hours billed) 31.00 34.47

– Billing rate 1.28 0.75

– US$ exchange rate 2.12 (1.45)

Increase/(Decrease) in revenue, in Rupee terms 34.40 33.78

The software revenue mix based on various parameters is as follows:

Revenues based on offshore and onsite/offsite

Rs. in crores

Year ended March 31,Location

2007 2006

Offshore 3,030.77 48.66% 2,054.85 44.34%

Onsite/Offsite 3,197.70 51.34% 2,579.46 55.66%

Total 6,228.47 100.00% 4,634.31 100.00%

We provide our IT services through a combination of (i) offshore centers located throughout (ii) teams working onsiteat a customer’s location, (iii) nearshore centers located in Canada, Hungary to service U.S.-based, Asia Pacific basedand Europe based customers, respectively, (iv) offsite centers located in Australia, Canada, China, Hungary, Japan,

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Malaysia, Singapore, Arab Emirates, United Kingdom and United States. Offshore IT services revenues consist ofrevenues earned both from IT services work conducted at our offshore centers in India as well as onsite conducted atcustomers’ premises which is related to offshore work. Offshore IT services revenues do not include revenues from ouroffsite or nearshore centers located outside of India or work which is not related to any offshore work. These revenuesare included in onsite/offsite revenues.

We generally charge higher rates and incur higher compensation expenses for onsite teams at our customer’s premisesor at our offsite and nearshore centers, as compared to work performed at our offshore centers in India. Servicesperformed by our onsite teams typically generate higher revenues per capita, but at a lower gross margin, than theservices performed at our offshore centers in India.

Revenues based on geography

We have experienced increasing volumes of business from customers located in North America Europe, attributable toboth new customers and additional business from existing customers. We expect that most of our revenues will be fromNorth America followed by Europe in fiscal 2008.

The following table gives the composition of our IT services revenues based on the location customers for the yearsindicated:

Rs. in crores

Year ended March 31,Region

2007 2006

North America 4019.23 64.53% 3,041.50 65.63%

Japan 92.80 1.49% 67.20 1.45%

Europe 1,164.10 18.69% 843.44 18.20%

Rest of the World 952.33 15.29% 682.17 14.72%

Total 6,228.47 100.00% 4,634.31 100.00%

Revenues by technology

We provide a comprehensive range of IT services, including application development and maintenance, consultingand enterprise business solutions, extended engineering solutions, and infrastructure management services. We seekto be the single service provider capable of servicing all of our customers’ IT requirements. Our consulting andenterprise business solutions includes services in the area of enterprise resource planning, customer relationshipmanagement and supply chain management, data warehousing and business intelligence, knowledge management,document management and enterprise application integration.

The following table presents our IT services revenues by type of service offerings:Rs. in crores

Year ended March 31,Technology

2007 2006

Software development and maintenance 2,956.03 47.46% 2,341.72 50.53%

Consulting and enterprise business solutions 2,579.21 41.41% 1,803.67 38.92%

Extended engineering solutions 409.83 6.58% 306.33 6.61%

Infrastructure management services 283.40 4.55% 182.59 3.94%

Total 6,228.47 100.00% 4,634.31 100.00%

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Revenues by contract type

Our IT services are provided on a time-and-material basis or on a fixed-price basis. Revenues from IT services providedon a time-and-material basis are recognized in the period that the services are performed. Revenues from IT servicesprovided on a fixed-price basis are recognized under the percentage of completion method of accounting and arerecorded when we can reasonably estimate the time period to complete the work. The percentage of completionestimates are subject to periodic revisions and the cumulative impact of any revision in the estimates of the percentageof completion is reflected in the period in which the changes become known to us. Although we have revised ourproject completion estimates from time to time, such revisions have not materially affected our reported revenues todate. In recent years, we have experienced some pricing pressure from our customers, which has had a negative impacton margins. In response to current market trends, we are considering the viability of introducing performance-based orvariable-pricing contracts. In the near term, we expect that revenue from fixed-price contracts will continue to increaseas current market trends indicate a customer preference towards fixed- price contracts.

The following table presents our IT services revenues by type of contract for the years indicated:

Rs. in crores

Year ended March 31,Nature of contract

2007 2006

Time-and-Material 3781.30 60.71% 2,986.35 64.44%

Fixed-Bid 2,447.17 30.29% 1,647.96 35.56%

Total 6,228.47 100.00% 4,634.31 100.00%

The increase in fiscal 2006 for fixed-bid contracts is primarily due to shift in type of contracts from time-and-materialto fixed bid based on current market trends since majority of the customers prefer to enter into fixed-price contracts.

Other Income

Other income primarily comprises of interest on deposits, gain on sale of long term investments and gain or loss onexchange fluctuations. Other income decreased by 51.94% to Rs. 181.61crores in fiscal 2007 from Rs. 377.91croresin fiscal 2006, primarily due to gain on sale of entire stake in Sify in fiscal 2006.

The company has balances with banks on deposit accounts, representing term deposits with banks earning fixed rateof interest. Interest income recognized amounted to Rs. 165.77 crores and Rs. 115.77 crores in fiscal 2007 and 2006respectively.

Majority of our revenues are generated in U.S. dollars and a significant portion of our expenses, including personnelcosts as well as capital and operating expenditures, will continue to be denominated in Indian Rupees. Consequently,our results of operations have been affected to the extent the rupee appreciates/depreciates against the foreign currencies.During the year ended March 31, 2007, the average rupee exchange rate against the US dollar depreciated by 2.20%(approximately) and the year end rupee exchange rate against the US dollar appreciated by 2.31% (approximately). Asa result of rupee appreciation/depreciation against the major foreign currencies (viz., USD, GBP, Euro, AUD, Yen, etc.,)we had a foreign exchange gain (net) of Rs. 13.54 crores during the year ended March 31, 2007, as compared to loss(net) of Rs. 2.18 crores during the year ended March 31, 2006. We enter into foreign exchange forward and optionscontracts to mitigate the risk of changes in foreign exchange rates on cash flows denominated in certain foreigncurrencies. During the year, we recorded a gain of Rs. 26.64 crores on the forward and options contracts as comparedto a loss of Rs. 3.75 cores in the previous year.

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Personnel costs

Personnel costs increased by 37.23% to Rs. 3,706.04 crores in fiscal 2007 from Rs. 2,700.67 crores in fiscal 2006.This increase in personnel costs was primarily on account of: (1) increase in the total number of technical associates by9,011 to 33,812 in fiscal 2007 from 24,801 in fiscal 2006 and increase in non-technical associates by 148 to 1,858 infiscal 2007 from 1,710 associates in fiscal 2006; (2) increase in number of onsite technical associates by 1,841 to6,824 in fiscal 2007 from 4,983 in fiscal 2006 for which we pay a higher compensation; (3) salary incentives amountingto Rs. 251.31 crores were given in fiscal 2007 as compared to Rs. 185.25 crores in fiscal 2006. Salary incentivesincreased primarily due to introduction of new incentive scheme by the company in fiscal 2007. As a percentage ofrevenues, personnel costs increased to 59.50% in fiscal 2007 from 58.28% in fiscal 2006.

Operating and administrative expenses

Operating and administrative expenses increased by 34.21% to Rs. 993.31 crores in fiscal 2007 from Rs. 740.13 infiscal 2006. This increase was primarily due to increase in travelling expenses, legal and professional, rent, visacharges, repairs and maintenance and other expenses. Travelling expenses increased by 54.83% to Rs. 367.57 croresor 5.90% of revenues in fiscal 2007 from Rs. 237.4 crores or 5.12% of revenues in fiscal 2006. Traveling expensesincreased primarily due to increase in travels by our associates. Legal and professional charges increased by 45.75%to Rs. 139.48 crores or 2.24% of revenues in fiscal 2007 from Rs. 95.70 crores or 2.07% of revenues in fiscal 2006.Rental expenses increased by 28.14% to Rs. 88.07 crores or 1.41% of revenues in fiscal 2007 from Rs. 68.73 croresor 1.48% of revenues in fiscal 2006. Rental expenses increased primarily on account of additional premises taken onrent at offshore and overseas locations. Visa charges increased by 37.64% to Rs. 44.47 crores or 0.71% of revenues infiscal 2007 from Rs. 32.31 crores or 0.70% of revenues in fiscal 2006. This increase was primarily due to increase intravels by our associates. Communication expenses increased by 1.42% to Rs. 64.32 crores or 1.03% of revenues infiscal 2007 from Rs. 63.42 crores or 1.37% of revenues in fiscal 2006. Repairs and maintenance increased by 46.35%to Rs. 44.14 crores or 0.71% of revenues in fiscal 2007 from Rs. 30.16 crores or 0.65% of revenues in fiscal 2006.Other expenses comprised primarily of power and fuel, rates and taxes, marketing expenses, training and development,advertising and insurance. Other expenses increased by 15.47% to Rs. 245.26 crores or 3.94% of revenues in fiscal2007 from Rs. 212.41 crores or 4.58% of revenues in fiscal 2006. As a percentage of revenues, total operating andadministrative expenses decreased to 15.95% for the year ended March 31, 2007 from 15.97% for the year endedMarch 31, 2006. This was due to less than proportionate increase in operating and administrative expenses, resultingfrom the measures taken to curtail these expenditures, as compared to the revenues.

Depreciation

Depreciation expense increased by 5.77% to Rs. 129.89 crores in fiscal 2007 from Rs. 122.81 crores in fiscal 2006.The increase in depreciation was primarily due to increase in depreciation on furniture and fixtures by Rs. 4.70 croresto 18.25 crores from 13.55 crores, on buildings by 0.88 crores to 3.60 crores from 2.72 crores and vehicles by Rs. 1.17crores to Rs. 6.62 crores in fiscal 2007 from Rs. 5.45 crores in fiscal 2006.

Provision for taxation

We are liable to pay income-tax in countries where we are providing software services. Provision for current taxationdecreased by 11.93% to Rs. 168.15 crores in fiscal 2007 from Rs. 190.92 crores in fiscal 2006. This decrease in currenttaxes was primarily on account of sale of entire stake in Sify amounting to Rs. 56.63 crores during 2006, which is offsetby expiry of tax exemption benefit for two of our STP units in Hyderabad and one unit in Bangalore resulted in increasein current taxes by Rs. 33.74 crores and also due to increase in taxable income in fiscal 2007 as compared to fiscal2006. Deferred tax credit amounting to Rs. 30.21 crores was recognized in fiscal 2007 as against deferred tax expensesof Rs. 6.42 crores in fiscal 2006. Deferred tax credit was mainly because of increase in provision for gratuity and leave

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encashment in fiscal 2007. During fiscal 2006, the Government of India levied fringe benefit tax on employers, payableon the value of fringe benefits or privileges provided or deemed to be provided to employees on a collective, ratherthan individual, basis. Fringe benefit tax expense for fiscal 2007 amounted to Rs. 12.06 crores as compared to Rs. 8.80crores in fiscal 2006.

Dividend

We declared a dividend of 175% (on the post-bonus equity share capital) for fiscal 2007 (including interim dividendof 50%) as against 350% for fiscal 2006.

Development in Human resources

For material developments in Human resources, please refer to Directors’ report.

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Auditors' report to the members of Satyam Computer Services Limited

1. We have audited the attached Balance Sheet ofSatyam Computer Services Limited, as at March 31,2007, and the related Profit and Loss Account andCash Flow Statement for the year ended on that dateannexed thereto, which we have signed underreference to this report. These financial statementsare the responsibility of the company’s management.Our responsibility is to express an opinion on thesefinancial statements based on our audit.

2. We conducted our audit in accordance with theauditing standards generally accepted in India. ThoseStandards require that we plan and perform the auditto obtain reasonable assurance about whether thefinancial statements are free of material misstatement.An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in thefinancial statements. An audit also includes assessingthe accounting principles used and significantestimates made by management, as well as evaluatingthe overall financial statement presentation. Webelieve that our audit provides a reasonable basisfor our opinion.

3. As required by the Companies (Auditors’ Report)Order, 2003, as amended by the Companies(Auditor’s Report) (Amendment) Order, 2004, issuedby the Central Government of India in terms of sub-section (4A) of Section 227 of ‘The Companies Act,1956’ of India (‘the Act’) and on the basis of suchchecks of the books and records of the company aswe considered appropriate and according to theinformation and explanations given to us, we give inthe Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred toin paragraph 3 above, we report that:

(a) We have obtained all the information andexplanations, which to the best of ourknowledge and belief were necessary for thepurposes of our audit;

(b) In our opinion, proper books of account asrequired by law have been kept by the companyso far as appears from our examination of thosebooks;

(c) The Balance Sheet, Profit and Loss Account andCash Flow Statement dealt with by this reportare in agreement with the books of account;

(d) In our opinion, the Balance Sheet, Profit andLoss Account and Cash Flow Statement dealtwith by this report comply with the accountingstandards referred to in sub-section (3C) ofsection 211 of the Act;

(e) On the basis of written representations receivedfrom the directors, as on March 31, 2007 andtaken on record by the Board of Directors, noneof the directors is disqualified as on March 31,2007 from being appointed as a director interms of clause (g) of sub-section (1) of section274 of the Act;

(f) In our opinion and to the best of our informationand according to the explanations given to us,the said financial statements together with thenotes thereon and attached thereto give in theprescribed manner the information required bythe Act and give a true and fair view inconformity with the accounting principlesgenerally accepted in India:

(i) in the case of the Balance Sheet, of thestate of affairs of the company as atMarch 31, 2007;

(ii) in the case of the Profit and Loss Account,of the profit for the year ended on that date;and

(iii) in the case of the Cash Flow Statement, ofthe cash flows for the year ended on thatdate.


Membership No. 18863for and on behalf of

Price WaterhouseChartered Accountants

Place : HyderabadDate : April 20, 2007

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Annexure to the Auditors' report

[Referred to in paragraph 3 of the Auditors’ report ofeven date to the members of Satyam Computer ServicesLimited on the financial statements for the year endedMarch 31, 2007]

1. (a) The company is maintaining proper recordsshowing full particulars including quantitativedetails and situation of fixed assets.

(b) The fixed assets are physically verified by themanagement according to a phased programmedesigned to cover all the items over a period ofthree years, which in our opinion, is reasonablehaving regard to the size of the company andthe nature of its assets. Pursuant to theprogramme, a portion of the fixed assets hasbeen physically verified by the managementduring the year and no material discrepanciesbetween the book records and the physicalinventory have been noticed.

(c) In our opinion and according to the informationand explanations given to us, a substantial partof fixed assets has not been disposed of by thecompany during the year.

2. The company has not granted/taken any loans,secured or unsecured, to/from companies, firms orother parties covered in the register maintained underSection 301 of the Act. As the company has notgranted/taken any loans, secured or unsecured, to/from companies, firms or other parties listed in theregister maintained under Section 301 of the Act,clauses (iii) (b), (iii)(c), (iii)(d), (iii)(f) and (iii)(g) ofParagraph 4 of the Companies (Auditor’s Report)Order, 2003, as amended by the Companies(Auditor’s Report) (Amendment) Order, 2004 are notapplicable to the company.

3. In our opinion and according to the information andexplanations given to us, having regard to theexplanation that certain items purchased are of specialnature for which suitable alternative sources do notexist for obtaining comparative quotations, there isan adequate internal control system commensuratewith the size of the company and the nature of its

business for the purchase of fixed assets and for thesale of services. The activities of the company do notinvolve purchase of inventory and sale of goods.Further, on the basis of our examination of the booksand records of the company, and according to theinformation and explanations given to us, we haveneither come across nor have been informed of anycontinuing failure to correct major weaknesses inthe aforesaid internal control system.

4. According to the information and explanations givento us, there have been no contracts or arrangementsreferred to in Section 301 of the Act during the yearto be entered in the register required to be maintainedunder that section. Accordingly, commenting ontransactions made in pursuance of such contracts orarrangements does not arise.

5. The company has not accepted any deposits fromthe public within the meaning of Sections 58A and58AA of the Act and the rules framed there under.

6. In our opinion, the company has an internal auditsystem commensurate with its size and nature of itsbusiness.

7. (a) According to the information and explanationsgiven to us and the records of the companyexamined by us, in our opinion, the companyis generally regular in depositing the undisputedstatutory dues including provident fund,investor education and protection fund,employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, customs duty andother material statutory dues as applicable withthe appropriate authorities. According to theinformation and explanations given to us andthe records of the company examined by us,excise duty and cess are not applicable to thecompany for the current year.

(b) According to the information and explanationsgiven to us and the records of the companyexamined by us, the particulars of dues of salestax as at March 31, 2007 which have not beendeposited on account of dispute, are as follows-

Name of the statute Nature of dues Amount (Rs.) Period to which the Forum where the dispute isamount relates pending

Andhra Pradesh Penalty for not 2,377,461 2005-06 Appellate DeputyEntry Tax Act, 2001 paying the entry Commissioner, Punjagutta

tax on time and Division, Hyderabadfor non filingthe returns

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According to the information and explanations givento us and the records of the company examined byus, there are no dues of income-tax, wealth tax,service tax, customs duty which have not beendeposited on account of any dispute. According tothe information and explanations given to us andthe records of the company examined by us, exciseduty and cess are not applicable to the company forthe current year.

8. The company has no accumulated losses as at March31, 2007 and it has not incurred any cash losses inthe financial year ended on that date or in theimmediately preceding financial year.

9. According to the records of the company examinedby us and the information and explanation given tous, the company has not defaulted in repayment ofdues to any financial institution or bank or debentureholders as at the balance sheet date.

10. The company has not granted any loans andadvances on the basis of security by way of pledgeof shares, debentures and other securities.

11. In our opinion, the company is not a dealer or traderin shares, securities, debentures and otherinvestments.

12. In our opinion and according to the information andexplanations given to us, the terms and conditionsof the guarantees given by the company, for loanstaken by others from banks or financial institutionsduring the year, are not prejudicial to the interest ofthe company.

13. The company has not obtained any term loans.

14. On the basis of an overall examination of the balancesheet of the company, in our opinion and according

to the information and explanations given to us, thereare no funds raised on a short-term basis which havebeen used for long-term investment.

15. The company has not made any preferentialallotment of shares to parties and companies coveredin the register maintained under Section 301 of theAct during the year.

16. The company has not raised any money by publicissues during the year.

17. During the course of our examination of the booksand records of the company, carried out inaccordance with the generally accepted auditingpractices in India, and according to the informationand explanations given to us, we have neither comeacross any instance of fraud on or by the company,noticed or reported during the year, nor have webeen informed of such case by the management.

