Reliance Communications

The Directors have pleasure in presenting the fourth Annual Report and
 the audited accounts for the financial year ended 31st March, 2008.
 
 Financial Results
 
 The performance of the Company for the financial year ended 31st March,
 2008 is summarised below:
 
 Particulars                Financial Year ended   Fifteen Months ended
                              31st March, 2008       31st March, 2007*
                     (Rs. in crore)  US$ in    (Rs. in crore)   US$ in 
                                    million**                  million**
 
 Total income           13,426.65    3,354.99      11,761.91    2,728.98
 
 Gross profit before 
 depreciation, 
 amortisation and 
 exceptional items       4,447.75    1,111.38       4,280.87      993.24
 
 Less:
 
 a. Depreciation and 
    amortisation         1,843.66      460.68       1,836.12      426.01
 
 b. Exceptional items 
 and other adjustments      -            -             23.90        5.55
 
 Profit before tax       2,604.09      650.70       2,420.85      561.68
 
 Less: Provision for:
 
 Current tax                2.10         0.52          0.27         0.06
 
 Fringe benefit tax        15.54         3.89         11.73         2.72
 
 Profit after tax       2,586.45       646.29      2,408.85       558.90
 
 Add : Balance brought
 forward from previous
 year                   2,294.90       573.44          5.65         1.31
 
 Profit available for 
 appropriation          4,881.35     1,219.73      2,414.50       560.21
 
 Appropriations:
 
 Proposed dividend 
 on equity shares         154.80        38.68        102.23        23.72
 
 Tax on dividend           26.31         6.57         17.37         4.03
 
 Transfer to General 
 Reserve                  400.00        99.95           -
 
 Balance carried to 
 balance sheet          4,300.24     1,074.53       2,294.90      532.46
 
 * The previous financial year of the Company was for a period of
 fifteen months, hence the figures are not comparable.
 
 ** Exchange Rate Rs. 40.02 = US$ 1 as on 31st March, 2008 (Rs.43.10=
 US as on 31st March, 2007).
 
 Financial Performance
 
 During the year under review, your Company has earned total revenue of
 Rs.13,426.65 crore (12 months period) against Rs.11,761.91 crore (15
 months period) in the previous year. The Company earned net profit of
 Rs.2,586.45 crore compared to Rs. 2,408.85 crore in previous year.
 Shareholders equity (Networth) increased to Rs.24,840.03 crore from
 Rs.20,525.54 crore in the previous year.
 
 Dividend
 
 Your Directors have recommended a dividend of Re. 0.75 (15%) per equity
 share each of Rs. 5 for the financial year ended 31st March, 2008,
 which, if approved at the ensuing Annual General Meeting, will be paid
 to (i) all those equity shareholders whose names appear in the Register
 of Members as on 23rd September, 2008 and (ii) to those whose names as
 beneficial owners, are furnished by the National Securities Depository
 Limited and Central Depository Services (India) Limited for the
 purpose.
 
 The dividend pay out as proposed is in accordance with the
 
 Company’s policy to pay sustainable dividend linked to long term
 performance, keeping in view the capital needs for the Company’s growth
 plans and the intent to optimal financing of such plans through
 internal accruals.
 
 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 in India is presented in a separate section forming part of
 the Annual Report.
 
 The Company has entered into various contracts in the areas of telecom
 and value added service businesses. While benefits from such contracts
 will accrue in the future years, their progress is periodically
 reviewed.
 
 Business Operations
 
 The Company operates on a pan-India basis and offers the full value
 chain of wireless, wireline, national long distance, international,
 voice, data, video and internet based communications services under
 various business units organised into three strategic customer-facing
 business units; Wireless, Global and Broadband.  These strategic
 business units are supported by fully integrated network operation
 system and by the largest retail distribution and customer services
 facilities. The Company also owns through its subsidiary, a global
 submarine cable network infrastructure and managed Ethernet and
 application delivery services.
 
 During the year under review, the Department of Telecommunications
 (DOT), Government of India, had made necessary amendments to Unified
 Access Service Licenses (UASL) of the Company to enable the Company to
 offer GSM services in addition to existing CDMA services and made
 allotment of start up spectrum to the Company for providing GSM
 services in 14 Service Area. The DOT had also made necessary amendments
 to Unified Access Service Licenses (UASL) of Reliance Telecom Limited
 (RTL), wholly owned subsidiary of the Company, to enable RTL to offer
 CDMA services in Assam and North East Service Area in addition to
 existing GSM services and made allotment of start up spectrum to RTL
 for providing CDMA services in Assam and North East Service Area.
 Accordingly the Company together with RTL will, in due course, offer
 nation wide GSM and CDMA services.
 
