HOV Services

The Directors are pleased to present their Twentieth Annual Report on
 the Business and Operations of the Company together with Audited
 Statement of Accounts for the year ended March 31, 2008.
 
 1.  FINANCIAL RESULTS AND OPERATIONS:
 
 The particulars of the Company and its Subsidiaries Consolidated
 financials statements are as below:
 
 Particulars                             For the year ended March 31,
                                                Rs. In Million
 
                            Consolidated           Standalone
 
                            2008         2007        2008         2007
 INCOME
 
 Income from 
 Operations             8,335.11     2,489.96       62.28        69.83
 
 Other Income             744.87        13.33        0.29         6.06
 
                        9,079.98     2,503.29       62.57        75.89
 EXPENDITURE
 
 Staff Cost             4,036.07     1,073.51       24.31        19.34
 
 General and 
 Administrative 
 Expenses               3,513.47     1,054.24       25.68        25.57
 
                        7,549.54     2,127.75       49.99        44.91
 
 Profit/(Loss) before 
 Interest, 
 Depreciation and Tax   1,530.44       375.54       12.58        30.98
 
 Less: Interest           509.26        70.47        0.13         0.80
 
 Less: Depreciation       169.78        47.23        1.65         1.07
 
 Profit/(Loss) 
 before Tax               851.40       257.84       10.80        29.11
 
 Tax pertaining 
 to earlier years          (0.08)       (0.04)          -        (0.04)
 
 Less: Provisions 
 for taxes
 
 Current Tax               27.77        36.19        1.20         0.77
 
 Deferred Tax               0.14         0.95        0.01         0.11
 
 Fringe Benefit Tax         1.56         0.95        0.30         0.32
 
 Profit/(Loss) 
 after Tax                822.01       219.79        9.29        27.95
 
 Less: Minority 
 Interest                 277.59        12.49           -            -
 
 Profit/(Loss) after Tax 
 After Minority Interest  544.42       207.30        9.29        27.95
 
 
 2.  RESULTS OF OPERATIONS
 
 Performance on consolidated basis:
 
 The Revenue increased to Rs. 9,080 million from Rs. 2,503 million, an
 increase of 263%. Profit before taxes increased to Rs. 851 million from
 Rs 258 million, an increase of 230% and profit after taxes increased to
 Rs. 544 million from Rs 207 million or an increase of 163%.
 
 3.  Dividend:
 
 Your Company intends to conserve available resources to invest in the
 growth of the business and pursue strategic growth opportunities.
 Accordingly your Directors do not recommend any dividend for the year.
 
 4.  Significant Developments:
 
 The Company has achieved 15th Rank on the International Association of
 Outsourcing Professionals (IAOP) Global Outsourcing 100 list for 2008.
 This is the third consecutive ranking within the top 25, and moves HOV
 Services up nine positions from last years ranking. Your Company is
 again honored by IAOPs recognition as a worldwide leader in the
 outsourcing industry.
 
 Highlights of Business Performance:
 
 - Added .7 million in customer contracts in the 4th Fiscal Quarter;
 and 3.5 million over the last fiscal year.
 
 - Pace of Revenue Growth is expected to continue - in part due to
 success of end-to-end solution sales strategy and in part due to
 success of cross sell and up-sell program across our top 350 customer.
 
 - Expanded its global delivery capability by opening operations in
 Xian, China and 3 new facilities in Indian B cities.
 
 - Average deal size increased during the 4th Fiscal quarter to .8
 million from {FILE_CONTENT}.6 million in the 1st quarter with many deals in the
 pipeline that are larger than average for the 4th Fiscal quarter.
 
 Key Accomplishments and Noteworthy Items:
 
 - Ranked 15th on the International Association of Outsourcing
 Professionals (IAOP) Global Outsourcing 100 list for 2008.
 
 - Continue Technology Deployment and derive substantial savings from
 integration and rationalization of global operations in the FY 2009 and
 beyond.
 
 - The impact of the Rupee was accretive to the Company to the tune of
 Rs. 309.9 million in FY 2008. This is due to the global footprint of
 the Company deriving 98% of its revenues in North America with cost
 spread globally between US, Canada, India, China and Mexico. The
 Company has USD denominated borrowings from US institutions which
 contributed substantially to the income due to foreign exchange gains.
 
 - Diversified Client Base - Top 100 clients represent over 73% of total
 revenues.
 
 Material Transaction Proposal
 
 Your Company received an offer in June 2008 of approximately 2
 million to purchase from an investor group consisting of some of our
 Promoters:
 
 (i) 100% of ownership interest of HOV Services, LLC and its
 subsidiaries (LLC);
 
 (ii) 100% of ownership interest of HOV Services (Beijing) Ltd.; and
 
 (iii) Any operating assets used by the companies in (i) and (ii)
 wherever located.
 