The other clauses (ii), (viii), (xiii), and (xix) ofparagraph 4 of the Companies (Auditor’s Report)Order 2003, as amended by the Companies(Auditor’s Report) (Amendment) Order, 2004 are notapplicable in the case of the company for the currentyear, since in our opinion there is no matter whicharises to be reported in the aforesaid order.



Price WaterhouseChartered Accountants

Place: HyderabadDate : April 20, 2007

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Description of business and statement on significant accounting policies

Description of business

The Company is an information technology (“IT”) services provider that uses a global infrastructure to deliver value-added services to its customers, to address IT needs in specific industries and to facilitate electronic business, or eBusiness,initiatives. The Company was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India. The Company hasoffshore development centers located throughout India that enable it to provide high quality and cost-effective solutionsto clients. It also has offsite centers located in Australia, Canada, China, Dubai, Germany, Hungary, Japan, Malaysia,Singapore, United Kingdom and United States. The range of services offered by it, either on a “time and material” basis or“fixed price”, includes consulting, systems design, software development, system integration and application maintenance.The Company offers a comprehensive range of IT services, including software development, packaged software integration,system maintenance and engineering design services. The Company has established a diversified base of corporatecustomers in a wide range of industries including insurance, banking and financial services, manufacturing,telecommunications, transportation and engineering services.

Statement on significant accounting policies

a) Basis of presentation

The financial statements of the Company are prepared under historical cost convention in accordance with theGenerally Accepted Accounting Principles (GAAP) applicable in India and the provisions of the Indian CompaniesAct, 1956.

b) Use of estimates

The preparation of the financial statements in conformity with the GAAP requires that the management makesestimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilitiesas at the date of the financial statements, and the reported amounts of revenue and expenses during the reportedyear. Actual results could differ from those estimates.

c) Revenue recognition

Revenue from professional services consist primarily of revenue earned from services performed on a “time andmaterial” basis. The related revenue is recognized as and when the services are performed.

The Company also performs time bound fixed-price engagements, under which revenue is recognized using thepercentage of completion method of accounting. The cumulative impact of any revision in estimates of the percentageof work completed is reflected in the year in which the change becomes known. Provisions for estimated losses onsuch engagements are made during the year in which a loss becomes probable and can be reasonably estimated.

Amounts received or billed in advance of services performed are recorded as advance from customers/unearnedrevenue. Unbilled revenue, included in debtors, represents amounts recognized based on services performed inadvance of billing in accordance with contract terms.

d) Fixed assets

Fixed assets are stated at actual cost less accumulated depreciation. The actual cost capitalized includes materialcost, freight, installation cost, duties and taxes, finance charges and other incidental expenses incurred during theconstruction/installation stage.

Gain/Loss arising on foreign exchange liabilities incurred for the purpose of acquiring fixed assets are adjusted in thecarrying amount of the respective fixed assets.

Depreciation on fixed assets is computed on the straight line method over their estimated useful lives at the rateswhich are higher than the rates prescribed under Schedule XIV of the Companies Act, 1956. Individual assetsacquired for less than Rs.5,000 are entirely depreciated in the year of acquisition.

The cost of and the accumulated depreciation for fixed assets sold, retired or otherwise disposed off are removedfrom the stated values and the resulting gains and losses are included in the profit and loss account.

Costs of application software for internal use are generally charged to revenue as incurred due to its estimated usefullives being relatively short, usually less than one year.

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The estimated useful lives are as follows:

Estimated useful lives

Buildings 28 years

Computers 2 years

Plant and machinery (other than computers) 5 years

Software – used in development for projects 3 years

Office equipment 5 years

Furniture, Fixtures and Interiors 5 years

Vehicles 5 years

Capital work in progress

Assets under installation or under construction as at the Balance sheet date are shown as Capital work in progress.Advances paid towards acquisition of assets are also included under Capital work in progress.

e) Goodwill

Goodwill represents the difference between the purchase price and the book value of assets and liabilities acquired.Goodwill is amortized over the useful life of the asset. The goodwill is reviewed for impairment whenever events orchanges in business circumstances indicate the carrying amount of assets may not be fully recoverable. If impairmentis indicated, the asset is written down to its fair value.

f) Investments

Investments are classified into current investments and long-term investments. Current investments are carried at thelower of cost or market value. Any reduction in carrying amount and any reversals of such reductions are chargedor credited to the profit and loss account. Long-term investments are carried at cost less provision made to recognizeany decline, other than temporary, in the value of such investments.

g) Foreign currency transactions

Transactions in foreign currency are recorded at exchange rate prevailing on the date of transaction. Monetaryassets and liabilities denominated in foreign currency are translated at the rate of exchange at the balance sheet dateand resultant gain or loss is recognized in the profit and loss account.

Non-monetary assets and liabilities are translated at the rate prevailing on the date of transaction.

The operations of foreign branches of the company are of integral in nature and the financial statements of thesebranches are translated using the same principles and procedures of head office.

In case of forward exchange contract or any other financial instruments that is in substance a forward exchangecontract to hedge the foreign currency risk which is on account of firm commitment and/or is a highly probableforecast transaction, the premium or discount arising at the inception of the contract is amortized as expense orincome over the life of the contract.

Gain/Loss on settlement of transaction arising on cancellation or renewal of such a forward exchange contract isrecognized as income or as expense for the period.

In all other cases the gain or loss on contract is computed by multiplying the foreign currency amount of the forwardexchange contract by the difference between the forward rate available at the reporting date for the remainingmaturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on thatcontract for an earlier period), is recognized in the profit and loss account for the period.

h) Employee benefits

Contributions to defined Schemes such as Provident Fund, Employee State Insurance Scheme and Superannuationare charged as incurred on accrual basis. The Company also provides for gratuity and leave encashment in accordancewith the requirements of revised Accounting Standard – 15 “Employee Benefits”.

i) Taxes on income

Tax expense for the year comprises of current tax and deferred tax. Current taxes are measured at the amountsexpected to be paid using the applicable tax rates and tax laws. Deferred tax assets and liabilities are measured using

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tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in the profit and loss account in the year ofchange. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable todifferences between the financial statements carrying amounts of existing assets and liabilities and their respectivetax bases and operating loss carry forwards.

j) Earnings Per Share

The earnings considered in ascertaining the Company’s Earnings Per Share (EPS) comprises the net profit after tax(and includes the post tax effect of any extra ordinary items). The number of shares used in computing Basic EPS isthe weighted average number of shares outstanding during the year. The number of shares used in computingDiluted EPS comprises of weighted average shares considered for deriving Basic EPS, and also the weighted averagenumber of equity shares which could have been issued on the conversion of all dilutive potential equity shares.Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issuedat a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the sharesbeen actually issued at fair value (i.e. average market value of the outstanding shares). The number of shares andpotentially dilutive shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.

k) Associate Stock Option scheme

Stock options granted to the associates under the stock option schemes established after June 19, 1999 are evaluatedas per the accounting treatment prescribed by Employee Stock Option Scheme and Employee Stock PurchaseScheme Guidelines, 1999 issued by Securities and Exchange Board of India. Accordingly the excess of market valueof the stock options as on the date of grant over the exercise price of the options is recognized as deferred employeecompensation and is charged to profit and loss account on graded vesting basis over the vesting period of theoptions. The un-amortized portion of the deferred employee compensation is shown under Reserves and Surplus.

l) Research and Development

Revenue expenditure incurred on research and development is charged to revenue in the year/period in which it isincurred. Assets used for research and development activities are included in fixed assets.

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Balance Sheet as at March 31, 2007

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of theBalance Sheet.

This is the Balance Sheet referred For and on behalf of the Board of Directorsto in our report of even date.S Gopalakrishnan B Ramalinga Raju B Rama RajuPartner Chairman Managing Directorfor and on behalf ofPrice WaterhouseChartered Accountants

V Srinivas G JayaramanDirector Sr. Vice President-Corp. Governance& Sr. Vice President - Finance & Company Secretary

Place: Secunderabad Place : SecunderabadDate : April 20, 2007 Date : April 20, 2007

Rs. in crores

Schedule As at As atReference 31.03.2007 31.03.2006

I. Sources of Funds :1. Shareholders’ Funds

(a) Share Capital 1 133.44 64.89(b) Share application money, pending allotment 7.85 1.78(c) Reserves and Surplus 2 5,648.07 4,268.75

5,789.36 4,335.422. Loan Funds

(a) Secured Loans 3 13.79 12.575,803.15 4,347.99

II. Application of Funds :1. Fixed Assets 4

(a) Gross Block 1,280.40 1,153.16(b) Less: Depreciation 930.45 803.74(c) Net Block 349.95 349.42(d) Capital Work in Progress 290.05 76.84

640.00 426.262. Investments 5 201.15 155.743. Deferred Tax Assets (net) 6 43.36 4.294. Current Assets, Loans and Advances

(a) Sundry Debtors 7 1,649.86 1,122.81(b) Cash and Bank Balances 8 3,959.82 3,052.33(c) Loans and Advances 9 261.75 183.24(d) Other Current Assets

– Interest Accrued on Fixed Deposits 64.83 110.595,936.26 4,468.97

Less: Current Liabilities and Provisions(a) Liabilities 10 597.17 435.71(b) Provisions 11 420.45 271.56

1,017.62 707.27Net Current Assets 4,918.64 3,761.70

5,803.15 4,347.99Notes to Accounts 15

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Rs. in crores

Schedule Year ended Year endedReference 31.03.2007 31.03.2006

IncomeServices – Exports 5,961.06 4,461.64

– Domestic 267.41 172.67Other Income 12 181.61 377.91

6,410.08 5,012.22

ExpenditurePersonnel Expenses 13 3,706.04 2,700.67Operating and Administration Expenses 14 993.31 740.13Financial Expenses 7.61 2.72Depreciation 129.89 122.81

4,836.85 3,566.33

Profit Before Taxation 1,573.23 1,445.89Provision for Taxation – Current 168.15 190.92

– Fringe Benefit 12.06 8.80– Deferred (30.21) 6.42

Profit After Taxation 1,423.23 1,239.75

Add: Balance brought forward from previous year 2,836.81 1,982.64Less: Residual dividend and additional dividend tax (0.56) 1.23Profit Available for Appropriation 4,260.60 3,221.16Appropriations :

Interim Dividend @ Re. 1.00 per Equity Share of Rs. 2.00 each(2006 - Rs. 2.00 per Equity Share) 65.61 64.46Final Dividend @ Rs. 2.50 per Equity Share of Rs. 2 each(2006 - Rs. 5.00 per Equity Share) 166.80 163.87Tax on distributed profits 37.55 32.02Transfer to General Reserve 142.32 124.00Balance carried to Balance Sheet 3,848.32 2,836.81

Earnings Per Share (Rs. per equity share of Rs. 2 each)Basic 21.73 19.26Diluted 21.25 18.51No. of Shares used in computing Earnings Per Share

Basic 654,853,959 643,784,984Diluted 669,705,425 669,626,864Notes to Accounts 15

Profit and Loss Account for the year ended March 31, 2007

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of the Profitand Loss Account.This is the Profit and Loss Account For and on behalf of the Board of Directorsreferred to in our report of even date.

S Gopalakrishnan B Ramalinga Raju B Rama RajuPartner Chairman Managing Directorfor and on behalf ofPrice WaterhouseChartered Accountants



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Rs. in crores

As at As at31.03.2007 31.03.2006

1. Share Capital

Authorised : 160.00 75.00

800,000,000 (2006 - 375,000,000) Equity Shares of Rs. 2 each

Issued and Subscribed : 133.44 64.89

667,196,009 (2006 - 324,449,539) Equity Shares of Rs. 2 each fully paid-up

Out of the above:

4,000,000 Equity Shares of Rs. 2 each were allotted as fully paid-upEquity Shares for a consideration other than cash pursuant to the Schemeof Amalgamation with Satyam Enterprise Solutions Limited

468,289,738 (2006-140,595,000) Equity Shares of Rs. 2 each were allottedas fully paid-up by way of Bonus Shares by capitalising free reserves ofthe Company

130,209,472 (2006 - 64,680,600 ) Equity Shares of Rs. 2 each fully paid-up represent 65,104,736 (2006 - 32,340,300) American DepositoryShares

38,116,009 (2006 - 9,909,539 ) Equity Shares of Rs. 2 each fully paid-upwere alloted to associates of the Company pursuant to the AssociateStock Option Plan - B and Associate Stock Option Plan (ADS)

2. Reserves and Surplus

Share Premium AccountAs at the commencement of the year 1,028.63 890.94Add: Received on account of issue of ADS / ASOP 292.55 137.69

1,321.18 1,028.63General ReserveAs at the commencement of the year 402.79 278.79Add: Transfer from the Profit and Loss Account 142.32 124.00

545.11 402.79Less: Provision for leave encashment (Refer note (m) of Schedule 15) 17.47 –Less: Utilised on issue of bonus shares (Refer note (j) of Schedule 15) 65.54 –

462.10 402.79Employee Stock OptionsEmployee Stock Options Outstanding 180.61 0.52Less: Deferred Employee Compensation 164.14 –

16.47 0.52

Balance in Profit and Loss Account 3,848.32 2,836.81

5,648.07 4,268.75

3. Secured Loans

Vehicle Loans 13.79 12.57

Schedules forming part of the Balance sheet

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Rs. in crores

As at As at31.03.2007 31.03.2006

5. Investments

Long Term

i) Trade (Unquoted)

Satyam Venture Engineering Services Private Limited 3.54 3.543,544,480 Shares of Rs. 10 each, fully paid-up

CA Satyam ASP Private Limited 7.17 7.177,168,995 Equity Shares of Rs. 10 each, fully paid-up

Intouch Technologies Limited 10.90 10.90833,333 Shares of 20 US cents each, fully paid-upLess : Provision for diminution 10.90 – 10.90 –

Medbiquitious Services Inc., 1.57 1.57334,000 Shares of ‘A’ series Preferred Stock of USDollars 0.001 each, fully paid-upLess : Provision for diminution 1.57 – 1.57 –

Avante Global LLC., 2.54 2.54577,917 class ‘A’ units representing a total value ofUS Dollars 540,750Less : Provision for diminution 2.54 – 2.54 –

Jasdic Park Company480 Shares of J Yen 50,000each, fully paid-up 0.75 0.75Less : Received on liquidation 0.26 0.26

Less : Provision for diminution 0.49 – 0.49 –

Investments in subsidiary companies

Satyam Technologies Inc., 20.22 20.22100,000 Common Stock of 1 US cent each, fully paid-up

Nipuna Services Limited 18.27 18.2718,268,000 Equity Shares of Rs. 10 each, fully paid-up

Satyam Computer Services (Shanghai) Co. Limited$$ 25.75 15.92

Citisoft Plc 111.56 75.9811,241,000 (2006 - 8,430,752)Ordinary Shares of 0.01GBP each, fully paid up

Knowledge Dynamics Pte Ltd 14.64 14.6410,000,000 Ordinary Shares of 0.01 SGD each, fullypaid up

Satyam (Europe) Limited 6.98 6.981,000,000 Equity Shares of 1 GBP each, fully paid-upLess: Provision for losses 6.98 – 6.98 –

Satyam Japan KK 0.42 0.42200 Common Stock of J Yen 50,000 each, fully paid-upLess: Provision for losses 0.42 – 0.42 –

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Rs. in crores

As at As at31.03.2007 31.03.2006

Satyam Asia Pte Limited 1.03 1.03400,000 Ordinary Shares of 1 Singapore Dollareach, fully paid-upLess: Provision for losses 1.03 – 1.03 –

Dr. Millennium, Inc., 3.09 3.09710,000 Common Stock of 1 US Dollar each, fullypaid-upLess : Received on account of reduction of Share Capital 2.99 2.99Less: Provision for losses 0.10 – 0.10 –

Vision Compass, Inc. 89.94 89.94425,000,000 Common Stock of 1 US Cent each,fully paid-upLess : Provision for diminution 89.94 – 89.94 –

Satyam IdeaEdge Technologies Private Limited 0.01 0.0110,000 Equity Shares of Rs. 10 each, fully paid-upLess : Provision for diminution 0.01 – 0.01 –

ii) Non Trade (Unquoted)National Savings Certificates,VIII Series (Lodged assecurity with government authorities) – –

201.15 155.74$$ Investment is not denominated in number of shares

as per laws of the People’s Republic of China.