 Amalgamation and Arrangement
 
 a.  Scheme of Arrangement for transfer of Passive Infrastructure
 
 In terms of the Scheme of Arrangement amongst the Company, Reliance
 Telecom Limited (RTL) and Reliance Infratel Limited (RITL) (formerly
 known as Reliance Telecom Infrastructure Limited), subsidiaries of the
 Company and their respective shareholders and creditors, as sanctioned
 by the Hon’ble High Court of Judicature at Bombay vide order dated 16th
 March, 2007, the passive infrastructure of the Company and RTL was
 demerged and vested into RITL, with effect from 10th April, 2007.
 
 b.  Reorganisation of subsidiaries
 
 During the year, the group structure involving various subsidiaries of
 the Company was reorganised in terms of the various Schemes under
 Sections 391 to 394 of the Companies Act, 1956 (the Act), as sanctioned
 by the Hon’ble High Courts of applicable jurisdictions. Consequently,
 Reliance Infoinvestments Limited and Synergy Entrepreneur Solutions
 Private Limited (SESPL) amalgamated with Reliance Communications
 Infrastructure Limited with effect from 23rd July, 2007 and 1st
 September, 2007 respectively and Reliable Internet Services Limited
 amalgamated with Reliance Telecom Limited with effect from 29th
 September, 2007. FLAG Telecom USA Limited was merged with Yipes
 Holdings Inc.  w.e.f. 17th December, 2007.
 
 Issue of shares upon FCCB Conversion and resultant increased paid-up
 share capital
 
 a.  During the year under review, the Company had received conversion
 notices for 2,03,051 (40.61%) bonds out of 5,00,000 Zero Coupon Foreign
 Currency Convertible Bonds of US$ 1,000 each aggregating to US$ 500
 million. The Company had allotted 1,87,44,801 equity shares of Rs. 5
 each to the holders of the bonds opted for conversion.
 
 b.  During the year under review, the Company had also received
 conversion notice for 100 (1.00%) bonds out of 10,000 Zero Coupon
 Foreign Currency Convertible Bonds of US$ 1,00,000 each aggregating to
 US$ 1,000 million. The Company had allotted 6,67,090 equity shares of
 Rs. 5 each to the holder of the bonds opted for conversion.
 
 Due to allotment of 1,94,11,891 equity shares of Rs. 5 each on
 conversion of FCCBs, the equity capital of the Company increased by
 Rs.9.71 crore and Share Premium Account increased by Rs.935.43 crore.
 The present paid –up equity share capital of the Company is
 206,40,26,881 equity shares of Rs. 5 each aggregating to Rs. 1,032.01
 crore.
 
 Subsidiary Companies
 
 During the year under review, Reliance Tech Services Private Limited,
 Reliance Big TV Limited, Yipes Holdings Inc, Reliance Globalcom
 Services Inc, Yipes Systems Inc, YTV Inc, Anupam Globalsoft (U)
 Limited, Lagerwood Investments Limited and Reliance Telecom
 Infrastructure (Cyprus) Holdings Limited became the subsidiaries of the
 Company.
 
 Flag Projects Pte Limited, Alsign Holdings Pte. Limited and Actaram
 Capital Pte. Limited which became subsidiaries during the year under
 review, subsequently ceased to be subsidiaries. Reliance Telephones
 Limited and Gateway Net Trading Pte. Limited also ceased to be
 subsidiaries of the Company.
 
 In terms of the approval granted by the Central Government under
 section 212(8) of the Companies Act, 1956, a copy of the Balance Sheet,
 Profit and Loss Account, Report of the Board of Directors and Auditors
 of the subsisting subsidiaries have not been attached with the Balance
 Sheet of the Company. However, these documents will be made available
 upon request by any member of the Company interested in obtaining the
 same. As directed by the Central Government, the financial data of the
 subsidiaries have been furnished under ‘Details of Subsidiaries’, which
 forms part of the Annual Report. The annual accounts of the Company
 including that of subsidiaries will be kept for inspection by any
 member.  Further, pursuant to Accounting Standard (AS-21) issued by the
 Institute of Chartered Accountants of India, Consolidated Financial
 Statements presented by the Company include financial information of
 its subsidiaries.
 
