AS WE COME TO THE END OF A ROLLER-COASTER YEAR FOR THE FINANCIAL
 MARKETS, WE ARE HAPPY TO REPORT THAT YOUR COMPANY HAS KEPT ITS FOCUS ON
 THE LONG-TERM STRATEGY, WHILE GROWING THE TOPLINE AND PRESERVING THE
 BOTTOMLINE.
 
 Our total consolidated revenues for FY11 were Rs.14.91 billion, a
 growth of almost 53% over FY10. However, profits after tax have been
 flat, growing only 2% in FY11 to Rs.2.33 billion from Rs.2.29 billion
 in FY10.
 
 The reasons for the relatively flat profit growth are macro-economic as
 well as certain conscious investment decisions taken by your Company.
 Let me first turn to the macro-economic factors.
 
 The cautious optimism triggered by the economic recovery in FY10 saw a
 high degree of economic activity being carried over to the first half
 of FY11. Corporate investments, which had re-started in FY10 after the
 global financial crisis, continued into the first half of FY11. This
 was accompanied by strong and sustained domestic consumption.
 
 This robust activity had its reflection in the secondary markets, which
 rallied almost 20% in the first half of FY11. Driven by some quality
 offerings at reasonable prices,
 
 the primary market activity was also healthy.
 
 There were some danger signals, however.  Driven by rising commodity
 and food prices, inflation raised its stubborn head.  Sustained
 inflation forced the Reserve Bank of India to raise interest rates and
 adopt a tight monetary policy. This adversely affected business
 sentiment in the second half of FY11 and resulted in capital market
 activity going down significantly, impacting the entire capital market
 sector, to which your Company was no exception.
 
 The second impact of the macro-economic forces and particularly of
 rising interest rates was felt in the credit side of your Company’s
 business. As RBI raised interest rates, the short-term liquidity as
 well as cost of capital in the short-term went up.  This led to a
 compression of spreads and margins. The management believes that for
 the NBFC industry as a whole, including us, rising interest rates have
 impacted margins and spreads to the tune of 100-150 basis points. This
 is because there is always a time lag between the increase in the cost
 of capital and a consequent increase in yields on credit-related and
 earning assets.
 
 The second factor that impacted growth in profits was that your Company
 incubated
 
 several new businesses as a part of its long- term growth strategy.
 These are in an early stage of evolution and will add to the
 bottom-line in the coming years.
 
 Edelweiss operates in five major businesses – Credit, Capital Markets,
 Asset Management, Housing Finance and Insurance. Of these, Credit and
 Capital Markets are relatively mature businesses while we continue to
 invest in our Asset Management, Housing Finance and Insurance
 businesses.
 
 As I had mentioned last year, your Company entered into a joint venture
 in the life insurance space with Tokio Marine Holdings, Inc. –
 Edelweiss Tokio Life Insurance (ETLI). We were investing in this
 business, all of last year, hiring people and setting up infrastructure
 while we awaited the necessary regulatory approvals. The final R3
 approval came in recently and ETLI should be in a position to start
 selling policies in the first half of FY12. Similarly, we continued to
 invest in our retail businesses – Retail Broking, Asset Management and
 Housing Finance.
 
 The other major investment was in the area of infrastructure. We
 invested substantial amounts in purchasing an office building at
 Kalina, Mumbai, as well as in
 
 setting up the Fountainhead Leadership Centre at Alibaug.
 
 These are investments for the future, but the costs have to be borne
 today.  According to the management’s estimate, the cumulative impact
 on the profit after tax of these investments was in the region of
 Rs.600 million. I expect the investment phase to continue during this
 year and in the short-term these investments will have an impact on the
 rate of growth of our profits. However, the management believes that
 all these investments are necessary for the future growth of the
 Company and will yield profits in the long term.
 
 Renaming of the Company
 
 In the last few years, we expanded our portfolio of businesses
 significantly and as mentioned earlier we have five main lines of
 business, making Edelweiss one of the most diversified financial
 services companies in the country. However our name – Edelweiss Capital
 Limited – still tends to reflect our capital markets origin.  To
 accurately reflect the diversified nature of our businesses, the Board
 of Directors of your Company has recommended that the name of the
 Company be changed to ‘Edelweiss Financial Services Limited.’
 
 Change in Business Mix
 
 To grow in a hyper-competitive environment like India, companies need
 to maintain a continuity of strategy while continuing to become more
 efficient.  At Edelweiss, we have constantly endeavoured to do this.
 Our long-term strategy remains constant - de-risk by moving into
 adjacent spaces, invest during hard times to build scale while
 continuing to focus on client needs. This ensures that when the cycle
 turns, we are ideally positioned to benefit from it. In FY11 we carried
 on in a similar vein.
 