6. Deferred Tax Assets (net)

Debtors 11.83 11.02Advances 1.43 1.43Fixed Assets (24.13) (25.38)Others 54.23 17.22

43.36 4.29

7. Sundry Debtors (Unsecured)

Considered good *(a) Over six months old 23.79 12.78(b) Other debts 1,626.07 1,110.03

1,649.86 1,122.81

Considered doubtful ** 117.26 103.891,767.12 1,226.70

Less: Provision for doubtful debts ** 117.26 103.89

1,649.86 1,122.81

* Debtors include dues from subsidiaries Rs. 4.15crores (2006 - Rs. 4.38 crores ) and Unbilled revenueRs. 158.18 crores (2006 - Rs. 170.14 crores)

** Includes dues from subsidiaries Rs. 18.89 crores(2006 - Rs. 18.89 crores )

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Rs. in crores

As at As at31.03.2007 31.03.2006

8. Cash and Bank Balances*Cash on hand 0.04 0.05Remittances in transit – –Balances with Scheduled Banks– On Current Accounts 415.18 1,021.28– On Deposit Accounts 3,365.82 1,907.42Unclaimed Dividend Accounts 6.33 5.05Balances with Non-Scheduled Banks**– On Current Accounts 171.61 117.80– On Deposit Accounts 0.84 0.73

3,959.82 3,052.33* Includes unutilised amount of ADS issue proceeds - Rs. Nil

(2006 - Rs. 262.20 crores)** Refer note (g) of Schedule 15

9. Loans and Advances

(Considered good unless otherwise stated)Secured – Loans 0.04 0.11Unsecured – Advances recoverable in cash or in kind or

for value to be received* 182.28 114.16– Deposits 79.43 68.97

Considered doubtful – Advances ** 71.33 65.37

333.08 248.61Less: Provision for doubtful Advances ** 71.33 65.37

261.75 183.24

* Includes advances and share application money tosubsidiaries Rs. 44.96 crores (2006 - Rs. 5.18 crores)

** Includes due from subsidiaries Rs. 48.12 crores(2006 - Rs. 48.12 crores)

10. Liabilities

Sundry Creditors– Dues to small scale industrial undertakings – –– Dues to other than small scale industrial undertakings 443.33 332.05Advances from Customers 1.23 0.93Unearned Revenue 87.52 52.67Investor Education Protection Fund - Unclaimed Dividends 6.33 5.05Other Liabilities 58.76 45.01

597.17 435.71

11. Provisions

Provision for Taxation (less payments) 64.20 33.53Proposed Dividend (including tax thereon) 195.15 186.85Provision for Gratuity and Leave Encashment 161.10 51.18

420.45 271.56

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Rs. in crores

Year ended Year ended31.03.2007 31.03.2006

12. Other IncomeInterest on deposits and advances - Gross 165.77 115.77{Tax Deducted at Source Rs. 37.10 crores} (2006 - Rs. 25.94 crores)Gain/(Loss) on exchange fluctuations (net) 13.54 (2.18)Profit on sale of long term investments – 262.83Miscellaneous income 2.30 1.49

181.61 377.91

13. Personnel Expenses

Salaries and bonus 3,425.89 2,501.25Contribution to provident and other funds 248.22 181.97Staff welfare expenses 15.94 17.53Employee stock compensation expense 15.99 (0.08)

3,706.04 2,700.67

14. Operating and Administration Expenses

Rent 88.07 68.73Rates and taxes 24.46 15.20Insurance 16.52 13.95Travelling and conveyance 367.57 237.40Communication 64.32 63.42Printing and stationery 8.10 5.95Power and fuel 34.68 26.98Advertising 3.24 7.83Marketing expenses 59.63 59.24Repairs and maintenance– Buildings 2.69 1.43– Machinery 14.45 8.69– Others 27.00 20.04Security services 4.97 3.09Legal and professional charges 139.48 95.70Provision for doubtful debts and advances 19.33 11.71Loss on sale of Fixed Assets (net) 0.79 0.83Directors’ sitting fees 0.04 0.04Auditors’ remuneration 3.67 1.15Donations and contributions 3.62 3.73Subscriptions 3.13 2.09Training and development 22.35 15.00Research and development 1.29 2.45Software charges 20.22 22.54Managerial remuneration– Salaries 1.66 0.35– Commission 0.95 0.91– Contribution to P.F. 0.04 0.04– Others 0.22 0.19Visa charges 44.47 32.31Miscellaneous expenses 16.35 19.14

993.31 740.13

Schedules forming part of the Profit and Loss Account

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15. Notes to accounts

(a) Associate Stock Option Plans

i. Scheme established prior to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme)Guidelines 1999, (SEBI Guidelines on Stock Options).

In May 1998, the Company established its Associate Stock Option Plan (the “ASOP”). The Companysubsequently established an employee welfare trust called the Satyam Associates Trust (the “Trust”), toadminister the ASOP and issued warrants to purchase 6,500,000 equity shares of Rs. 2 each in the Company.In turn, the Trust periodically grants to eligible employees warrants to purchase equity shares held by trust forthe issuance to the employees. The warrants may vest immediately or may vest over a period ranging fromtwo to three years, depending on the employee’s length of service and performance. Upon vesting, employeeshave 30 days to exercise warrants. The exercise price of the warrants was fixed at Rs. 450 per warrant.

At the 12th Annual General Meeting held on May 28, 1999, shareholders approved a 1:1 Bonus issue to allshareholders as of August 31, 1999. In order to ensure all its employees receive the benefits of the bonusissue in December 1999, the Trust exercised all its warrants to purchase the Company’s shares prior to thebonus issue using the proceeds obtained from bank loans. Subsequent to this, each warrant entitles theholder to purchase 10 shares of Rs. 2 each of the Company at a price of Rs. 450 per warrant plus an interestcomponent associated with the loan which the Trust assumed, for conversion of the warrants it held. Theinterest component is computed based on fixed vesting period and a fixed interest rate. As this scheme isestablished prior to the SEBI guidelines on the stock options, there is no cost relating to the grant of optionsunder this scheme.

ii. Scheme established after SEBI Guidelines on Stock Options.

Securities Exchange Board of India (SEBI) issued the Employee Stock Option Scheme and Employee StockPurchase Scheme Guidelines 1999, which is applicable for all Stock Option Schemes established after June19, 1999.

The Company has established a scheme “Associate Stock Option Plan – B” (ASOP - B) for which 83,454,280equity shares of Rs. 2 each were earmarked. Upon vesting, associates have 5 years to exercise these shares.

Accordingly, options (net of cancellations) for a total number of 19,976,210 equity shares of Rs. 2 each wereoutstanding as at March 31, 2007 ( 2006 - 45,605,388 ).

Changes in number of options outstanding were as follows:

Year ended March 31,Options

2007 2006

At the beginning of the year 45,605,388 53,660,630

Granted Nil 6,579,552

Exercised (17,448,659) (9,039,604)

Cancelled (8,180,519) (5,595,190)

At the end of the year 19,976,210 45,605,388

iii. Associate Stock Option Plan (ADS)

The Company has established a scheme “Associate Stock Option Plan (ADS)” to be administered by theAdministrator of the ASOP (ADS), a committee appointed by the Board of Directors of the Company. Underthe scheme 5,149,330 ADS are reserved to be issued to eligible associates with the intention to issue thewarrants at a price per option which is not less than 90% of the value of one ADS as reported on NYSE on thedate of grant converted into Indian Rupees at the rate of exchange prevalent on the day of grant as decidedby the Administrator of the ASOP (ADS). Each ADS represents two equity shares of Rs. 2 each fully paid up.These warrants vest over a period of 1-10 years from the date of the grant. The time available to exercise thewarrants upon vesting is as decided by the Administrator of the ASOP (ADS).

Accordingly, options (net of cancellation) for a total number of 1,461,064 ADS (2006 – 1,991,342) representing2,922,128 equity shares of Rs. 2 each were outstanding as at March 31, 2007 (2006 -3,982,684).

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2007 2006


Granted 20,000 320,430

Exercised (424,136) (664,446)

Cancelled (126,142) (180,444)


iv. Associate Stock Option Plan - Restricted Stock Units (ASOP – RSUs)

The Company has established a scheme “Associate Stock Option Plan - Restricted Stock Units (ASOP –RSUs)” to be administered by the Administrator of the ASOP – RSUs, a committee appointed by the Board ofDirectors of the Company. Under the scheme 13,000,000 equity shares are reserved to be issued to eligibleassociates at a price to be determined by the Administrator which shall not be less than the face value of theshare. These RSUs vest over a period of 1-4 years from the date of the grant. The maximum time available toexercise the warrants upon vesting is five years from the date of vesting.

Accordingly, options (net of cancellations) for a total number of 3,293,140 ASOP-RSUs equity shares ofRs. 2 each were outstanding as at March 31, 2007 ( 2006 - Nil ).


2007 2006

At the beginning of the year – –

Granted 3,293,140 –

Exercised – –

Cancelled – –

At the end of the year 3,293,140 –

v. Associate Stock Option Plan — RSUs (ADS) (ASOP – RSUs (ADS))

The Company has established a scheme “Associate Stock Option Plan - RSUs (ADS)” to be administered bythe Administrator of the ASOP – RSUs (ADS), a committee appointed by the Board of Directors of theCompany. Under the scheme 13,000,000 equity shares minus the number of shares issued from time to timeunder the Associate Stock Option Plan — RSUs are reserved to be issued to eligible associates at a price tobe determined by the Administrator not less than the face value of the share. These RSUs vest over a periodof 1-4 years from the date of the grant. The maximum time available to exercise the warrants upon vesting isfive years from the date of vesting.

Accordingly, options (net of cancellation) for a total number of 236,620 ADS (2006 – Nil) representing473,240 equity shares of Rs. 2 each were outstanding as at March 31, 2007 (2006 - Nil)


2007 2006


Granted 236,620 –

Exercised – –

Cancelled – –

At the end of the year 236,620 –

Pro forma disclosure:

In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999, had the compensation cost for associate stock option plans been recognized based on the fair value

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at the date of grant in accordance with Black Scholes’ model, the pro forma amounts of the Company’s netprofit and earnings per share would have been as follows:


2007 2006

1. Profit after Taxation

– As reported (Rs. In crores) 1,423.23 1,239.75

– Pro forma (Rs. In crores) 1,373.05 1,142.11

2. Earnings Per Share:

Basic

– No. of shares 654,853,959 643,784,984


– Pro forma EPS (Rs.) 20.97 17.74

Diluted

– No. of shares 669,705,425 669,626,864


– Pro forma EPS (Rs.) 20.50 17.06

The following assumptions were used for calculation of fair value of grants:

Year ended March 31,

2007 2006

Dividend yield (%) 0.78 0.75

Expected volatility (%) 59.01 58.05

Risk-free interest rate (%) 8.00 7.00

Expected term (in years) 0.96 1.26

(b) Share application money pending allotment

Amount received from associates on exercise of stock options, pending allotment of shares is shown as shareapplication money, pending allotment.

(c) Secured loans

Vehicles are hypothecated to the Banks as security for the amounts borrowed.

(d) Investments

During May 2005, the Company acquired Citisoft Plc (“Citisoft”), a specialist business and systems consulting firmlocated in the United Kingdom that has focused on the investment management industry, with operating presencein London, Boston and New York.

The Company acquired 75% of the shareholding in Citisoft for an initial cash consideration of Rs. 62.35 crores(inclusive of acquisition costs) and a deferred consideration of Rs.13.63 crores (equivalent GBP 1.75 million). TheCompany is also required to pay a maximum earn out consideration amounting to Rs.19.25 crores (equivalentGBP 2.25 million) based on achievement of targeted revenues and profits.

On June 29, 2006, the Company acquired the remaining 25% shareholding for a consideration of Rs. 27.47crores (equivalent GBP 3.26 million). The Company is also required to pay a maximum earn-out considerationamounting to Rs. 30.28 crores (equivalent GBP 3.54 million) based on achievement of targeted revenues andprofits and to fund an Employee Benefit Trust (EBT) formed by Citisoft. The obligation to fund the EBT amountingto maximum of Rs. 15.40 crores (equivalent GBP 1.80 million) is contingent on Citisoft achieving certain revenueand profit performance targets. During the quarter ended September 30,2006, the company has paid Rs. 7.82crores (equivalent GBP 0.90 million) to Employee Benefit Trust.

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(e) Land

The Company acquired 14.93 acres of land at Hyderabad from Andhra Pradesh Industrial Infrastructure Corporation(APIIC) for an aggregate purchase consideration of Rs.7.21 crores. Non-compliance of certain terms and conditionswould attract withdrawal of rebate, which may increase the cost of land.

(f) Details of advances to subsidiaries are as follows:

Rs. in crores

Balance as at Maximum BalanceName of Company March 31, March 31,

2007 2006 2007 2006

Nipuna Services Limited 40.73 5.00 45.41 10.00

Satyam Technologies Inc., 0.03 0.03 1.96 0.14

Satyam Computer Services (Shanghai) Co. Ltd. 1.68 0.10 1.68 0.10

Knowledge Dynamics Pte Ltd. – 0.05 – 0.24

Knowledge Dynamics Pvt Ltd. 0.01 – 0.05 –

Citisoft Plc 2.51 – 2.51 –

(g) Balances with Non-Scheduled Banks

Rs. in crores

Balances as at Maximum BalancesName of the Bank March 31, Year ended March 31,

2007 2006 2007 2006

Balances with Non-Scheduled Banks

On Current Accounts

Banco Do Brasil, Brazil 0.60 – 1.59 –

Banque Nationale De Paris, Brussels 1.80 – 5.33 –

Banque Nationale De Paris, France 1.88 1.05 4.55 1.26

Banque Nationale De Paris, Hague 2.84 3.32 8.04 3.32

Banque Nationale De Paris, Ireland 1.66 0.42 1.96 0.54

Banque Nationale De Paris, Italy 0.93 – 2.95 –

Banque Nationale De Paris, Saarbruecken 2.40 0.54 9.78 0.54

Banque Nationale De Paris, Spain 0.60 0.69 1.58 1.26

Banque Nationale De Paris, Switzerland 0.37 – 8.98 –

Banque Nationale De Paris, Saudi Arabia 0.19 – 1.13 –

Banque Nationale De Paris, Taipei 2.45 2.15 2.64 2.21

Citibank NA, Bangkok 14.19 11.45 15.64 11.71

Citibank NA, Denmark 0.58 – 4.68 –

Citibank NA, Dubai 0.08 0.20 2.51 2.09

Citibank NA, Hong Kong 1.56 0.27 1.56 0.90

Citibank NA, Hungary 0.18 0.15 0.55 1.43

Citibank NA, Kuala Lumpur 0.80 0.67 8.44 2.84

Citibank NA, London 2.25 0.54 2.27 5.06

Citibank NA, New York 8.88 3.98 33.03 24.62

Citibank NA, New Zealand 1.37 2.20 2.94 2.93

Citibank NA, Seoul 10.39 8.27 10.70 8.54

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Rs. in crores

Balances as at Maximum BalancesName of the Bank March 31, Year ended March 31,

2007 2006 2007 2006

Citibank NA, Singapore 3.81 2.54 8.64 8.10

Citibank NA, Johannesburg 2.21 1.51 3.36 2.12

Citibank NA, Sydney 18.66 6.29 25.61 26.54

Citibank INTL PLC, Stockholm 0.45 – 0.60 –

Citibank NA, Toronto 2.47 2.24 9.23 5.41

Dresdner Bank, Saarbruecken 2.82 12.27 14.73 12.81

Hong Kong and Shanghai BankingCorporation, London 21.08 11.79 50.53 22.91

Hong Kong and Shanghai BankingCorporation, Shanghai 0.02 0.02 0.02 0.02

Hong Kong and Shanghai BankingCorporation, Tokyo 3.83 9.79 14.55 10.96

Koonmin Bank, Seoul – – 0.12 –

KSB Bank N V, Brussels 0.95 2.31 9.63 4.37

Mitsui Sumitomo Bank, Tokyo 0.58 0.65 2.18 1.70

UBS Bank, Switzerland 7.67 1.39 8.97 3.83

Unicredit Banca, Italy 0.57 0.90 3.95 3.69

United Bank, Vienna 39.55 28.71 58.18 52.89

Wachovia Bank, New Jersey 10.94 1.49 73.82 13.12

Woori Bank, Korea – – 0.26 5.08

171.61 117.80

On Deposit Accounts

Citibank NA, Hungary 0.84 0.73 0.84 0.82

(h) Related party transactions

The Company had transactions with the following related parties:

Subsidiaries: Citisoft Plc, Citisoft Inc., Knowledge Dynamics Pte Ltd., Knowledge Dynamics Private Limited,Knowledge Dynamics USA Inc., Info On Demand SDN BHD, Nipuna Services Limited, Satyam Computer Services(Shanghai) Co. Ltd and Satyam Technologies Inc.

Joint ventures (JVs): Satyam Venture Engineering Services Private Limited and CA Satyam ASP Private Limited.

Associates: Sify Limited (ceased to exist as an associate w.e.f. November 09, 2005)

Others: Satyam Foundation Trust (Enterprises where trustees are spouses of Whole-time Directors and keymanagerial personnel) and Satyam Associate Trust (Enterprises where some of trustees are key managerial personnel)

Directors and key management personnel: B Ramalinga Raju, B Rama Raju, Ram Mynampati, Prof. Krishna GPalepu, Abraham Joseph, A S Murthy, Mohan Eddy, G B Prabhat (partly employed), D Subramaniam, V Srinivas,G Jayaraman, Shailesh Shah, Vijay Prasad Boddupalli, Manish Sukhlal Mehta, Dr. Keshab Panda, VirenderAggarwal, T R Anand, Ravi Shankar Bommakanti, Murali V and Hari T.

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Summary of the transactions and balances with the above related parties is as follows:

Transactions: Rs. in crores


2007 2006

Sales:

Subsidiaries 6.24 5.30JVs – 0.25

6.24 5.55Outsourcing:

Subsidiaries 55.61 31.57JVs 40.01 37.35Associates – 6.25

95.62 75.17Other Services:

Subsidiaries 2.19 2.30JVs 2.05 1.65

4.24 3.95Interest

JVs 0.02 0.03Fixed Assets :

Subsidiaries 0.02 –JVs 0.89 –Associates – 5.53

0.91 5.53Investments:

Subsidiaries 9.83 8.68Advances:

Subsidiaries 57.36 –JVs – 0.50Others 5.00 0.71

62.36 1.21Contributions:

Others 3.48 3.62

Balances :Rs. in crores

As at March 31,2007 2006

Accounts Receivable:Subsidiaries 4.15* 4.38*

JVs 0.23 0.254.38 4.63

Payables:Subsidiaries 31.53 9.22JVs 11.48 8.21

43.01 17.43

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Rs. in crores

As at March 31,

2007 2006

Investments:

Subsidiaries 190.44* 145.03*

JVs 10.71 10.71

201.15 155.74

Advances and share application money:

Subsidiaries 44.96* 5.18*

JVs – 0.53

Others 5.72 0.71

50.68 6.42* Net of provisions made

Transactions with Directors and key managerial personnel

Rs. in crores


2007 2006

Remuneration to Whole-time Directors 2.27 0.93

Remuneration to key managerial personnel 19.47 19.34

Professional charges to Director 0.87 0.99

Advances to key managerial personnel 1.28 1.06

Balances due to/from Directors and key managerial personnel

Rs. in crores


2007 2006

Remuneration payable to Whole-time directors 0.45 0.22

Remuneration payable to key managerial personnel 0.80 0.65

Advances due from key managerial personnel 0.09 0.34

Professional charges payable to director 0.87 0.31

Maximum indebtedness from key managerial personnel during the year was Rs.1.62 crores (2006 – Rs.1.24crores)

Options granted and outstanding to the key managerial personnel 1,973,632 {includes 112,163 options grantedunder ASOP – ADS and 55,000 options granted under ASOP – RSUs (ADS)} (2006 – 3,786,068 {includes201,640 options granted under ASOP – ADS}).

Options granted and outstanding to director 1,050,720 {includes 1,025,720 options granted under ASOP – ADSand 25,000 options granted under ASOP – RSUs (ADS)} (2006 – 1,174,704 {includes 1,064,704 options grantedunder ASOP – ADS}).