 Employee Stock Option Scheme
 
 Your Company has offered the Employee Stock Option Scheme (ESOS /
 Scheme) aimed to attract, retain and motivate the Employees. Pursuant
 to the approval of the Shareholders under Section 81(1A) of the
 Companies Act, 1956 passed by way of postal ballot, the Company has
 administered and implemented ESOS in terms of the Securities & Exchange
 Board of India (Employee Stock Option Scheme and Employee Stock
 Purchase Scheme) Guidelines, 1999 (Guidelines). On 9th March, 2008 the
 ESOS Compensation Committee had approved to grant upto 1,75,00,000
 Options exercisable into equal number of fully paid up equity shares of
 the Company to eligible employees of the Company, subsidiaries and
 holding company in accordance with the Scheme. The actual number of
 options granted to the eligible employees including non-executive
 independent director of the Company and its subsidiary was 1,49,91,185.
 No employee or Director has been granted options in excess of 1% of the
 issued equity share capital of the Company.
 
 The particulars as required under Clause 12 of Guidelines are as
 follows:
 
 a.  Total grant authorised by the ESOS Compensation Committee
 
 b.  Total Options granted
 
 c.  Pricing formula decided by ESOS Compensation Committee
 
 d.  Options vested
 
 e.  Options exercised
 
 f.  Total number of equity shares arising as a result of exercise of
 Options
 
 g.  Options lapsed
 
 h.  Variation of terms of Options
 
 i.  Money realised by exercise of Options during the year
 
 j.  Total number of Options in force at the end of the year
 
 k.  Employee wise details of Options granted to:
 
 i.  Senior managerial personnel
 
 ii.  Employee who receives grant in any one year of option amounting to
 5% or more of option granted during the year
 
 iii.  Identified employees who were granted options, during any one
 year equal to or exceeding 1% of the issued capital (excluding
 outstanding warrants and conversions) of the company at the time of
 grant
 
 l.  Diluted Earnings Per Share (EPS) pursuant to issue of shares on
 exercise of Options calculated in accordance with Accounting Standard
 (AS) 20
 
 m.  The difference between employee compensation cost using intrinsic
 value method and fair value of the Options and impact of this
 difference on
 
 - Profits
 
 - EPS of the Company
 
 n.  Weighted- average exercise prices of Options granted during the
 year where exercise price is less than market price
 
 o.  Weighted- average fair values of Options granted during the year
 where exercise price is less than market price
 
 p.  Significant assumptions made in computation of fair value
 
 i.  risk-free interest rate,
 
 ii.  expected life,
 
 iii.  expected volatility,
 
 iv.  expected dividends (yield), and
 
 v.  the price of the underlying share in market at the time of option
 grant
 
 1,75,00,000 Options
 
 1,49,91,185
 
 Market Price or such other price as Board / Committee may determine.
 Different Exercise price may apply to different Plan(s).
 
 N.A.
 
 N.A.
 
 Subject to option exercised by the employees, not exceeding 1,49,91,185
 Equity Shares.
 
 N.A.
 
 N.A.
 
 N.A.
 
 1,49,91,185
 
 Shri Hasit Shukla, Company Secretary and Manager 
 1,00,000 Options.
 
 Nil
 
 Nil
 
 Rs 10.21
 
 Rs 3.48 crore Re 0.02
 
 Rs 366.50 per option
 
 Rs 210.25 per option
 
 base: Black Scholes model
 
 7.27% p.a.
 
 1 year
 
 37.58%
 
 0.1386%
 
 Rs 541.15 per share
 
 The Company has received a certificate from the auditors of the Company
 that the ESOS has been implemented in accordance with the Guidelines
 and as per the resolution passed by the members of the Company
 authorising issuance of ESOS.
 
 Fixed Deposits
 
 The Company has not accepted any fixed deposit during the year under
 review.
 
 Directors
 
 In terms of Article 48 of the Articles of Association of the Company,
 Prof. J. Ramachandran, Director of the Company retires by rotation and
 being eligible offers himself for re-appointment at the ensuing Annual
 General Meeting.
 
 Shri A. K. Purwar was appointed as an Additional Director in terms of
 Section 260 of the Companies Act, 1956. He holds office up to the date
 of the ensuing Annual General Meeting. The Company has received a
 notice in writing from a member proposing his candidature, as a
 Director liable to retire by rotation.
 
 A brief resume of the Directors retiring by rotation as well as
 proposed to be appointed at the ensuing Annual General Meeting, nature
 of their expertise in specific functional areas and names of companies
 in which they hold directorship and/or membership/ chairmanships of
 Committees of the Board, as stipulated under Clause 49 of the listing
 agreement with the Stock Exchanges in India, are given in the section
 on Corporate Governance forming part of the Annual Report.
 