 Today, the businesses of your Company consist of:
 
 - Credit - Sponsor Funding, Corporate Loans, ESOP Financing, IPO
 Financing, Loan against Shares and Infrastructure Funding
 
 - Capital Markets - Investment Banking - Equity Capital Markets,
 Advisory and Debt Capital Markets, Institutional Equities, Prime
 Brokerage Services, HNI and Retail Broking, Wealth Advisory and
 Distribution
 
 - Asset Management - Alternatives and Retail Asset Management
 
 - Housing Finance - Launched during FY11, this is the newest business
 for your Company
 
 - Life Insurance - Your companys 74:26 Life Insurance Joint Venture
 with Tokio Marine of Japan recently received the final approval and
 will commence business operations shortly.
 
 I am happy to report that this strategy of de-risking by moving into
 adjacent spaces and building scale has paid off handsomely.  Our
 revenue mix, on a sustainably enhanced base, is now materially
 different than what it was a few years ago. In FY11, interest income
 was at Rs.7.54 billion, about 50% of the FY11 top line of Rs.14.91
 billion.  Our fee and commission revenues from the Capital Markets and
 Asset Management business wereRs. 5 billion - about 33% of the total.
 As the Housing Finance and Life Insurance businesses mature, we expect
 that the revenue pie will increase further.  On this enhanced revenue
 pie, I expect these five businesses to contribute, on a consolidated
 basis, nearly equally i.e., about 20% each. This will ensure that your
 Company will have a broad-based business model, immune from cyclical
 downturns in any one business.
 
 Organisational Metamorphosis
 
 If you look at our five lines of businesses enumerated above, it
 becomes evident that they are addressing significantly different
 customer segments - Wholesale
 
 and Retail. The expectations from these client segments are materially
 different as are the business drivers and systems and processes
 required to service them.
 
 To better address client needs and improve the execution efficiency, we
 are re-organising Edelweiss under two broad clusters of Wholesale and
 Retail businesses. The Wholesale businesses will include wholesale
 capital markets, wholesale credit, wholesale asset management and
 treasury. The retail businesses will include retail capital markets,
 retail credit, housing finance, retail asset management and the
 soon-to- be-launched life insurance business. In addition to all these
 client facing businesses, we would have the Enterprise SBU driving all
 the businesses.
 
 The idea behind the new structure is that we harness synergies among
 similar businesses to better exploit emerging opportunities while at
 the same time improving efficiency. While we are doing this
 re-organisation, what remains constant, at an overall Edelweiss level,
 is that there will be oneness in key areas such as value systems,
 culture, long-term strategy, approach towards risk, corporate
 governance and allocation of resources.
 
 Achievements
 
 In a year that saw a lot of volatility in business sentiment as well as
 economic and market activity, I am happy to report that your Company
 has had several achievements to its credit. Following are a few of
 them:
 
 - By the end of FY11, our balance sheet size has crossed Rs. 100
 billion compared about Rs. 52 billion at the end of FY10.
 
 - Your Company continues to enjoy the highest Short-Term Credit Ratings
 (P1+ & A1+). Our Long-Term Ratings are AA-/LAA-.
 
 - Inclusive of minority interest, our net worth now is over Rs. 24
 billion. This gives us significant headroom to continue to invest in
 expanding our businesses.
 
 - In the last 12 years, Edelweiss has reported consistent growth with a
 CAGR of 78% for revenue and 67% for PAT.
 
 Outlook
 
 As always, the outlook for the future is going to be governed by
 macro-economic factors and the decisions that we, as a company, take.
 
 On the macro-economic front, we believe that the inflationary pressures
 are a result of a mix of supply and demand side factors.  While high
 commodity prices, especially high crude prices, will govern the supply
 side, the demand side pressure is caused by fiscal spending that is
 part of the government’s financial inclusion agenda.  Given these
 factors, we see concerns persisting in the early part of FY12. In fact,
 there is an even chance that things may get worse in the short-term,
 before they get better.
 
 At a company level, the overall theme will revolve around our long-term
 strategy to invest in emerging businesses and opportunities. We will
 expand our Housing Finance business, both in terms of geographies and
 client segments, to address a wider audience.
 
 The other big business investment this year is going to be in our life
 insurance joint venture with Tokio Marine Holdings Inc.
 
 Despite its relative under-penetration, life insurance in India is an
 extremely competitive business. To build scale, we will have to invest
 significant amounts into this business. The impact on our consolidated
 PAT from our investments in the Life Insurance business could be Rs.
 450-500 million in FY12.
 
 On the other hand, a lot of the other investments we made in FY11,
 especially in areas like infrastructure, will start becoming productive
 as the new office building gets fully occupied towards the second half
 of the year.
 
 Similarly, I believe that we could start scaling back on our
 investments in the retail businesses sometime during FY12. As these
 businesses start assuming scale and start becoming productive, they
 would not require any more burn. All these developments would,
 hopefully, have a positive impact on our bottomline.
 
 At Edelweiss, we have always believed in focusing on long-term growth
 over short- term profitability. It is not an easy process.  At times,
 it tends to give an impression of a perpetual work-in-progress. But I
 believe that in a country like India, which probably defines
 hyper-competitiveness, this is the only way to build scale and succeed.
 
 
 Regards,
 
 
                                                           Rashesh Shah 
                                                               Chairman
 
 Place : Mumbai 
 Date  : May 16, 2011