(i) Obligation on long term non-cancelable operating leases

The Company has entered into operating lease agreements for its development centers at offshore, onsite andoffsites ranging for a period of 3 to 10 years. The lease rentals charged during the year and maximum obligationson long–term non–cancelable operating leases payable as per the rentals stated in respective agreements are asfollows:

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Rs. in crores


2007 2006

Lease rentals (Refer Schedule 14) 88.07 68.73

As at March 31,

2007 2006

Obligations on non-cancelable leases:

Not later than one year 18.62 17.35

Later than one year and not later than five years 14.87 13.16

Later than five years 1.43 1.85

Total 34.92 32.36

(j) Earnings Per Share

At the annual general meeting held on August 21, 2006, the shareholders approved a 1:1 bonus issue for allshareholders including the ADS holders i.e. one additional equity share for every one existing share held by themembers by utilizing a part of the general reserves. The record date for the bonus issue was October 10, 2006 andshares were allotted on October 11, 2006. All basic and diluted shares used in determining earnings per shareare after considering the effect of bonus issue.

Calculation of EPS (Basic and Diluted):

S. No. ParticularsYear ended March 31,

2007 2006

Basic1. Opening no. of shares 648,899,078 638,530,582

2. Total Shares outstanding 654,853,959 643,784,9843. Profit after Taxation (Rs. in crores) 1,423.23 1,239.75

4. EPS (Rs.) 21.73 19.26

Diluted5. Stock options outstanding 14,851,466 25,841,880

6. Total shares outstanding (including dilution) 669,705,425 669,626,864

7. EPS (Rs.) 21.25 18.51

(k) Commitments and contingencies

i) Bank Guarantees outstanding Rs. 98.56 crores (2006 – Rs. 58.95 crores).

ii) Contracts pending execution on capital accounts, net of advances, Rs. 158.07 crores (2006 – Rs. 114.07crores).

iii) Forward & Option Contracts outstanding Rs. 1,978.98 crores (Equivalent US$ 452.63 millions) {2006 –Rs. 966.36 crores (Equivalent US$ 216.00 millions)}.Gain/(Loss) on foreign exchange forward contractswhich are included under the head gain/(loss) on exchange fluctuation in the profit and loss accountamounted to Rs. 26.64 crores {2006 – (Rs. 3.75 crores)}.

iv) Claims against the Company not acknowledged as debts

– Income tax and Sales tax matters under dispute – Rs. 22.03 crores (2006 – Rs. 20.38 crores).

v) Contingent consideration payable in respect of acquired subsidiary companies Rs. 75.56 crores (2006 –Rs. 101.72 crores).

vi) Nipuna Services Limited (a majority owned subsidiary–Nipuna) issued 45,669,999 and 45,340,000 0.05%Convertible Redeemable Cumulative Preference Shares of par value Rs.10 each fully paid–up in October

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2003 and June 2004 respectively to Olympus BPO Holdings Ltd. and Intel Capital Corporation (“Preferenceshareholders”) for an aggregate consideration of Rs. 91.01 crores (equivalent to US$ 20 millions). ThesePreference shares are to be mandatorily converted into such number of equity shares latest by June 2007 orredeemed based on certain provisions in the agreement entered with the preference shareholders relating torevenues and profits earned up to March 31, 2006. The said preference shares, if not converted or earlyconverted at the option of the preference shareholders based on certain triggering events, are redeemable onmaturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a.

On November 20, 2006, a Share Purchase, Redemption and Amendment Agreement (“SPRA Agreement”)was entered into between the Company, the preference shareholders and Nipuna. Out of the total preferenceshares, 50% of the preference shares of Rs. 45.51 crores (Equivalent US$ 10 million) would be redeemed forRs. 60.10 crores (Equivalent US$ 13.6 million) at the target date on May 21, 2007 and the balance 50%would get converted into equity shares of Nipuna based on the terms of the existing subscription agreement.The preference shareholders gave Nipuna a Notice of Conversion of Preference Shares and in January 2007,45,505,000 preference shares have converted into 6,422,267 equity shares of Nipuna.

Further as per the SPRA Agreement, the Company agrees to purchase and the preference shareholders agreeto sell these equity shares at an aggregate purchase price based on a formula. If the share purchase closingoccurs on or before the share purchase target date (May 21, 2007) then the purchase price would range froma minimum of Rs. 152.57 crores (Equivalent US$ 35 million) to maximum of Rs. 196.16 crores (EquivalentUS$ 45 million), however if an acceleration event occurs the purchase price would equal Rs. 196.16 crores(Equivalent US$45 million). If the share purchase closing occurs after the share purchase target date then thepurchase price shall not be less than Rs. 152.57 crores (Equivalent US$ 35 million) however if an accelerationevent occurs the purchase price shall not be less than Rs. 196.16 crores (Equivalent US$45 million). This issubject to fulfillment of terms and conditions specified in the agreement and obtaining necessary approvalsfrom appropriate authorities. As of March 31, 2007, an acceleration event has occurred.

The Company has guaranteed payment of all sums payable by Nipuna to the preference shareholders onredemption of the said preference shares.

vii) The Company has given a corporate guarantee on behalf of a subsidiary for the loan obtained amounting tomaximum of Rs. 87.18 crores (2006 – Rs. 89.24 crores) (Equivalent US$ 20 million).

viii) The Company had filed a request for arbitration with the London Court of International Arbitration (“LCIA”)naming Venture Global Engineering LLC, USA (“VGE”) as respondent. The Arbitration concerned a disputebetween the Company and VGE in connection with their joint venture Satyam Venture Engineering ServicesPrivate Limited (“SVES”).

The LCIA Arbitrator issued its Final Award on April 3, 2006 in favour of the Company. The Company has fileda petition to recognize and enforce the Award in the United States District Court in Michigan. VGE hasseparately filed a declaratory judgment action seeking to refuse enforcement of the Award in the United StatesDistrict Court in Illinois. Management believes that this will not have any adverse effect upon the Company’sresults of operations, financial condition and cash flows.

(l) The Gratuity Plan

The following table sets forth the status of the Gratuity Plan of the Company, and the amounts recognized in thebalance sheet and profit and loss account.

Rs. in crores

Year endedMarch 31, 2007

Projected benefit obligation at the beginning of the year 35.08

Current service cost 8.77

Interest cost 2.30

Actuarial loss/(gain) 6.44

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Rs. in crores


Benefits paid (5.25)

Projected benefit obligation at the end of the year 47.34

Amounts recognised in the balance sheet


Fair value of plan assets at end of the year

Funded status of the plans – (asset)/liability 47.34

Liability recognised in the balance sheet 47.34

Gratuity cost for the year


Interest cost 2.30

Net actuarial (gain)/loss recognised in the year 6.43

Net gratuity cost 17.50

Assumptions

Discount rate 8.00%

Long–term rate of compensation increase 7.00%

Note: This being the first year of disclosure, previous year figures have not been furnished.

(m) Provision for leave encashment

Effective April 1, 2006, the Company adopted the revised accounting standard on employee benefits. Pursuantto the adoption, the transitional obligations of the Company amounted to Rs. 26.33 crores. As required by thestandard, an amount of Rs. 17.47 crores (net of related deferred tax of Rs. 8.86 crores) has been adjusted againstgeneral reserves.

(n) Other information

i. The Company is engaged in the development of computer software. The production and sale of suchsoftware cannot be expressed in any generic unit. Hence, it is not possible to give the quantitative details ofsales and the information as required under Paragraphs 3 and 4C of Part II of Schedule VI of the CompaniesAct, 1956.

ii. Computation of Net Profit in accordance with Section 349 of the Companies Act, 1956 and calculation ofcommission payable to Directors.

Rs. in crores


2007 2006

Profit after tax from ordinary activities 1,423.23 1,239.75

Add:

Managerial Remuneration 2.87 1.49

Director’s sitting fees 0.04 0.04

Depreciation as per Profit and Loss Account 129.89 122.81

Loss on sale of fixed assets (net) as per Profit and Loss Account 0.79 0.83

Provision for doubtful debts and advances 19.33 11.71

Wealth tax 0.17 0.06

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Rs. in crores


2007 2006

Provision for taxation 150.00 206.13

Less:

Profit on sale of long term investments – 262.83

Depreciation as per Section 350 of the Companies Act, 1956 129.89 122.81

Loss on sale of fixed assets (net) as per Section 350 of theCompanies Act, 1956 0.79 0.83

Net Profit in accordance with Section 349 of the CompaniesAct, 1956 1,595.64 1,196.35

Commission to Chairman/Managing Director restricted to 0.35 0.35

Commission to Non-executive Directors @ 1% of NetProfit u/s 349, restricted to 0.60 0.56

iii. Auditors’ remuneration:

Rs. in crores


2007 2006

Statutory audit 2.40 1.00

Tax audit 0.08 0.08

Other services 1.18 0.06

Out of pocket expenses 0.01 0.01

iv. Earnings in foreign exchange (on receipt basis):

Rs. in crores


2007 2006

Income from software development services 4,728.55 3,855.36

v. C.I.F. value of imports:

Rs. in crores


2007 2006

Capital goods 90.80 61.02

vi. Expenditure in foreign currency (on payment basis):

Rs. in crores


2007 2006

Traveling expenses 124.19 90.92

Expenditure incurred at overseas branches 2,910.64 1,959.17

Others 60.29 71.97

(o) The financial statements are represented in Rs. crores. Those items which were not represented in the financialstatement due to rounding off to the nearest Rs. crores is given below:

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Schedule No. Description Rs. in lakhs

5 (ii) National Saving Certificates, VIII Series (Lodged as securitywith government authorities) 0.06

(p) Dividends remitted in foreign currency:

The Company does not make any direct remittances of dividends in foreign currency. The Company remitsequivalent of the dividend payable to the holders of ADS in Indian Rupees to the depository bank, which is theregistered shareholder on records for all owners of the Company’s ADS. The depository bank purchases theforeign currencies and remits dividend to the ADS holders. The Company remitted Rs. 45.35 crores during theyear (2006 – Rs. 32.09 crores).

(q) Reclassification:

Figures for the corresponding year have been regrouped, recast and rearranged to conform to those of the currentyear wherever necessary.

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Rs. in crores


A. Cash Flows from Operating ActivitiesNet Profit before Interest and Tax 1,431.07 1,332.76Profit on sale of Shares in Sify Limited – (262.83)Depreciation 129.89 122.81Loss on sale of Fixed Assets 0.79 0.83

Cash generated before changes in Working Capital 1,561.75 1,193.57

(Increase)/Decrease in Sundry Debtors (527.04) (357.64)(Increase)/Decrease in Loans and Advances (78.51) (62.85)Increase/(Decrease) in Current Liabilities and Provisions 232.39 169.57Income Taxes Paid (149.53) (155.84)Exchange differences on translation of foreign currency cashand cash equivalents (9.23) (1.20)

Net Cash Flow from Operating Activities 1,029.83 785.61

B. Cash Flows used in Investing ActivitiesPurchase of Fixed Assets (345.82) (234.27)Purchase of Long term Investments (32.76) (78.81)Proceeds from sale of Shares in Sify Limited – 228.24Proceeds from sale of Fixed Assets 1.36 1.33Proceeds from maturity of Long Term Deposits 1,795.50 –Investment in Long Term Deposits (3,308.41) –Interest accrued/income received 211.55 29.66

Net Cash Flow used in Investing Activities (1,678.58) (53.85)

C. Cash Flows from Financing ActivitiesProceeds from issue of share capital 293.74 138.08Receipt of Share Application money, pending allotment 7.85 1.78Proceeds from Secured Loans 10.24 10.48Repayment of Secured Loans (9.01) (7.78)Advance to Joint Venture Company – (0.50)Financial expenses paid (7.61) (2.72)Payment of Dividend (261.11) (183.28)

Net Cash Flow from/(used) Financing Activities 34.10 (43.94)

Cash Flow statement for the year ended March 31, 2007

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Rs. in crores


D. Exchange differences on translation of foreign currencycash and cash equivalents 9.23 1.20

Net (Decrease)/Increase in Cash and Cash equivalents during the year (605.42) 689.02Cash and Cash equivalents at the beginning of the year 1,256.83 567.81

Cash and Cash equivalents at the end of the year 651.41 1,256.83

Supplementary InformationCash and Bank Balances 3,959.82 3,052.33Less: Long Term Deposits with Scheduled Banks considered

as investment 3,308.41 1,795.50

Balance considered for Cash Flow Statement 651.41 1,256.83

The balance of Cash and Cash equivalents include amounts setaside for payment of dividends 6.33 5.05

Figures for the corresponding year have been regrouped, recast and rearranged to conform to those of the current yearwherever necessary.

This is the Cash Flow Statement referred For and on behalf of the Board of Directorsto in our report of even date.




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Balance Sheet Abstract and Company’s General Business Profile

I Registration detailsRegistration number 7564State code 01Balance Sheet date March 31, 2007

II Capital raised during the year (Amount in Rs. crores)Allotments under the Associate Stock Option Scheme – B & AssociateStock Option – ADS (incl. premium) 3.01Rights Issue –Bonus Issue 65.54Private Placement –

III Position of mobilization and deployment of funds (Amount in Rs. crores)Total Liabilities 6,820.77Total Assets 6,820.77Sources of fundsPaid-up Capital 133.44Share application money, pending allotment 7.85Reserves & Surplus 5,648.07Secured Loans 13.79Unsecured Loans –Application of fundsNet Fixed Assets 640.00Investments 201.15Deferred Tax Assets (net) 43.36Net Current Assets 4,918.64Miscellaneous expenditure –Accumulated losses –

IV Performance of Company (Amount in Rs. crores)Turnover 6,410.08Total Expenditure 4,836.85Profit/Loss before Tax + (-) 1,573.23Profit/Loss after Tax + (-) 1,423.23Earnings per share in Rs.(on par value of Rs.2 per share) 21.73Dividend Rate 175%

V Generic names of three principal products/services of Company(as per monetary terms)Item Code No. (ITC code) 85249009.10Product description Computer Software


B Ramalinga Raju B Rama RajuChairman Managing Director

V Srinivas G JayaramanDirector & Sr. Vice President – Finance Sr. Vice President-Corp. Governance

& Company SecretaryPlace : SecunderabadDate : April 20, 2007

Global Reports LLC

20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 91

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Global Reports LLC

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Global Reports LLC

20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 93

Additional Information to Investors• Balance sheet with tangibles and intangibles

• Human resource accounting

• Brand value

• Economic Value Added statement

• Enterprise value

• Financial ratios

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94


Additional information to investorsIntangible assets

The conventional approach to valuing business is based primarily on taking stock of just the hard (tangible) assets.However, few progressive businesses worldwide tread such a path now. The conventional approach hardly reflects thetrue picture as it does not take into account the cumulative value of intangible assets that play such a decisive role inmodern business building initiatives.

Intangible assets are those that create value beyond tangible assets. Typically, book values determine the value of hardassets of a particular business, while the process of valuation of intangible assets would help determine other valuecreators such as the potential, and the ability to earn.

Significantly, the computation of the true value of a company requires a comprehensive assessment of both tangible andintangible assets. Intangible assets such as brands, human resource value, etc. are beginning to form, and rightly so, themajor percentage of the economic value of successful businesses. Satyam, with its vision high and steady, believes thatthe real strength of the balance sheet of a company is reflected only if its tangible as well intangible assets are taken intoaccount. Satyam being in the knowledge based industry with global operations, valuation of its Human resources andBrand is highly important and could be equally insightful to stakeholders.

As on March 31, 2007, Satyam’s intangible assets (HR value and Brand value) constitute 89.73% of the total balancesheet value, as presented below.

Balance sheet with tangibles and intangibles

Resources As at March 31, 2007 As at March 31, 2006

Rs. in crores US $ million % Rs. in crores US $ million %

Shareholders’ funds 5,789.36 1,343.24 10.24 4,335.42 974.69 12.24

Loan funds 13.79 3.20 0.03 12.57 2.83 0.04

Intangible reserves 50,729.97 11,770.29 89.73 31,052.32 6,981.19 87.72

Total 56,533.12 13,116.73 100.00 35,400.31 7,958.71 100.00

Tangibles

Net fixed assets, CWIP &Investments 841.15 195.16 1.49 582.00 130.85 1.64

Net current assets 4,918.64 1,141.22 8.70 3,761.70 845.71 10.63

Deferred tax assets 43.36 10.06 0.08 4.29 0.96 0.01

Intangibles

Human resources 40,901.55 9,489.91 72.34 23,364.55 5,252.82 66.00

Brand value 9,828.42 2,280.38 17.39 7,687.77 1,728.37 21.72

Total 56,533.12 13,116.73 100.00 35,400.31 7,958.71 100.00

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 95

The salient features of calculation of the two intangible assets viz., Human resources and Brand value are given below.

Human resource accounting

There are several models to evaluate the Human resources (HR) value. Satyam has used the Lev & Schwartz model forcomputing the HR value. HR value is the present value of future earnings up to retirement age and in this model earningsare dependent on age alone.

Summary of Human resources value


Number of HR Value % Number of HR Value %Associates Rs. in crores US$ million Associates Rs. in crores US$ million

Development 33,812 39,319.76 9,122.91 96.13 24,801 22,203.06 4,991.70 95.03

Support 1,858 1,581.79 367.00 3.87 1,710 1,161.49 261.12 4.97

Total 35,670 40,901.55 9,489.91 100.00 26,511 23,364.55 5,252.82 100.00

The future earnings have been discounted at 15.29%, being the Weighted Average Cost of Capital (WACC) for the pastfive years.

The Associate cost for the year 2006-07at Rs.3,706.04 crores, was 9.06% of the Human Resources Value.

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Brand value

As on March 31, 2007, the Brand value of the Company was Rs.9,828.42 crores (US$2,280.38 mn.), as computedbelow:

i) PBIT reduced by non-branded income was taken as profit for brand valuation.

ii) Previous two years profits were considered at present value and weightage factor was applied to arrive at weightedprofit.

iii) 5% of average capital employed was provided for non brand purposes.

iv) Income tax at current rate was provided.

v) Brand multiple was estimated based on certain parameters and internal evaluation.