 Directors’ Responsibility Statement
 
 Pursuant to the requirements under Section 217(2AA) of the Companies
 Act, 1956 with respect to Directors’ Responsibility statement, it is
 hereby confirmed that:
 
 i. in the preparation of the accounts for financial year ended 31st
 March, 2008, the applicable accounting standards have been followed
 alongwith proper explanation relating to material departures;
 
 ii. 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 as at 31st March, 2008 and of the profit of the Company
 for the year ended that date;
 
 iii. the Directors have taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the Companies Act, 1956 for safeguarding the assets of
 the Company and for preventing and detecting fraud and other
 irregularities; and
 
 iv. the Directors have prepared the accounts for financial year ended
 31st March, 2008 on a ‘going concern’ basis.
 
 Group
 
 Pursuant to intimation received from the Promoters, the names of the
 Promoters and entities comprising ‘group’ as defined under the
 Monopolies and Restrictive Trade Practices (“MRTP”) Act, 1969 are
 disclosed in the Annual Report for the purpose of the SEBI (Substantial
 Acquisition of Shares and Takeovers) Regulations, 1997.
 
 Consolidated Financial Statements
 
 The Audited Consolidated Financial Statements, based on the financial
 statements received from subsidiaries, associates as approved by their
 respective Board of Directors have been prepared in accordance with
 Accounting Standard (AS21) on Consolidated Financial Statements read
 with Accounting Standard (AS23) on Accounting for Investments in
 Associates.
 
 Auditors
 
 M/s. Chaturvedi & Shah, Chartered Accountants and M/s. BSR & Co.,
 Chartered Accountants, as Statutory Auditors of the Company, hold
 office until the conclusion of the ensuing Annual General Meeting and
 are eligible for re-appointment.
 
 The Company has received letters from M/s. Chaturvedi & Shah, Chartered
 Accountants and M/s. BSR & Co., Chartered Accountants, to the effect
 that their appointment, if made, would be within the prescribed limits
 under section 224(1B) of the Companies Act, 1956, and that they are not
 disqualified for such appointment within the meaning of section 226 of
 the Companies Act, 1956.
 
 Particulars of Employees
 
 In terms of the provisions of Section 217 (2A) of the Act, read with
 the Companies (Particulars of Employees) Rules, 1975, the names and
 other particulars of employees are set out in the Annexure to the
 Directors’ Report. However, having regard to the provisions of section
 219(1)(b)(iv) of the Act, the Annual Report excluding the aforesaid
 information is being sent to all the members of the Company and others
 entitled thereto. Any member interested in obtaining such particulars
 may write to the Company Secretary at the Registered Office of the
 Company
 
 Conservation of Energy, Technology Absorption and Foreign Exchange
 Earnings and Outgo
 
 Particulars required to be furnished under the Companies (Disclosure of
 Particulars in the Report of Board of Directors) Rules, 1988 are as
 under:
 
 1.  Part A and B pertaining to conservation of energy and technology
 absorption are not applicable to the Company
 
 2.  Total foreign exchange earnings and outgo for the financial year is
 as follows
 
 a.  Total Foreign Exchange earnings : Rs. 1,314.74 crore
 
 b.  Total Foreign Exchange outgo : Rs. 946.67 crore
 
 c.  Activities relating to exports; Initiatives taken to increase
 export; development of new export markets for products and services;
 and export plans:
 
 The Company has taken various initiatives for development of export
 markets for its international telecom services in the countries outside
 India to increase its foreign exchange earnings.
 
 Corporate Governance
 
 The Company has adopted “Reliance Anil Dhirubhai Ambani Group-
 Corporate Governance Policies and Code of Conduct” which has set out
 the systems, process and policies conforming to international
 standards. The report on Corporate Governance as stipulated under
 clause 49 of the listing agreement with the Stock Exchanges, forms part
 of the Annual Report.
 
 A Certificate from the Auditors of the Company M/s. Chaturved & Shah,
 Chartered Accountants and M/s. BSR & Co., Chartered Accountants,
 conforming compliance with conditions of Corporate Governance as
 stipulated under the aforesaid clause 49, is annexed to this Report.
 
 Acknowledgements
 
 Your Directors would like to express their sincere appreciation of the
 co-operation and assistance received from shareholders bankers,
 regulatory bodies and other business constituents during the year under
 review. Your Directors also wish to place on record their deep sense of
 appreciation for the commitment displayed by all executives, officers
 and staff, resulting in the successful performance of the Company
 during the year.
 
                            For and on behalf of the Board of Directors
 
 Mumbai                                       Anil D. Ambani
 30th April, 2008                                Chairman