 The transaction is subject to many conditions and purchase
 consideration is subject to adjustments based on debt, exchange rate
 between Rupee and US dollar including material adverse changes to the
 business and prospects of the Company. The Company has not entered into
 any agreement pending satisfactory resolution of certain items
 described below and as such the offer can be withdrawn prior to
 receiving the advise and satisfactory resolution. Our advisors also may
 recommend certain changes which the potential buyer may not accept or
 the Company may decide not to proceed due to variety of reasons. These
 and other factors including macro economic climate has led to
 uncertainty in regards to satisfactory completion of the transaction.
 
 The Board of Directors in their meeting held on August 26, 2008
 considered the various steps involved to position the Company for
 taking advantage of various opportunities. And after deliberations
 approved the transfer of shares of LLC, a wholly owned subsidiary to
 HOVS Holdings Ltd., domiciled in Hong Kong, also a wholly owned
 subsidiary of the Company. These transfers are subject to obtaining
 required regulatory and other approvals including Reserve Bank of India
 prior to effectuating any step.
 
 Our, independent directors of the Board believe the Material
 Transaction is potentially in the best interest of the shareholders.
 However, the Board is not in position to recommend the transaction at
 this time till it has received advice and clearance from the legal
 advisor to the Company; investment banker retained to provide valuation
 advice and tax advisors for determining the overall impact to all
 stakeholders in regards to the proceeds received and distribution.
 
 The transaction is subject to prior approval from exchanges and
 regulatory bodies and the minority shareholders of the Company in an
 Extra Ordinary General Meeting properly convened. Also, the Promoters
 and members of the promoter group will abstain from voting their shares
 in the Company for the Material Transaction Proposal.
 
 Issue of ADR/GDR
 
 The Shareholders in their Annual General meeting held on July 21, 2007
 approved the issue of up to 1,50,00,000 number of Global Depository
 Receipts (GDRs), American Depository Receipts (ADRs), Foreign Currency
 Convertible Bonds (FCCBs), and / or Equity Shares through Depository
 Receipt Mechanism (hereinafter referred to as (DR) per SEBI
 guidelines and subject to all rules and regulations. The Company also
 received In-Principal approval from Bombay Stock Exchange Limited vide
 its letter dated November 29,2007 and from National Stock Exchange
 Limited vide its letter dated November 29,2007 for issue and allotment
 of equity shares not exceeding 1,50,00,000 to be allotted towards the
 proposed DRs.
 
 The Company has not issued any equity shares post approval.
 
 5.  Conservation of Energy, Technology Absorption, and Foreign Exchange
 
 Particulars furnished pursuant to Companies (Disclosures of Particulars
 in the Report of Board of Directors) Rules, 1998:
 
 Conservation of Energy: The operation of Company is not energy
 intensive. The Company conducted energy audit in some of the units and
 has started implementing the recommendations in a phased manner. This
 has resulted in reduction of energy consumption by around 15%.
 
 Research and Development: The Company has not undertaken any R&D
 activity in any specific area during the year under review, and hence
 no cost has been incurred towards the same. The Company believes
 technology deployment is strategic to its growth and has invested
 heavily in automation, capture, presentation and analytics and has
 invested heavily in it. The Company has development teams in US and
 India implementing its vision.
 
 Technology Absorption, Adaptation and Innovation: The Company has been
 concentrating on providing end to end BPO services to Clients
 conforming to international standards including ISO, HIPAA and SAS70.
 The Company has adopted Six Sigma practices and LEAN techniques in a
 majority of its centers and processes; a significant number of our team
 member have gone through Six Sigma training as well and have also
 secured the coveted black belt. The Company is constantly pursuing and
 adopting modern technologies and standards to grow its competitive
 advantages, to better serve its clients, retain employees and improve
 productivity and performance.
 
 Foreign Exchange Earnings and Outgo: Almost the entire earnings of the
 Company are from the export of services since the Company has no
 domestic business. The foreign exchange earnings and outgo is contained
 in the Notes to the Accounts of the Annual Report.
 
 6.  Particulars of Employees
 
 The Company has no employee drawing remuneration in excess of. limits
 specified under Section 217(2A) of the Companies Act, 1956 read with
 the Companies (Particulars of Employees) Rules, 1975, as amended.
 
 7.  Human Resources
 
 The relationship of your Company with its employees remained cordial
 throughout the year.
 