Rs. in crores

Particulars March 31, 2005 March 31, 2006 March 31, 2007

Profit before taxation 867.00 1,445.89 1,573.23

Add: Financial charges 0.76 2.72 7.61

867.76 1,448.61 1,580.84

Less : Other non-branded income 91.64 342.08 163.45

Adjusted profit for brand valuation 776.12 1,106.53 1,417.39

Inflation compound factor @ 5% (assumed) 1.1025 1.0500 1.0000

Present value of profits for the Brand 855.67 1,161.86 1,417.39

Weightage factor 1 2 3

Weighted profit 855.67 2,323.72 4,252.17

Three year weighted average profit 1,238.59

Less: Remuneration of capital (5% of average

capital employed) 252.88

Brand- related profits 985.71

Less: Income Tax @ 33.66% 331.79

Brand earnings 653.92

Multiple applied 15.03

Brand value 9,828.42

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 97

Economic Value Added statement

EVA is residual income after charging the Company for the cost of capital provided by lenders and shareholders. Itrepresents the value added to the shareholders’ wealth by generating operating profits in excess of cost of capitalemployed in the business.EVA= Net Operating Profit After Taxes (NOPAT) before Interest less cost of capitalStatement showing calculation of Economic Value Added Rs. in crores

Fiscal 2003 2004 2005 2006 2007

Cost of capital :Return on risk-free investment 6.50% 5.50% 7.00% 7.50% 8.00%Expected risk-free premium onEquity investment 7.00% 6.00% 7.50% 7.00% 6.00%Beta variant 1.66 1.75 0.91 1.03 0.99Adjusted expected premium 11.62% 10.50% 6.83% 7.21% 5.94%Cost of equity 18.12% 16.00% 13.83% 14.71% 13.94%Weighted average cost of capital (WACC) 18.05% 15.95% 13.81% 14.69% 13.92%Average capital employed 2,032.63 2,357.82 2,898.90 3,775.33 5,057.58Economic Value Added Statement :Profit before tax 521.48 661.94 867.00 1,183.06 1,573.23Less: Tax 61.60 106.15 116.74 149.51 150.00Add: Financial charges 0.72 0.75 0.76 2.72 7.61Net Operating Profit After Tax (NOPAT) 460.60 556.54 751.02 1,036.27 1,430.84Less: Cost of capital 366.84 378.02 400.39 554.49 704.18Economic Value Added (EVA) 93.76 178.52 350.63 481.78 726.66Cost of debt :(A) Interest cost 0.72 0.75 0.76 0.79 0.99(B) Average debt 12.10 12.83 8.58 11.22 13.18(C) Cost of debt (A/B) % 5.96 5.84 8.86 7.04 7.51

Enterprise value

Market value of equity 5,632.09 9,796.48 13,406.34 28,336.25 31,626.82Add: Debt 18.35 7.30 9.87 12.57 13.79Less: Cash and cash equivalents 291.81 373.90 567.81 1,256.83 651.41Enterprise Value : 5,358.63 9,429.88 12,848.40 27,091.99 30,989.20

Enterprise value (US$ million) 1,127.18 2,173.28 2,936.78 6,090.83 7,190.07Market value to enterprise value (%) 105.10 103.89 104.34 104.59 102.06Debt to enterprise value (%) 0.34 0.08 0.08 0.05 0.04Debt to market value (%) 0.33 0.07 0.07 0.04 0.04

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Financial ratios

Ratio 2006-07 2005-06 2004-05 2003-04 2002-03

Growth ratiosSoftware revenue growth % 34.40 33.78 36.30 25.59 16.84Total revenue growth % 34.97 33.91 35.20 27.87 13.78Net profit growth % 37.70 37.76 34.99 20.86 -6.17EPS growth % 35.39 36.00 33.85 20.65 -7.35

Operating ratiosExport sales to total income % 93.00 93.94 94.80 94.23 97.65Domestic sales to total income % 4.17 3.64 2.87 2.65 0.99Other income to total income % 2.83 2.42 2.33 3.12 1.36Export sales to software revenues % 95.71 96.27 97.06 97.26 98.99Domestic sales to software revenues % 4.29 3.73 2.94 2.74 1.01Personnel expenses to software revenues % 59.50 58.28 57.66 52.64 48.45Operating & admn. expenses to software revenues % 14.99 14.69 15.12 18.24 19.26Marketing expenses to software revenues % 0.96 1.28 1.55 1.87 1.72Financial expenses to software revenues % 0.12 0.06 0.02 0.03 0.04Depreciation to software revenues % 2.09 2.65 3.00 4.39 6.14Taxation to total income % 2.34 3.15 3.29 4.05 3.00Interest coverage ratio Times 224.80 481.10 1,283.11 1,034.07 896.76Earning Per Share (without extraordinary items) Rs. 21.73 16.05 11.81 8.82 7.31Dividend payout ratio (excluding dividend tax) % 16.33 22.09 21.28 6.80 20.52

Profitability ratiosEBITDA margins % 24.55 25.75 25.67 27.25 30.57Operating profit to total income % 26.69 27.55 27.40 29.52 31.51Net profit to total income % 22.20 21.76 21.15 21.19 22.42Return on capital employed % 28.19 27.36 25.83 23.48 42.78Return on net worth % 28.11 27.37 25.88 23.57 22.62

Capital efficiency ratiosFixed asset turnover ratio Times 9.73 10.87 10.93 9.36 6.34Working capital turnover ratio Times 1.30 1.26 1.26 1.17 1.16

Liquidity ratiosDebtors days outstanding Days 95 87 80 84 85Investments to total assets % 3.47 3.58 2.43 2.89 2.68Cash and bank balance to total assets % 68.24 70.20 73.23 70.14 70.75Cash and bank balance to current liabilities ratio % 389.13 431.57 523.27 513.41 430.95Current ratio Times 5.83 6.32 7.25 7.33 6.02Debt/Equity ratio % 0.24 0.29 0.31 0.28 0.86

Market value ratiosDividends % 175 175 125 100 75Book value of shares Rs. 86.77 133.62 129.90 81.61 67.87Dividend yield % 0.74 0.82 1.22 1.36 1.70Market price to book value Times 5.42 3.18 1.57 1.80 1.30Price earning multiple Times 21.63 26.45 17.30 16.65 12.10

OthersNumber of Associates 35,670 26,511 19,164 14,032 9,759Asset base per Associate (Gross block+CWIP) Rs.in lakhs 4.40 4.64 6.14 6.20 8.23Export revenues per Associate Rs.in lakhs 19.17 19.54 20.26 20.78 21.78Software revenues to Gross block Times 4.86 4.02 3.23 3.00 2.61

Note: Data for previous fiscals has been adjusted wherever applicable, for issue of bonus shares in the ratio of 1:1 allotted in October 2006.

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 99

Indian GAAP Consolidated Financial Statements• Highlights

• Auditors' report on the Consolidatedfinancial statements

• Description of business and statementon significant accounting policies

• Consolidated Balance sheet

• Consolidated Profit and Loss Account

• Schedules

• Consolidated Cash Flow statements

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100


Highlights – Consolidation

For the Year ended For the Year endedParticulars March 31, 2007 March 31, 2006


Income 6,485.08 1437.30 4,792.59 1084.79

Other income 183.28 40.62 333.25 75.43

Total revenue 6,668.36 1477.92 5,125.84 1160.22

Operating profit (PBIDT) 1,720.99 381.43 1,499.43 339.39

Financial expenses 15.92 3.53 5.54 1.25

Depreciation and amortization 148.44 32.90 137.28 31.07

Income tax 152.01 33.69 207.48 46.96

Profit/(Loss) after taxation and before non-recurring/extraordinary items and minority interest 1,404.62 311.31 1,149.06 260.09

Profit/(Loss) after taxation and after non-recurring/extraordinary items and minority interest 1,404.74 311.33 1,141.73 258.43

Earnings per share (Rs. per equity share of Rs. 2 each)

Basic Rs. 21.45 $ 0.39 Rs. 17.73 $ 0.40

Diluted Rs. 21.98 $ 0.38 Rs. 17.05 $ 0.39

US$ exchange rate* (Rs) 45.12 44.18



Share capital 178.94 41.52 155.90 35.05

Reserves & surplus 5,565.82 1,291.37 4,159.57 935.16

Fixed assets (Gross block) & CWIP 1,807.13 419.29 1,397.46 314.18

Current assets 6,029.13 1,398.87 4,575.23 1,028.60

US$ exchange rate** (Rs) 43.10 44.48

Note : EPS figures are adjusted wherever applicable for issue of bonus shares in the ratio of 1:1 allotted in October 2006.

* The yearly average noon buying rate of Federal Reserve Bank of New York.** The year end noon buying rate of Federal Reserve Bank of New York.

Global Reports LLC

20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 101

Report of the Auditors to the Board of Directors ofSatyam Computer Services Limited

1. We have audited the attached consolidated balancesheet of Satyam Computer Services Limited (“theCompany”) as at March 31, 2007, the consolidatedprofit and loss account for the year ended on thatdate annexed thereto, and the consolidated cash flowstatement for the year ended on that date, which wehave signed under reference to this report. Theseconsolidated financial statements are theresponsibility of the Company’s management. Ourresponsibility is to express an opinion on theseconsolidated financial statements based on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. ThoseStandards require that we plan and perform the auditto obtain reasonable assurance about whether thefinancial statements are prepared, in all materialrespects, in accordance with an identified financialreporting framework and are free of materialmisstatement. An audit includes examining, on a testbasis, evidence supporting the amounts anddisclosures in the financial statements. An audit alsoincludes assessing the accounting principles usedand significant estimates made by management, aswell as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. We did not audit the financial statements of certainconsolidated entities, whose financial statementsreflect total assets of Rs. 7.89 Crores as at March 31,2007 and total revenues of Rs. 3.85 Crores for theyear ended on that date. These financial statementshave been audited by other auditors whose reportshave been furnished to us, and our opinion, insofaras it relates to the amounts included in respect ofthese consolidated entities, is based solely on thereport of the other auditors.

4. We report that the consolidated financial statementshave been prepared by the Company in accordancewith the requirements of Accounting Standard 21,Consolidated Financial Statements, issued by theInstitute of Chartered Accountants of India and onthe basis of the separate audited financial statementsof Satyam Computer Services Limited and itsconsolidated entities included in the consolidatedfinancial statements.

5. On the basis of the information and explanationsgiven to us and on consideration of the separateaudit reports on individual audited financialstatements of the Company and its consolidatedentities, in our opinion, the consolidated financialstatements give a true and fair view in conformitywith the accounting principles generally accepted inIndia:

(a) in the case of the consolidated balance sheet,of the consolidated state of affairs of theCompany and its consolidated entities as atMarch 31, 2007;

(b) in the case of the consolidated profit and lossaccount, of the consolidated results ofoperations of the Company and its consolidatedentities for the year ended on that date; and

(c) in the case of the consolidated cash flowstatement, of the consolidated cash flows of theCompany and its consolidated entities for theyear ended on that date.



Place : Hyderabad Price WaterhouseDate : April 20, 2007 Chartered Accountants

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Description of business

Satyam Computer Services Limited and its consolidated subsidiaries, Joint Ventures and Associates (hereinafter referredto as “Satyam”) are engaged in providing information technology services, developing software products and businessprocess outsourcing.

Satyam Computer Services Limited (hereinafter referred to as “Satyam Computer Services”) is an information technology(“IT”) services provider that uses a global infrastructure to deliver value-added services to its customers, to address ITneeds in specific industries and to facilitate electronic business, or eBusiness, initiatives. Satyam Computer Services wasincorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India. Satyam Computer Services has offshore developmentcenters located throughout India that enables it to provide high quality and cost-effective solutions to clients. It also hasoffsite centers located in the Australia, Canada, China, Dubai, Germany, Hungary, Japan, Malaysia, Singapore, UnitedKingdom and United States. The range of services offered by it, either on a “time and material” basis or “fixed price”,includes consulting, systems design, software development, system integration and application maintenance. SatyamComputer Services offers a comprehensive range of IT services, including software development, packaged softwareintegration, system maintenance and engineering design services. Satyam Computer Services has established a diversifiedbase of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing,telecommunications, transportation and engineering services.

Nipuna Services Limited (“Nipuna”) a majority owned subsidiary of Satyam Computer Services is engaged in providingBusiness Process Outsourcing services covering HR, Finance & Accounting, Customer Contact (Voice, Mail and Chat),and Transaction Processing (industry-specific offerings).

Statement on significant accounting policiesa) Basis of consolidation

The Consolidated Financial Statements include the accounts of Satyam Computer Services and its subsidiarycompanies. Subsidiary companies are those in which Satyam Computer Services, directly or indirectly, have aninterest of more than one half of the voting power or otherwise have power to exercise control over the operations.Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longerconsolidated from the date of disposal.

All inter company transactions, balances and unrealized surpluses and deficits on transactions between Groupcompanies are eliminated. Consistency in adoption of accounting polices among all group companies is ensuredto the extent practicable. Separate disclosure is made of minority interest.

Investments in Business entities over which the company exercises joint control are accounted for using theproportionate consolidation except where the control is considered to be temporary. Investment in associates areaccounted for using the equity method.

On occasion, a subsidiary or associated company accounted for by the equity method (“offering company”) mayissue its shares to third parties as either a public offering or private placement at per share amounts in excess of orless than Satyam’s average per share carrying value. With respect to such transactions, the resulting gains or lossesarising from the dilution of interest are recorded as Capital Reserve/Goodwill. Gain or losses arising on the directsales by Satyam of its investment in its subsidiaries or associated companies to third parties are transferred to Profitand Loss Account. Such gains or losses are the difference between the sale proceeds and net carrying value ofinvestments.

Minority Interest in subsidiaries represents the minority shareholders proportionate share of net assets and the netincome of Satyam’s majority owned subsidiaries.

b) Use of estimates

The preparation of the financial statements in conformity with the GAAP requires that the management makesestimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilitiesas at the date of the financial statements, and the reported amounts of revenue and expenses during the reportedyear. Actual results could differ from those estimates.

Description of business and statement on significant accounting policies

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c) Revenue recognition

i. IT Services

Revenue from professional services consist primarily of revenue earned from services performed on a “timeand material” basis. The related revenue is recognized as and when the services are performed. SatyamComputer Services also performs time bound fixed-price engagements, under which revenue is recognizedusing the percentage of completion method of accounting. The cumulative impact of any revision in estimatesof the percentage of work completed is reflected in the year in which the change becomes known. Provisionsfor estimated losses on such engagements are made during the year in which a loss becomes probable and canbe reasonably estimated.

Amounts received or billed in advance of services performed are recorded as advance from customers/unearned revenue. Unbilled revenue, included in debtors, represents amounts recognized based on servicesperformed in advance of billing in accordance with contract terms.

Unearned revenue is calculated on the basis of the unutilized period of time at the Balance Sheet and representsrevenue which is expected to be earned in future periods in respect of internet, e-mail services, electronic datainterchange and web hosting services.

ii. Business Process Outsourcing

Revenue from per engagement services is recognized based on the number of engagements performed.Revenues from per time period services are recognized based on the time incurred in providing services atcontracted rates. Revenue from per incident services is based on the performance of specific criteria at contractedrates.

d) Foreign Currency Transactions/Translations

Transactions in foreign currency are recorded at exchange rate prevailing on the date of transaction.

Monetary assets and liabilities denominated in foreign currency are translated at the rate of exchange at the balancesheet date and resultant gain or loss is recognized in the profit and loss account.

Non-monetary assets and liabilities are translated at the rate prevailing on the date of transaction.

The operations of foreign branches of the company are of integral in nature and the financial statements of thesebranches are translated using the same principles and procedures of head office.

In case of forward exchange contract or any other financial instruments that is in substance a forward exchangecontract to hedge the foreign currency risk which is on account of firm commitment and/or is a highly probableforecast transaction, the premium or discount arising at the inception of the contract is amortized as expense orincome over the life of the contract.

Gains/losses on settlement of transaction arising on cancellation or renewal of such a forward exchange contract isrecognized as income or as expense for the period.

In all other cases the gain or loss on contract is computed by multiplying the foreign currency amount of the forwardexchange contract by the difference between the forward rate available at the reporting date for the remainingmaturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on thatcontract for an earlier period), is recognized in the profit and loss account for the period.

Foreign subsidiaries are non-integral in nature. Assets and Liabilities of such subsidiaries are translated at the yearend exchange rate, income and expenditure are translated at the average rate during the period. The resultanttranslation adjustment is reflected as a separate component of shareholders’ funds as a ‘Currency TranslationReserve’.

e) Fixed Assets

Fixed assets are stated at actual cost less accumulated depreciation. The actual cost capitalized includes materialcost, freight, installation cost, duties and taxes, finance charges and other incidental expenses incurred during theconstruction/installation stage.

Gains/losses arising on foreign exchange liabilities incurred for the purpose of acquiring fixed assets are adjusted inthe carrying amount of the respective fixed assets.

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Depreciation on fixed assets is computed on the straight line method over their estimated useful lives at the rateswhich are higher than the rates prescribed under Schedule XIV of the Companies Act, 1956. Individual assetsacquired for less than Rs. 5,000 are entirely depreciated in the year of acquisition.

The cost of and the accumulated depreciation for fixed assets sold, retired or otherwise disposed off are removedfrom the stated values and the resulting gains and losses are included in the profit and loss account.

Costs of application software for internal use are generally charged to revenue as incurred due to its estimated usefullives being relatively short, usually less than one year.

The estimated useful lives are as follows:

Estimated useful lives

Buildings 28 years

Computers 2 years

Plant and Machinery (Other than Computers) 5 years

Software – used in Development for Projects 3 years

Office Equipment 5 years

Furniture, Fixtures and Interiors 5 years

Vehicles 5 years

Depreciation on assets acquired under a finance lease is provided using the straight-line method over the shorter ofthe lease term or the useful life of the asset.

Assets under installation or under construction as at the Balance sheet date are shown as capital work in progress.Advances paid towards acquisition of assets are also included under capital work in progress.

f) Goodwill and other Intangible Assets

Goodwill represents the difference between the purchase price and the book value of assets and liabilities acquired.Goodwill is amortized over the useful life of the asset. The goodwill is reviewed for impairment whenever events orchanges in business circumstances indicate the carrying amount of assets may not be fully recoverable. If impairmentis indicated, the asset is written down to its fair value.

g) Investments

Investments are classified into current investments and long-term investments. Current investments are carried at thelower of cost or market value. Any reduction in carrying amount and any reversals of such reductions are chargedor credited to the profit and loss account. Long-term investments are carried at cost less provision made to recognizeany decline, other than temporary, in the value of such investments.

h) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost of hardware and software purchased for thepurpose of resale is determined using the first-in-first-out method.

i) Employee benefits

Contributions to defined schemes such as Provident Fund, Employee State Insurance Scheme and Superannuationare charged as incurred on accrual basis. Satyam Computer Services also provides for gratuity and leave encashmentin accordance with the requirements of revised Accounting Standard – 15 “Employee Benefits”.

j) Taxes on Income

Tax expense for a year comprises of current tax and deferred tax. Current taxes are measured at the amountsexpected to be paid using the applicable tax rates and tax laws. Deferred tax assets and liabilities are measured usingtax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in the profit and loss account in the year ofchange. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable todifferences between the financial statements carrying amounts of existing assets and liabilities and their respectivetax bases and operating loss carry forwards.

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k) Earnings Per Share

The earnings considered in ascertaining Satyam’s Earnings Per Share comprises the net profit after tax (and includesthe post tax effect of any extra ordinary items). The number of shares used in computing Basic EPS is the weightedaverage number of shares outstanding during the year. The number of shares used in computing Diluted EPScomprises of weighted average shares considered for deriving Basic EPS, and also the weighted average number ofequity shares which could have been issued on the conversion of all dilutive potential equity shares. Dilutivepotential equity shares are deemed converted as at the beginning of the year, unless they have been issued at a laterdate. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares beenactually issued at fair value (i.e. average market value of the outstanding shares). The number of shares andpotentially dilutive shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.

l) Associate Stock Option Scheme

Stock options granted to the employees under the stock option schemes established after June 19, 1999 areevaluated as per the accounting treatment prescribed by Employee Stock Option Scheme and Employee StockPurchase Scheme Guidelines 1999 issued by Securities and Exchange Board of India. Accordingly the excess ofmarket value of the stock options as on the date of grant over the exercise price of the options is recognized asdeferred employee compensation and is charged to profit and loss account on graded vesting basis over the vestingperiod of the options. The un-amortized portion of the deferred employee compensation is shown under Reservesand Surplus.

m) Research and Development

Revenue expenditure incurred on research and development is charged to revenue in the year/period in which it isincurred. Assets used for research and development activities are included in fixed assets.

n) Miscellaneous expenditure

Miscellaneous expenditure is charged to profit and loss account in the period/year in which it is incurred irrespectiveof its enduring benefit available in future.

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The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of theConsolidated Balance Sheet.

This is the Consolidated Balance Sheet For and on behalf of the Board of Directorsreferred to in our reportof even date.



Place : Secunderabad Place : SecunderabadDate : April 20, 2007 Date : April 20, 2007

Rs. in crores

Schedule As at As atReference 31.03.2007 31.03.2006

I. Sources of Funds :1. Shareholders’ Funds

(a) Share Capital 1 178.94 155.90(b) Share application money, pending allotment 7.85 1.78(c) Reserves and Surplus 2 5,565.81 4,159.57

5,752.60 4,317.252. Minority Interest – 4.153. Loan Funds

Secured Loans 3 147.88 102.715,900.48 4,424.11

II. Application of Funds :1. Fixed Assets 4

(a) Gross Block 1,505.44 1,317.21(b) Less: Depreciation 984.79 840.21(c) Net Block 520.65 477.00(d) Capital Work in Progress 301.69 80.25

822.34 557.252. Investments 5 – –3. Deferred Tax Assets (net) 6 43.67 4.624. Current Assets, Loans and Advances

(a) Inventories 7 0.02 0.19(b) Sundry Debtors 8 1,743.17 1,168.42(c) Cash and Bank Balances 9 3,991.42 3,111.70(d) Loans and Advances 10 229.61 184.32(e) Other Current Assets

– Interest Accrued on Fixed Deposits 64.91 110.606,029.13 4,575.23

Less: Current Liabilities and Provisions(a) Liabilities 11 574.53 437.04(b) Provisions 12 420.13 275.95

994.66 712.99Net Current Assets 5,034.47 3,862.24

5,900.48 4,424.11Notes to Accounts 18

Consolidated Balance sheet as at March 31, 2007

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Consolidated Profit and Loss Account for the year ended March 31, 2007Rs. in crores

Schedule Year ended Year endedReference 31.03.2007 31.03.2006

IncomeServices – Exports 6,188.12 4,596.74

– Domestic 296.96 195.85Other Income 13 183.28 333.25

6,668.36 5,125.84Expenditure

Personnel Expenses14 3,857.93 2,804.70Cost of Software and Hardware sold 15 2.27 2.00Operating and Administration Expenses 16 1,087.17 819.71Financial Expenses 17 15.92 5.54Depreciation 148.44 137.28Miscellaneous Expenditure Written Off – 0.07

5,111.73 3,769.30Profit Before Taxation 1,556.63 1,356.54

Provision for Taxation – Current 169.38 191.98– Fringe Benefit 12.89 9.46– Deferred (30.26) 6.04

Profit After Taxation and Before share of loss in associatecompany and Minority Interest 1,404.62 1,149.06

Share of loss in associate company – (7.88)Minority Interest 0.12 0.55Profit After Taxation and share of loss in associate companyand Minority Interest 1,404.74 1,141.73

Add: Balance brought forward from previous year 2,008.48 1,252.80Less: Residual dividend and additional dividend tax (0.56) 1.23Profit Available for Appropriation 3,413.78 2,393.30

Appropriations :Interim Dividend @ Re. 1.00 per Equity Share of Rs. 2.00 each(2006 - Rs. 2.00 per Equity Share) 65.61 64.46Final Dividend @ Rs. 2.50 per Equity Share of Rs. 2 each(2006 - Rs. 5.00 per Equity Share) 166.80 163.87Dividend paid by subsidiary to minority interest – 0.47Tax on distributed profits 37.55 32.02Transfer to General Reserve 142.32 124.00Balance carried to Balance Sheet 3,001.50 2,008.48Earnings Per Share (Rs. per equity share of Rs. 2 each)

Basic 21.45 17.73Diluted 20.98 17.05No. of Shares used in computing Earnings Per ShareBasic 654,853,959 643,784,984Diluted 669,705,425 669,626,864Notes to Accounts 18The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of theConsolidated Profit and Loss Account.This is the Consolidated Profit and Loss For and on behalf of the Board of DirectorsAccount. referred to in our reportof even date.S Gopalakrishnan B Ramalinga Raju B Rama RajuPartner Chairman Managing Directorfor and on behalf ofPrice WaterhouseChartered Accountants



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Rs. in croresAs at As at

31.03.2007 31.03.2006

1. Share CapitalAuthorised :800,000,000 (2006 - 375,000,000) Equity Shares of Rs. 2 each 160.00 75.00100,000,000 0.05% Convertible Redeemable Cumulative PreferenceShares of Rs. 10 each 100.00 100.00Issued and Subscribed :667,196,009 (2006 - 324,449,539) Equity Shares of Rs.2 eachfully paid-up 133.44 64.8945,504,999 (2006 - 91,009,999) 0.05% Convertible RedeemableCumulative Preference Shares of Rs. 10 each fully paid-up 45.50 91.01(Refer note (d) of Schedule 18)

178.94 155.90Out of the above:4,000,000 Equity Shares of Rs. 2 each were allotted as fully paid-up EquityShares for a consideration other than cash pursuant to the Scheme ofAmalgamation with Satyam Enterprise Solutions Limited468,289,738 ( 2006 - 140,595,000) Equity Shares of Rs. 2 each were allottedas fully paid-up by way of Bonus Shares by capitalising free reserves ofSatyam Computer Services130,209,472 ( 2006 - 64,680,600 ) Equity Shares of Rs. 2 each fully paid-uprepresent 65,104,736 (2006 - 32,340,300) American Depository Shares38,116,009 ( 2006 - 9,909,539 ) Equity Shares of Rs. 2 each fully paid-upwere alloted to associates of Satyam Computer Services pursuant to theAssociate Stock Option Plan - B and Associate Stock Option Plan (ADS )

2. Reserves and SurplusShare Premium AccountAs at the commencement of the year 1,028.63 890.94Add: Received on account of issue of ADS/ASOP 292.55 137.69

1,321.18 1,028.63Capital ReserveAs at the commencement of the year 720.14 720.14Add: Gain on dilution of interest in subsidiary company on itsconversion of preference shares to equity shares 45.51 –

765.65 720.14General ReserveAs at the commencement of the year 407.15 283.15Add : Transfer from the Profit and Loss Account 142.32 124.00Less : Provision for leave encashment (Refer note (q) of Schedule 18) 17.47 –Less: Utilisation on issue of bonus shares (Refer note (m) of Schedule 18) 65.54 –

466.46 407.15

Currency Translation Reserve (5.45) (5.35)Employee Stock Options Outstanding 180.61 0.52Less: Deferred Employee Compensation 164.14 –

16.47 0.52Balance in Profit and Loss Account 3,001.50 2,008.48

5,565.81 4,159.57

3. Secured LoansBank Overdraft 3.41 4.90External Commercial Borrowing 45.55 46.62Working Capital Loans 43.00 25.05Export Packing Credit 41.76 13.17Vehicle Loans 14.16 12.97

147.88 102.71

Schedules forming part of the Consolidated Balance sheet

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Rs. in crores

As at As at31.03.2007 31.03.2006

5. Investments

Long Term

i) Trade (Unquoted)

Investment in Associate Companies

Other Investments

Jasdic Park Company 0.75 0.75(480 Shares of J Yen 50,000 each, fully paid-up)Less : Received on liquidation 0.26 0.26Less : Provision for diminution 0.49 – 0.49 –

Intouch Technologies Limited 10.90 10.90(833,333 Shares of 20 US cents each, fully paid-up)Less : Provision for diminution 10.90 – 10.90 –

Medbiquitious Services Inc., 1.57 1.57(334,000 shares of ‘A’ series Preferred Stock ofUS $ 0.001each, fully paid-up)Less : Provision for diminution 1.57 – 1.57 –

Avante Global LLC., 2.54 2.54(577,917 class ‘A’ units representing a total valueof US $ 540,750 fully paid-up)Less : Provision for diminution 2.54 – 2.54 –

ii) Non Trade (Unquoted)

National Savings Certificates,VIII Series (Lodged – – as security with government authorities)

– –

6. Deferred Tax Assets (net)

Debtors 11.83 11.02Advances 1.43 1.43Fixed Assets (24.13) (25.38)Others 54.54 17.55

43.67 4.62

7. Inventories

Traded software and hardware 0.02 0.19

8. Sundry Debtors (Unsecured)

Considered good *(a) Over six months old 25.95 14.19(b) Other debts 1,717.22 1,154.23

1,743.17 1,168.42Considered doubtful 98.53 85.13

1,841.70 1,253.55Less: Provision for doubtful debts 98.53 85.13

1,743.17 1,168.42* Debtors include Unbilled Revenue – Rs. 163.24 crores

(2006 – Rs. 182.88 crores)

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Rs. in crores

As at As at31.03.2007 31.03.2006

9. Cash and Bank Balances*

Cash on hand 0.08 0.14Balances with Scheduled Banks– on Current accounts 424.29 1,026.92– on Deposit accounts 3,371.26 1,909.16Unclaimed Dividend Accounts 6.33 5.05Balances with Non-Scheduled Banks**– on Current Accounts 178.53 126.27– on Deposit Accounts 10.93 44.16

3,991.42 3,111.70

* Includes unutilised amount of ADS issue proceeds - Rs. Nil(2006 - Rs. 262.20 crores)

** Refer note (i) of schedule18

10. Loans and Advances

(Considered good unless otherwise stated)Loans and AdvancesSecured – Loans 0.04 0.11Unsecured – Advances recoverable in cash or in kind or for

value to be received 139.51 108.02– Deposits 90.06 76.19

Considered doubtful - Advances 23.21 17.25

252.82 201.57

Less: Provision for doubtful advances 23.21 17.25

229.61 184.32

11. Liabilities

Sundry Creditors- Dues to small scale industrial undertakings – –- Dues to other than small scale industrial undertakings 415.69 330.92Advances from Customers 1.74 1.41Unearned Revenue 87.52 52.68Investor Education Protection Fund - Unclaimed Dividends 6.33 5.05Interest accrued but not due on loans 0.47 –Other Liabilities 62.78 46.98

574.53 437.04

12. Provisions

Provision for Taxation (Less payments) 62.05 36.94Proposed Dividend (Including tax thereon) 195.15 186.85Provision for Gratuity and Leave Encashment 162.93 52.16

420.13 275.95

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Schedules forming part of the Consolidated Profit and Loss Account

Rs. in crores


13. Other Income

Interest on Deposits - Gross {Tax Deducted at SourceRs. 37.12 crores} (2006 - Rs. 25.96 crores) 167.26 116.24

Profit on sale of Long Term Investments – 216.43

Gain/(Loss) on exchange fluctuations (net) 11.88 (2.10)

Provision no longer required written back – 0.89

Miscellaneous Income 4.14 1.79

183.28 333.25

14. Personnel Expenses

Salaries and bonus 3,553.42 2,595.48

Contribution to Provident and other funds 267.44 188.86

Staff welfare expenses 21.08 20.44

Employee stock compensation expense 15.99 (0.08)

3,857.93 2,804.70

15. Cost of software and hardware sold

Opening inventory 0.19 0.19

Add: Purchases (net of returns) 2.10 2.00

Less: Closing inventory 0.02 0.19

2.27 2.00

16. Operating and Administration Expenses

Rent 100.75 78.03

Rates and taxes 26.76 16.23

Insurance 17.33 14.65

Travelling and conveyance 397.89 253.70

Communication 78.70 82.72

Printing and stationery 9.62 6.91

Power and fuel 37.89 29.24

Advertisement 3.92 9.57

Marketing expenses 64.13 64.56

Repairs and maintenance

– Buildings 2.76 1.65

– Machinery 18.85 11.64

– Others 29.84 21.23

Security services 4.97 3.11

Legal and professional charges 147.52 106.43

Provision for doubtful debts and advances 19.55 11.83

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Rs. in crores


Loss on sale of Fixed assets (net) 0.88 0.93

Directors’ sitting fees 0.04 0.04

Auditors’ remuneration 4.21 1.69

Donations and contributions 3.63 3.73

Subscriptions 3.15 2.15

Training and development 24.91 16.20

Research and development 1.29 2.45

Software charges 21.89 24.50

Managerial Remuneration

– Salaries 1.66 0.35

– Commission 0.95 0.91

– Contribution to P.F. 0.04 0.04

– Others 0.23 0.19

Visa charges 44.74 32.53

Miscellaneous expenses 19.07 22.50

1,087.17 819.71

17. Financial Expenses

Interest on Export packing credit 0.22 0.04

Interest on working capital loans 6.31 1.86

Interest on term loans 1.45 0.49

Other finance charges 7.94 3.15

15.92 5.54

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18. Notes to accounts

a) List of domestic and foreign subsidiaries, joint ventures and associate considered for consolidation:-

Sl. No. Name of the Company Country of Extent of Holding (%)Incorporation as at March 31, 2007

Subsidiaries :

1. Nipuna Services Limited India 74.00 **

2. Satyam Computer Services (Shanghai) Co. Ltd. China 100.00

3. Satyam Technologies, Inc. USA 100.00

4. Knowledge Dynamics Pte. Ltd. @ Singapore 100.00

5. Citisoft Plc. * UK 100.00

Associate :

6. Sify Limited # India –

Joint Ventures :

7. CA Satyam ASP Private Limited India 50.00

8. Satyam Venture Engineering Services Private Limited India 50.00

@ Knowledge Dynamics has been consolidated with effective date of October 01, 2005, the date of acquisition.

* Citisoft Plc has been consolidated with effective date of May 12, 2005, the date of acquisition.

# Sify Limited ceased to be an associate from November 09, 2005.

**Refer note 18(d).

The reporting date for all the above companies is March 31 except as following:

– Satyam Computer Services (Shanghai) Co. Ltd. – December 31.

– Satyam Technologies Inc. - December 31.

Sl. No. Subsidiaries of Knowledge Dynamics Pte Ltd. Country of Extent of Holding (%)Incorporation as at March 31, 2007

1. Info On Demand SDN BHD Malaysia 100.00

2. Knowledge Dynamics Private Limited India 99.99

3. Knowledge Dynamics USA Inc. USA 98.00

Sl. No. Subsidiaries of Citisoft Plc. Country of Extent of Holding (%)Incorporation as at March 31, 2007

1. Citisoft Inc. USA 100.00

b) Associate Stock Option Schemes

1) Stock Option Scheme of Satyam Computer Services

i. Scheme established prior to SEBI (Employee Stock Option Scheme and Employee Stock PurchaseScheme) Guidelines 1999, (SEBI guidelines on Stock Options)

In May 1998, Satyam Computer Services established its Associate Stock Option Plan (the “ASOP”).Satyam Computer Services subsequently established an employee welfare trust called the Satyam AssociatesTrust (the “Trust”), to administer the ASOP and issued warrants to purchase 6,500,000 equity shares of Rs.2 each in Satyam Computer Services. In turn, the Trust periodically grants to eligible employees warrantsto purchase equity shares held by Trust for the issuance to the employees. The warrants may vestimmediately or may vest over a period ranging from two to three years, depending on the employee’s

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length of service and performance. Upon vesting, employees have 30 days to exercise warrants. Theexercise price of the warrants was fixed at Rs. 450 per warrant.

At the 12th Annual General Meeting held on May 28, 1999, shareholders approved a 1:1 Bonus issue toall shareholders as of August 31, 1999. In order to ensure all its employees receive the benefits of thebonus issue in December 1999, the Trust exercised all its warrants to purchase Satyam Computer Service’sshares prior to the bonus issue using the proceeds obtained from bank loans. Subsequent to this, eachwarrant entitles the holder to purchase 10 shares of Rs. 2 each of Satyam Computer Services at a price ofRs. 450 per warrant plus an interest component associated with the loan which the Trust assumed, forconversion of the warrants it held. The interest component is computed based on fixed vesting period anda fixed interest rate. As this scheme is established prior to the SEBI guidelines on the stock options, thereis no cost relating to the grant of options under this scheme.

ii. Scheme established after SEBI Guidelines on Stock Options

Securities Exchange Board of India (SEBI) issued the Employee Stock Option Scheme and Employee StockPurchase Scheme Guidelines 1999, which is applicable for all Stock Option Schemes established afterJune 19, 1999.

Satyam Computer Services established a scheme “Associate Stock Option Plan – B” (ASOP - B) for which83,454,280 equity shares of Rs. 2 each were earmarked. Upon vesting, associates have 5 years toexercise these shares.

Accordingly, options (net of cancellations) for a total number of 19,976,210 equity shares of Rs. 2 eachwere outstanding as at March 31, 2007 (2006 – 45,605,388).