 8.  Directors Responsibility Statement
 
 As stipulated in Section 217(2 AA) of Companies Act, 1956, your
 Directors subscribe to the Directors Responsibility Statement and
 confirm as under:
 
 a) that in preparation of Annual Accounts, the applicable accounting
 standards have been followed along with proper explanation relating to
 material departures; and
 
 b) that the directors have selected such accounting policies and
 applied them consistently and made judgments and estimates that are
 reasonable and prudent so as to give a true and fair view of the state
 of affairs of the Company at the end of the financial year and of the
 profit and loss account of the Company for that the period; and
 
 c) that the directors have taken proper and sufficient care of the
 maintenance of adequate accounting records in accordance with the
 provisions of this Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities; and
 
 d) that the directors have prepared the annual accounts on a going
 concern basis.
 
 9.  Fixed Deposit
 
 The Company has not accepted any deposits from the public within the
 meaning of Section 58A of the Companies Act, 1956, during the year
 under review.
 
 10.  Corporate Governance
 
 A separate section on Corporate Governance forming part of the
 Directors Report and the Certificate from the Companys Auditors
 confirming compliance of Corporate Governance norms as stipulated under
 Clause 49 of the Listing Agreement with the Stock Exchanges is included
 as a separate section in this Annual Report.
 
 11.  Management Discussion and Analysis
 
 Management Discussion and Analysis Report for the year under review, as
 stipulated under Clause 49 of the Listing Agreement with the Stock
 Exchanges is presented as a separate section forming a part of this
 report.
 
 12.  Auditors
 
 The Statutory Auditors M/s Lodha & Co, Chartered Accountants, Mumbai,
 hold office till the conclusion of ensuing Annual General Meeting and
 have expressed their willingness and being eligible to continue, if
 re-appointed. You are requested to consider their re-appointment.
 
 13.  Directors
 
 There is no change in the Board of Directors during the year under
 review. Mr. B R Gupta, Director retires by rotation at the ensuing
 Annual General Meeting and being eligible, offers his candidature for
 re-appointment.
 
 14.  Particulars Required Under Section 212 of the Companies Act, 1956
 
 As per Section 212 of the Companies Act, 1956, the Company is required
 to attach the directors report, balance sheet, and profit and loss
 account of the subsidiary companies. The application was made to the
 Central Government of India for an exemption from such attachment as
 the Company presents the audited consolidated financial statement in
 the Annual Report. We believe that the consolidated accounts present a
 full and fair picture of the state of affairs and the financial
 conditions. The Government of India has granted exemption to the
 Company from complying with section 212 for all the subsidiary
 companies vide its letter dated May 19, 2008 and July 18, 2008.
 Pursuant to the conditions of Government of India approval the
 statement thereto is annexed to the Annual Report.
 
 Accordingly, the Annual Report does not contain the financial statement
 of the subsidiary companies. We will make available the audited annual
 accounts and related information of subsidiary companies, where
 applicable, upon request by any of our investors. These documents will
 also be available for inspection during business hours at our
 registered office in Pune, India.
 
 15.  Employee Stock Option Plan
 
 The Company has instituted HOVS Stock Option Plan 2007 for its
 employees and for employees of its subsidiary companies. The details
 of options granted under the plan are given in the table.
 
 Particular                   Plan 2007
 
 a. Options Granted:          6,67,500
 
 b. The Pricing formula:      Closing price of the stock exchange
                              where there is highest trading volume, 
                              prior to the date of the meeting
                              of the Compensation & Remuneration
                              Committee in which options are granted.
 
 c. Options Vested:           Nil
 
 d. Options Exercised:        Nil
 
 e. Total number of shares 
    arising as a result       6,67,500
 of exercise of options:
 
 f. Options lapsed:           57,000
 
 g. Variation of 
 terms of option:             NA
 
 h. Money realized by 
 exercise of options:         NA
 
 i. Total number of 
 options in force:            6,10,500
 
 j. Details of Options 
 granted to:
 
 i. Senior Management:        6,10,500
 
 ii. Employees receiving 
 5% or more of the total      Nil
 number of options 
 granted during the year:
 
 iii. Employees granted 
 1% or more of the issued     Nil
 capital:
 
 k. Diluted EPS after 
 giving effect to 
 issuance of shares           NA
 on exercise calculated in 
 accordance with AS 20.
 
 16.  Acknowledgement
 
 The Board wishes to convey their appreciation to our employees,
 shareholders, customers, suppliers and bankers for the continued
 support given by them to the Company during the year.
 
                           For and on behalf of the Board of Directors
 
 Place: Mumbai                                        Surinder Rametra
 Date : June 5, 2008                                          Chairman