2007 2006


Granted Nil 6,579,552

Exercised (17,448,659) (9,039,604)

Cancelled (8,180,519) (5,595,190)


iii) Associate Stock Option Plan (ADS)

Satyam Computer Services has established a scheme “Associate Stock Option Plan (ADS)” to beadministered by the Administrator of the ASOP (ADS), a committee appointed by the Board of Directorsof Satyam Computer Services. Under the scheme 5,149,330 ADS are reserved to be issued to eligibleassociates with the intention to issue the warrants at a price per option which is not less than 90% of thevalue of one ADS as reported on NYSE on the date of grant converted into Indian Rupees at the rate ofexchange prevalent on the day of grant as decided by the Administrator of the ASOP (ADS). Each ADSrepresents two equity shares of Rs. 2 each fully paid up. These warrants vest over a period of 1-10 yearsfrom the date of the grant. The time available to exercise the warrants upon vesting is as decided by theAdministrator of the ASOP (ADS).

Accordingly, options (net of cancellation) for a total number of 1,461,064 ADS (2006 - 1,991,342)representing 2,931,908 equity shares of Rs. 2 each were outstanding as at March 31, 2007 (2006 -3,982,684).

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2007 2006


Granted 20,000 320,430

Exercised (424,136) (664,446)

Cancelled (126,142) (180,444)


iv) Associate Stock Option Plan - Restricted Stock Units (ASOP – RSUs)

Satyam Computer Services has established a scheme “Associate Stock Option Plan - Restricted Stock Units(ASOP – RSUs)” to be administered by the Administrator of the ASOP – RSUs, a committee appointed by theBoard of Directors of Satyam Computer Services. Under the scheme 13,000,000 equity shares are reservedto be issued to eligible associates at a price to be determined by the Administrator which shall not be lessthan the face value of the share. These RSUs vest over a period of 1-4 years from the date of the grant. Themaximum time available to exercise the warrants upon vesting is five years from the date of vesting.

Accordingly, options (net of cancellations) for a total number of 3,293,140 ASOP-RSUs equity shares ofRs. 2 each were outstanding as at March 31, 2007 (2006 - Nil).


2007 2006


Granted 3,293,140 –

Exercised – –

Cancelled – –

At the end of the year 3,293,140 –

v) Associate Stock Option Plan — RSUs (ADS) (ASOP – RSUs(ADS))

Satyam Computer Services has established a scheme “Associate Stock Option Plan - RSUs (ADS)” to beadministered by the Administrator of the ASOP – RSUs (ADS), a committee appointed by the Board ofDirectors of Satyam Computer Services. Under the scheme 13,000,000 equity shares minus the numberof shares issued from time to time under the Associate Stock Option Plan — RSUs are reserved to beissued to eligible associates at a price to be determined by the Administrator not less than the face valueof the share. These RSUs vest over a period of 1-4 years from the date of the grant. The maximum timeavailable to exercise the warrants upon vesting is five years from the date of vesting.

Accordingly, options (net of cancellation) for a total number of 236,620 ASOP-RSUs (ADS) (2006 – Nil)representing 473,240 equity shares of Rs. 2 each were outstanding as at March 31, 2007 (2006 - Nil)


2007 2006


Granted 236,620 –

Exercised – –

Cancelled – –

At the end of the year 236,620 –

2) Stock Option Scheme of Nipuna Services

In April 2004, Nipuna Services established its Employee Stock Option Plan (the “ESOP”) for its employees. Theexercise price is equal to the fair market value on the date of the grant. These options vest over a period ranging from

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two to four years, starting with 33.33% in the second year, 33.33% in the third year and remaining 33.34% in thefourth year from the date of grant. Upon granting, they are subject to lock in period of one year.


2007 2006

At the beginning of the year 1,215,506 813,578

Granted 324,000 655,000

Exercised – –

Cancelled (540,804) (253,072)

At the end of the year 998,702 1,215,506

As at March 31, 2007, 998,702 (2006 – 1,215,506), options (net of cancellations) at weighted average exerciseprice of Rs. 80 being the fair market value per share were outstanding.

c) Pro forma disclosure:

In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999, had the compensation cost for associate stock option plans been recognized based on the fair value at thedate of grant in accordance with Black Scholes’ model, the pro forma amounts of Satyam’s net profit and earningsper share would have been as follows:


2007 2006

1. Profit after Taxation and share of loss in associate company(Rs. in crores)

– As reported (Rs. in crores) 1,404.74 1,141.73

– Pro forma (Rs. in crores) 1,354.56 1,044.09

2. Earnings Per Share:

Basic

– No. of shares 654,853,959 643,784,984


– Pro forma EPS (Rs.) 20.68 16.22

Diluted

– No. of shares 669,705,425 669,626,864


– Pro forma EPS (Rs.) 20.23 15.59

The following assumptions were used for calculation of fair value of grants:


2007 2006

Dividend yield (%) 0.78 0.75

Expected volatility (%) 59.01 58.05

Risk-free interest rate (%) 8.00 7.00

Expected term (in years) 0.96 1.26

d) Convertible Redeemable Cumulative Preference Shares

Nipuna Services issued 45,669,999 and 45,340,000 0.05% Convertible Redeemable Cumulative Preference Sharesof par value Rs.10 each fully paid-up in October 2003 and June 2004 respectively to Olympus BPO Holdings Ltd.and Intel Capital Corporation (preference shareholders) for an aggregate consideration of Rs. 91.01 crores (equivalentto US$ 20 millions). These Preference shares are to be mandatorily converted/redeemed into such number of equity

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shares latest by June 2007 based on certain provisions in the agreement entered with the preference shareholdersrelating to revenues and profits earned up to March 31, 2006. The said preference shares, if not converted or earlyconverted at the option of the preference shareholders based on certain triggering events, are redeemable onmaturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a. Accordingly,Nipuna has received a notice of conversion of fifty percent of preference shares into equity shares, from its preferenceshareholders, on December 1, 2006. And in January 2007 45,505,000 preference shares have converted into6,422,267 equity shares of Nipuna. The balance fifty percent preference shares are redeemable at an agreedpremium on May 21, 2007. Satyam Computer Services has guaranteed payment of all sums payable by Nipuna tothe preference shareholders on redemption of the said preference shares.

Due to the issue of shares by Nipuna, Satyam Computer Services’ ownership interest in Nipuna was reduced from100% as at March 31, 2006 to 74% as at March 31, 2007. The shares issued to the Investors are at amounts pershare higher than Satyam Computer Services’ average cost per share. With respect to this transaction, the resultinggain of Rs.45.51 crores during the year ended March 31, 2007 has been recorded as an increase in capital reserve.Since the losses applicable to the minority interest in Nipuna exceeded the minority interest in the equity capital ofNipuna, such excess and further losses have been charged in Satyam’s consolidated statement of income.

e) Share application money pending allotment

Amount received from associates of Satyam Computer Services on exercise of stock options, pending allotment ofshares is shown as share application money pending allotment.

f) Secured Loans

Bank Overdraft is secured by way of hypothecation of book debts.

External Commercial Borrowing is secured by way of movable and immovable property.

Working capital loan is secured by way of movable and immovable property.

Export Packing Credit loan is secured by way of hypothecation of book debts.

Vehicles are hypothecated to the Banks as security for the amounts borrowed.

g) Investments

During May 2005, Satyam Computer Services acquired Citisoft Plc (“Citisoft”), a specialist business and systemsconsulting firm located in the United Kingdom that has focused on the investment management industry, withoperating presence in London, Boston and New York.

Satyam Computer Services acquired 75% of the shareholding in Citisoft for an initial cash consideration of Rs. 62.25crores (inclusive of acquisition costs) and a deferred consideration of Rs.13.63 crores (equivalent GBP 1.75 million).Satyam Computer Services is also required to pay a maximum earn out consideration amounting to Rs.19.25 crores(equivalent GBP 2.25 million) based on achievement of targeted revenues and profits.

On June 29, 2006, Satyam Computer Services acquired the remaining 25% shareholding for a consideration ofRs. 27.47 crores (equivalent GBP 3.26 million). Satyam Computer Services is also required to pay a maximum earn-out consideration amounting to Rs.30.28 crores (equivalent GBP 3.54 million) based on achievement of targetedrevenues and profits and to fund an Employee Benefit Trust (EBT) formed by Citisoft. The obligation to fund the EBTamounting to maximum of Rs. 15.40 crores (equivalent GBP 1.80 million) is contingent on Citisoft achieving certainrevenue and profit performance targets. During the quarter ended September 30, 2006, Satyam Computer Serviceshas paid Rs. 7.82 crores (equivalent GBP 0.90 million) to Employee Benefit Trust.

h) Land

Satyam Computer Services acquired 14.93 acres of land at Hyderabad from Andhra Pradesh Industrial InfrastructureCorporation (APIIC) for an aggregate purchase consideration of Rs.7.21 crores. Non-compliance of certain termsand conditions would attract withdrawal of rebate, which may increase the cost of land.

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i) Balances with Non-Scheduled BanksRs. in crores

Name of the BankYear ended March 31,

2007 2006

Balances with Non-Scheduled Banks on Current Accounts

ANZ Grindlays Bank, New York – –

Banco Do Brasil, Brazil 0.60 –

Barclays Bank, London 1.37 2.45

Bank of America, Boston 0.40 0.82

Banque Nationale De Paris, Brussels 1.80 –

Banque Nationale De Paris, Euro – 0.01

Banque Nationale De Paris, Saarbruecken 2.40 0.54

Banque Nationale De Paris, Hague 2.84 3.32

Banque Nationale De Paris, Ireland 1.66 0.42

Banque Nationale De Paris, Italy 0.93 –

Banque Nationale De Paris, France 1.88 1.05

Banque Nationale De Paris, Saudi Arabia 0.19 –

Banque Nationale De Paris, Singapore 0.33 –

Banque Nationale De Paris, Spain 0.60 0.69

Banque Nationale De Paris, Switzerland 0.37 –

Banque Nationale De Paris, Taipei 2.45 2.15

Chase, Canada 0.01 0.05

Chase, Michigan 0.53 0.01

Citibank NA, Bangkok 14.19 11.45

Citibank NA, Chicago – 1.40

Citibank NA, Denmark 0.58 –

Citibank NA, Dubai 0.08 0.20

Citibank NA, Hong Kong 1.56 0.27

Citibank NA, Hungary 0.18 0.15

Citibank NA, Kuala Lumpur 0.80 0.67

Citibank NA, London 2.25 0.54

Citibank NA, New York 9.42 3.98

Citibank NA, New Zealand 1.37 2.20

Citibank NA, Seoul 10.39 8.27

Citibank NA, Singapore 3.81 2.54

Citibank NA, Johannesburg 2.21 1.51

Citibank NA, Sydney 18.67 6.29

Citibank INTL PLC, Stockholm 0.45 –

Citibank NA, Toronto 2.47 2.24

Commerz Bank, New York – –

Dresdner Bank, Saarbruecken 2.82 12.27

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Rs. in crores

Name of the BankYear ended March 31,

2007 2006

Hong Kong and Shanghai Banking Corporation, London 21.09 12.14

Hong Kong and Shanghai Banking Corporation, Shanghai 1.42 1.36

Hong Kong and Shanghai Banking Corporation, Tokyo 3.83 9.79

KSB Bank N V, Brussels 0.95 2.31

Mitsui Sumitomo Bank, Tokyo 0.58 0.65

OCBC Bank, Singapore 0.83 0.30

OCBC Bank, Kuala Lumpur – 0.11

Pudong Development Bank, Shanghai – 0.03

Standard Chartered Bank, Singapore – –

UBS, Switzerland 7.67 1.39

Unicredit Banca, Italy 0.57 0.90

United Bank, Vienna 39.55 28.71

Wachovia Bank, Atlanta 1.43 1.54

Wachovia Bank, New Jersey 11.00 1.55

178.53 126.27

Balances held on Deposit Accounts

Banque Nationale De Paris, Singapore 10.09 43.43

Citibank NA, Hungary 0.84 0.73

10.93 44.16

j) Segment reporting

Satyam has adopted AS 17, “Segment Reporting” issued by the Institute of Chartered Accountants of India, whichrequires disclosure of financial and descriptive information about Satyam’s reportable operating segments. Theoperating segments reported below are the segments of Satyam for which separate financial information is availableand for which operating profit/loss amounts are evaluated regularly by executive management in deciding how toallocate resources and in assessing performance. Management evaluates performance based on consolidatedrevenues and net income for the companies in Satyam Computer Services. Satyam evaluates operating segmentsbased on the following two business groups:

• IT Services, providing a comprehensive range of services, including application development and maintenance,consulting and enterprise business solutions, extended engineering solutions, and infrastructure managementservices. Satyam Computer Services provides its customers the ability to meet all of their information technologyneeds from one service provider. Satyam Computer Services’ eBusiness services include designing, developingintegrating and maintaining Internet-based applications, such as eCommerce websites, and implementingpackaged software applications, such as customer or supply chain management software applications. SatyamComputer Services also assists its customers in making their existing computing systems accessible over theInternet.

• BPO, providing Business Process Outsourcing services covering HR, Finance & Accounting, Customer Contact(Voice, Mail and Chat), and Transaction Processing (industry-specific offerings).

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Satyam’s operating segment information for the year ended March 31, 2007 and 2006 are as follows:

Business SegmentRs. in crores

DescriptionYear ended March 31, 2007

IT Services BPO Elimination Total

Revenue

Sales to external customers 6,354.40 130.68 – 6,485.08

Inter Segment Sales 1.13 41.01 (42.14) –

Total Revenue 6,355.53 171.69 (42.14) 6,485.08

Segment result–Profit/(Loss) 1,397.90 (8.63) – 1,389.27

Interest expense 7.71 8.21 – 15.92

Other income 183.46 (0.18) – 183.28

Income taxes 151.42 0.59 – 152.01

Profit/(Loss) from ordinary activities 1,422.23 (17.61) – 1,404.62

Minority Interest 0.12 – – 0.12

Profit/(Loss) after Tax and share of loss inassociate company 1,422.35 (17.61) – 1,404.74

Other Segment Information

Capital Expenditure 381.13 36.09 – 417.22

Depreciation 133.73 14.71 – 148.44

Non-cash expenses other than depreciation 36.21 0.21 – 36.42

Rs. in crores



Revenue

Sales to external customers 4,732.14 60.45 – 4,792.59

Inter Segment Sales 12.76 28.14 (40.90) –

Total Revenue 4,744.90 88.59 (40.90) 4,792.59

Segment result–Profit/(Loss) 1,060.10 (31.27) – 1,028.83

Interest expense 2.95 2.59 – 5.54

Other income 332.46 0.79 – 333.25

Income taxes 206.95 0.53 – 207.48

Profit/(Loss) from ordinary activities 1,182.66 (33.60) – 1,149.06

Share of loss in associate company (7.88) – – (7.88)

Minority Interest 0.55 – – 0.55

Profit/(Loss) after Tax and share of loss inassociate company 1,175.33 (33.60) – 1,141.73

Other Segment Information

Capital Expenditure 319.54 7.62 – 327.16

Depreciation 126.10 11.18 – 137.28

Non-cash expenses other than depreciation 12.54 0.22 – 12.76

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Particulars of Segment Assets and Liabilities Rs. in crores



Segment Assets 3,302.98 169.21 (67.82) 3,404.37Investments 18.27 – (18.27) –Bank Deposits 3,371.84 10.35 – 3,382.19Other Assets 108.53 0.05 – 108.58

Total Assets 6,801.62 179.61 (86.09) 6,895.14

Segment Liabilities 943.25 57.18 (67.82) 932.61

Other Liabilities 78.79 131.14 – 209.93

Total Liabilities 1,022.04 188.32 (67.82) 1,142.54

Rs. in crores



Segment Assets 3,002.79 76.67 (10.90) 3,068.56Investments 18.27 – (18.27) –Bank Deposits 1,909.59 43.73 – 1,953.32Other Assets 115.22 – – 115.22

Total Assets 5,045.87 120.40 (29.17) 5,137.10

Segment Liabilities 663.41 23.54 (10.90) 676.05Other Liabilities 51.70 87.95 – 139.65

Total Liabilities 715.11 111.49 (10.90) 815.70

Geographic Segment

Revenue attributable to location of customers is as follows:Rs. in crores

Year ended March 31,Geographic Location

2007 2006

North America 4,132.28 3,105.68Europe 1,250.27 907.36Japan 92.85 67.34India 296.96 195.85Rest of the World 712.72 516.36

Total 6,485.08 4,792.59

Segment assets based on their location are as follows:Rs. in crores

Geographic location

Segment Assets Addition to fixed assetsAs at March 31, Year ended March 31,

2007 2006 2007 2006

North America 1343.59 1,675.14 4.14 4.73Europe 544.15 368.13 12.23 6.99Japan 57.23 48.71 0.30 0.48India 1102.67 760.38 394.40 310.18Rest of the World 356.73 216.20 6.15 4.78

Total 3404.37 3,068.56 417.22 327.16

k) Related party transactions:

Satyam Computer Services had transactions with the following related parties:

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Associate: Sify Limited (ceased to exist as an associate w.e.f. November 09, 2005)

Others: Satyam Foundation Trust and Satyam Associate Trust (Enterprises where trustees are spouses of Whole-timeDirectors and key managerial personnel) and Satyam Associate Trust (Enterprises where some trustees are KeyManagerial Personnel).

Directors and key management personnel: B Ramalinga Raju, B Rama Raju, Ram Mynampati, Prof. Krishna GPalepu, Abraham Joseph, A S Murthy, Mohan Eddy, G B Prabhat (partly employed), D. Subramaniam, V Srinivas,G Jayaraman, Shailesh Shah, Vijay Prasad Boddupalli, Manish Sukhlal Mehta, Dr. Keshab Panda, Virender Aggarwal,T R Anand, Ravi Shankar Bommakanti, Venkatesh Roddam, M Satyanarayana, Murali V, Hari T, Deepak Mangla(partly employed), Naresh Jhangiani and Seshadri Krishna.

Summary of the transactions and balances with the above related parties is as follows:

Transactions:Rs. in crores


2007 2006

AssociateOutsourcing – 6.25

Fixed Assets – 5.53

Other services – 0.57OthersContributions 3.48 3.62

Balances:Rs. in crores

As at March 31,

2007 2006

Others

Advances 5.72 0.71

Transactions with Directors and key managerial personnelRs. in crores

Nature of TransactionsYear ended March 31,

2007 2006

Remuneration to Whole-time Directors 2.27 0.93Remuneration to key managerial personnel 24.01 22.26Professional charges paid to Director 0.87 0.99Advances to key management personnel 1.58 1.14

Balances due to/from Directors and key managerial personnelRs. in crores

As at March 31,

2007 2006

Remuneration payable to Whole-time Directors 0.45 0.22Remuneration payable to key management personnel 0.89 0.73Advances due from key management personnel 0.19 0.40Professional charges payable to Director 0.87 0.31

i) Maximum indebtedness from key managerial personnel during the year was Rs. 1.95 crores (2006 – Rs.1.30crores).

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ii) Options granted and outstanding to the Key Managerial Personnel 2,972,334 {includes 112,163 optionsgranted under ASOP – ADS and 55,000 options granted under ASOP – RSUs (ADS)} (2006 – 5,001,574{includes 201,640 options granted under ASOP – ADS}).

Options granted and outstanding to Director 1,050,720 {includes 1,025,720 options granted under ASOP –ADS and 25,000 options granted under ASOP – RSUs (ADS)} (2006 – 1,174,704 {includes 1,064,704 optionsgranted under ASOP – ADS}).

l) Obligation on long term non-cancelable operating leases

Satyam Computer Services has entered into operating lease agreements for its development centres at offshore,onsite and offsites ranging for a period of 3 to 10 years. The lease rentals charged during the year and maximumobligations on long-term non-cancelable operating leases payable as per the rentals stated in respective agreementsare as follows:

Rs. in crores


2007 2006

Lease rentals (Refer Schedule 16) 100.75 78.03

As at March 31,

2007 2006

Obligations on non-cancelable leases

Not later than one year 20.23 18.49

Later than one year and not later than five years 17.20 14.97

Later than five years 1.43 2.58

Total 38.86 36.04

m) Earnings Per Share

At the Annual General Meeting of Satyam Computer Services held on August 21, 2006, the shareholders approveda 1:1 bonus issue for all shareholders including the ADS holders i.e. one additional equity share for every oneexisting equity share held by the members by utilising a part of the general reserves. The record date for the bonusissue was October 10, 2006 and shares were allotted on October 11, 2006. All basic and diluted shares used indetermining earnings per share are after considering the effect of bonus issue.

Calculation of EPS (Basic and Diluted):

Year ended March 31,S. No. Particulars

2007 2006

Basic

1. Opening no. of shares 648,899,078 638,530,582

2. Total Shares outstanding 654,853,959 643,784,984

3. Profit after Taxation and share of loss in associate companies(Rs. in crores ) 1,404.74 1,141.73

4. EPS (Rs.) 21.45 17.73

Diluted

5. Stock options outstanding 14,851,466 25,841,880

6. Total shares outstanding (including dilution) 669,705,425 669,626,864

7. EPS (Rs.) 20.98 17.05

n) The aggregate amounts of the assets, liabilities, income and expenses related to Satyam’s share in joint venturecompanies that are consolidated and included in these financial statements are as follows:

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Rs. in crores

Year ended March 31,Description

2007 2006

Income from Sales and Services 38.38 35.04

Other Income 1.97 0.25

Total 40.35 35.29

Personnel expenses 19.57 16.78

Other expenses 12.74 12.03

Interest 0.09 0.18

Depreciation 2.02 1.79

Total 34.42 30.78

Net Profit 5.93 4.51

Rs. in crores

Year ended March 31,Description

2007 2006

Secured Loans 0.06 0.07

Unsecured Loans – 0.50

Fixed Assets 2.96 3.79

Inventories 0.02 0.19

Sundry Debtors 12.12 10.48

Cash and Bank Balances 9.84 3.16

Loans and Advances 3.32 6.24

Interest Accrued on Fixed Deposits 0.03 –

Current Liabilities 6.46 4.62

Provisions 0.61 2.33

o) Commitments and Contingencies

i) Nipuna Services Limited (a majority owned subsidiary-Nipuna) issued 45,669,999 and 45,340,000 0.05%Convertible Redeemable Cumulative Preference Shares of par value Rs.10 each fully paid–up in October 2003and June 2004 respectively to Olympus BPO Holdings Ltd. and Intel Capital Corporation (“Preferenceshareholders”) for an aggregate consideration of Rs. 91.01 crores (equivalent to US$ 20 millions). ThesePreference shares are to be mandatorily converted into such number of equity shares latest by June 2007 orredeemed based on certain provisions in the agreement entered with the preference shareholders relating torevenues and profits earned up to March 31, 2006. The said preference shares, if not converted or earlyconverted at the option of the preference shareholders based on certain triggering events, are redeemable onmaturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a.

On November 20, 2006, a Share Purchase, Redemption and Amendment Agreement (“SPRA Agreement”) wasentered into between the Company, the preference shareholders and Nipuna. Out of the total preferenceshares, 50% of the preference shares of Rs. 45.51 crores (Equivalent US$ 10 million) would be redeemed forRs. 60.10 crores (Equivalent US$ 13.6 million) at the target date on May 21, 2007 and the balance 50% wouldget converted into equity shares of Nipuna based on the terms of the existing subscription agreement. Thepreference shareholders gave Nipuna a Notice of Conversion of Preference Shares and in January 2007,45,505,000 preference shares have converted into 6,422,267 equity shares of Nipuna.

Further as per the SPRA Agreement, Satyam Computer Services agrees to purchase and the preferenceshareholders agree to sell these equity shares at an aggregate purchase price based on a formula. If the sharepurchase closing occurs on or before the share purchase target date (May 21, 2007) then the purchase price

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would range from a minimum of Rs. 152.57 crores (Equivalent US$ 35 million) to maximum of Rs. 196.16crores (Equivalent US$ 45 million), however if an acceleration event occurs the purchase price would equalRs. 196.16 crores (Equivalent US$45 million). If the share purchase closing occurs after the share purchasetarget date then the purchase price shall not be less than Rs. 152.57 crores (Equivalent US$ 35 million)however if an acceleration event occurs the purchase price shall not be less than Rs. 196.16 crores (EquivalentUS$45 million). This is subject to fulfillment of terms and conditions specified in the agreement and obtainingnecessary approvals from appropriate authorities. As of March 31, 2007 an acceleration event has occurred.

Satyam Computer Services has guaranteed payment of all sums payable by Nipuna to the preference shareholderson redemption of the said preference shares.

ii) Bank Guarantees outstanding Rs. 99.46 crores (2006 – Rs. 59.83 crores).

iii) Contracts pending execution on capital accounts, net of advances, Rs. 164.58 crores (2006 - Rs. 118.89crores).

iv) Forward and Options Contracts outstanding Rs. 1,978.98 crores (equivalent US$ 452.63 millions) {2006 – Rs.966.36 crores (equivalent US$ 216.00 millions)}. Gain/ (Loss) on foreign exchange forward contracts whichare included under the head gain/ (loss) on exchange fluctuation in the profit and loss account amounted to Rs.26.64 crores {2006 – (Rs. 3.75 crores)}.

v) Claims against the company not acknowledged as debts

Income tax and Sales tax matters under dispute – Rs. 22.03 crores (2006 – Rs. 20.38 crores)

vi) Arrears on 0.05% Convertible Redeemable Cumulative Preference Shares amounting to Rs. 0.14 crores (2006– Rs. 0.10 crores).

vii) Contingent consideration payable in respect of acquired subsidiary companies Rs. 75.56 crores (2006 – Rs.101.72 crores).

viii) Satyam Computer Services has given a corporate guarantee on behalf of a subsidiary for the loan obtainedamounting to maximum of Rs. 87.18 crores (2006 – Rs. 89.24 crores) (equivalent US$ 20 millions).

ix) Satyam Computer Services had filed a request for arbitration with the London Court of International Arbitration(“LCIA”) naming Venture Global Engineering LLC, USA (“VGE”) as respondent. The Arbitration concerned adispute between Satyam Computer Services and VGE in connection with their joint venture Satyam VentureEngineering Services Private Limited (“SVES”).

The LCIA Arbitrator issued his Final Award on April 3, 2006 in favour of Satyam Computer Services. SatyamComputer Services has filed a petition to recognize and enforce the Award in the United States District Court inMichigan. VGE has separately filed a declaratory judgment action seeking to refuse enforcement of the Awardin the United States District Court in Illinois. Management believes that this will not have any adverse effectupon Satyam’s results of operations, financial condition and cash flows.

p) The Gratuity Plan

The following table sets forth the status of the Gratuity Plan of the company, and the amounts recognized in theconsolidated balance sheets and profit and loss account.

Rs. in crores


Projected benefit obligation at the beginning of the year 35.34


Interest cost 2.32

Actuarial loss/(gain) 6.17

Benefits paid (5.25)


Amounts recognised in the balance sheet


Fair value of plan assets at end of the year –

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 127

Rs. in crores


Funded status of the plans – (asset)/liability 47.54

Liability recognised in the balance sheet 47.54

Gratuity cost for the year


Interest cost 2.32

Net actuarial (gain)/loss recognised in the year 6.19

Net gratuity cost 17.47

Assumptions

Discount rate 8.00%

Long-term rate of compensation increase 7.00%

Note: This being the first year of disclosure, previous year figures have not been furnished.

q) Provision for leave encashment

Effective April 1, 2006, Satyam Computer Services adopted the revised accounting standard on Employee Benefits.Pursuant to the adoption, the transitional obligations of Satyam Computer Services towards leave encashmentamounted to Rs. 26.91 crores. As required by the standard, an amount of Rs. 17.52 crores (net of related deferredtax of Rs. 8.86 crores) has been adjusted against general reserves.

r) The financial statements are represented in Rs. crores. Those items which were not represented in the financialstatements due to rounding off to the nearest Rs. crores are given below:

Rs. in lakhs

Schedule No. Description As at March 31,

2007 2006

5 (ii) National Saving Certificates, VIII Series (Lodged as securitywith government authorities) 0.16 0.16

18(i) Balances with non-scheduled banks

ANZ Grindlays Bank, New York 0.09 0.09

Commerz Bank, New York 0.24 0.24

Pudong Development Bank, Shanghai 0.35 –

Standard Chartered Bank, Singapore – 0.49

s) Reclassification

Figures for the corresponding year have been regrouped, recast and rearranged to conform to those of the currentyear wherever necessary.

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Rs. in crores


A. Cash Flows from Operating ActivitiesNet Profit Before Interest and Tax 1,421.16 1,246.03Depreciation 148.44 137.28Loss on sale of Fixed Assets 0.88 0.93Profit on sale of shares in Associate Company – (216.43)Minority Interest (0.12) (0.55)

Cash generated before changes in Working Capital 1,570.36 1,167.26

(Increase)/Decrease in Inventories 0.17 –(Increase)/Decrease in Sundry Debtors (574.75) (365.77)(Increase)/Decrease in Loans and Advances (45.29) (63.23)Increase/(Decrease) in Current Liabilities and Provisions 212.11 168.55Income Taxes Paid (157.16) (154.50)Exchange differences on translation of foreign currencycash and cash equivalents (9.23) (1.20)

Net Cash Flow from Operating Activities 996.21 751.11

B. Cash Flows used in Investing ActivitiesPurchase of Fixed Assets (385.36) (246.29)Acquisition of Citisoft Plc, net of cash acquired (22.59) (51.76)Acquisition of Knowledge Dynamics Pte Ltd., net of cash acquired (3.59) (7.02)Proceeds from sale of shares in Associate Company, (net) – 228.24Proceeds from sale of Fixed Assets 2.67 1.66Proceeds from Long Term matured Deposits 1,795.50 –Investment in Long Term Deposits (3,308.41) –Interest income received 212.96 30.11

Net Cash Flow used Investing Activities (1,708.82) (45.06)

C. Cash Flows used in Financing ActivitiesProceeds from issue of Share Capital 293.73 138.08Receipt of Share Application money pending allotment 7.85 1.78Proceeds from Secured Loans 153.38 111.70Repayment of Secured Loans (108.20) (27.95)Financial Expenses Paid (15.45) (5.54)Dividends Paid (261.12) (183.75)

Net Cash Flow from Financing Activities 70.19 34.32

Consolidated Cash Flow statement for the year ended March 31, 2007

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Rs. in crores


D. Exchange differences on translation of foreign currencycash and cash equivalents 9.23 1.20

Net Increase/(Decrease) in Cash and Cash equivalents during the year (633.19) 741.57Cash and Cash equivalents at the beginning of the year 1,316.20 574.63

Cash and Cash equivalents at the end of the year 683.01 1,316.20

Supplementary InformationCash and Bank Balances as per Balance sheet 3,991.42 3,111.70Less: Long Term Deposits with Scheduled Banks consideredas Investments 3,308.41 1,795.50

Balance considered for Cash Flow Statement 683.01 1,316.20

The balance of Cash and Cash equivalents include amountsset aside for payment of dividends 6.33 5.05

Figures for the corresponding year have been regrouped, recast and rearranged to conform to those of the current yearwherever necessary.

This is the Consolidated Cash Flow For and on behalf of the Board of DirectorsStatement referred to in ourreport of even date.




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Satyam Computer Services LimitedRegd. office: Mayfair Centre, I Floor, 1-8-303/36

S.P. Road, Secunderabad, A.P., India, Pin – 500 003

FORM OF PROXY

I/We ..............................................................................................................of ...............................................................................being member(s) of the above named Company, hereby appoint the following as my/our proxy to attend and vote on apoll for me/us and on my/our behalf at the 20th Annual General Meeting of the Company, to be held on August 30, 2007at 11.00 a.m. and at any adjournment thereof :

Signature

1. Mr./Ms................................................................................... , or failing him/her .................................................................

2. Mr./Ms. .................................................................................., or failing him/her..................................................................

3. Mr./Ms. ....................................................................................... , ..................................................................

* I/We direct my/our proxy to vote on the resolutions in the manner as indicated below:

Resolutions For Against Resolutions For AgainstResolution No. 1 Resolution No. 5 Resolution No. 2 Resolution No. 6Resolution No. 3 Resolution No. 7Resolution No. 4

Signed this ...................................................................... day of ................................................... 2007.

Folio No: ……………...........................................…... No. of shares held ………………….....……..

DP ID: ............................................................................. Client ID: ………………….....................……..

Signature(s) of Member(s) (1)……....................…………. (2)……......................………… (3)……......................……………..

for notes see overleaf* Refer note no. 6

Satyam Computer Services LimitedRegd. office: Mayfair Centre, I Floor, 1-8-303/36

S.P. Road, Secunderabad, A.P., India, Pin – 500 003

ATTENDANCE SLIP

I hereby record my presence at the 20th Annual General Meeting of the Company at Hariharakala Bhavan, MCHComplex, S.P. Road, Secunderabad-500 003, on Thursday, August 30, 2007 at 11.00 a.m.

…………………………………………………… …………………………………...........…………………Full Name of the Member (in block letters) Signature

Folio No: ……………........................................... No. of shares held ….............……...………….....……..

DP ID : .................................................................. Client ID: …............………………........................……..

………………………………………………….... …................………………………………...……………Full name of the proxy (in block letters) Signature

(to be filled if the proxy attends instead of the member)

Note: Members attending the meeting in person or by proxy are requested to complete the attendance slip and hand itover at the entrance of the meeting hall.

Affix Re. 1RevenueStamp

�

�

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Notes:

1. The Proxy, to be effective should be deposited at the Registered Office of the Company not less than FORTY-EIGHTHOURS before the commencement of the Meeting.

2. A Proxy need not be a member of the Company.

3. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall beaccepted to the exclusion of the vote of the other joint holders. Seniority shall be determined by the order in whichthe names stand in the Register of Members.

4. This form of proxy confers authority to demand or join in demanding a poll.

5. The submission by a member of this form of proxy will not preclude such member from attending in person andvoting at the Meeting.

6. *This is optional. Please put a tick mark (✓) in the appropriate column against the Resolutions indicated in the Box.If a member leaves the ‘For’ or ‘Against’ column blank against any or all the Resolutions, the proxy will be entitled tovote in the manner he/she thinks appropriate. If a member wishes to abstain from voting on a particular Resolution,he/she should write “Abstain” across the boxes against the Resolution.

7. In case a member wishes his/her votes to be used differently, he/she should indicate the number of shares under thecolumns ‘For’ or ‘Against’ as appropriate.

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20th A n n u a l R e p o r t, 2 0 0 6 - 0 7 133

Electronic Clearing Service (ECS) Mandate FormMembers’ authorization to receive dividends through Electronic Credit Clearing Mechanism

1. Name of the first/sole Member

2. Folio No./DP ID No. and Client ID No.

3. Particulars of bank account of first/sole Member

a) Name of the Bank

b) Address of the Branch

Telephone No. of the Branch

c) 9 -Digit code number of the Bank andBranch as appearing on the MICRcheque

d) Account Number(as appearing on the cheque book/passbook)

e) Account type(S.B.account/current account or cash credit)

f) Ledger No./Ledger folio No.(if appearing on the cheque book/passbook)

I hereby declare that the particulars given above are correct and complete. If the transaction is delayed or not effected atall for reasons of incomplete or incorrect information, I will not hold Satyam Computer Services Limited responsible. Iagree to discharge the responsibility expected of me as a participant under the scheme.

Date :

Place : Signature of the first/sole member

Notes :

1. Please attach a blank cancelled cheque or photocopy of a cheque. Alternatively, these particulars may be attestedby the bank manager.

2. In case of more than one folio/demat account please furnish the details separately for each such folio/demataccount.

3. The information provided would be utilised only for the purpose of effecting the dividend payments meant for you.You also have the right to withdraw from this mode of payment by providing the Company with an advance noticeof one month.

4. Members of the Company holding the shares in dematerialized form are requested to inform to their respectivedepository participant with regard to the following:

i. Changes in particulars of bank mandate/address/PAN.

ii. Correction in name.

These changes as updated by the respective depository participants are automatically registered with the NSDL/CDSL,from whom the Company obtains data of its members.

5. Please send the duly filled in mandate form to:

i. The Depository Participant who is maintaining your demat account in case you hold shares in dematerializedform.

ii. The Company, at 1-8-303/36, I Floor, Mayfair Centre, S P Road, Secunderabad-500 003. A.P. India, in case youhold shares in physical form.

�

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Satyam Computer Services LimitedRegd. Office: I Floor, Mayfair Centre, 1-8-303/36, S.P. RoadSecunderabad – 500 003, A.P., IndiaTel: +91 40 3065 4343 Fax: +91 40 2784 0058E-mail: [email protected] w

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