Annual Report - Sasken Communication Technologies - 2009-2010

SASKEN COMMUNICATION TECHNOLOGIES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors have pleasure in presenting the report on the business and
operations of the Company along with the Audited Accounts for the financial
year ended March 31, 2010.



Result of Operations (Consolidated)-Extract Amount in Rs. lakhs

Particulars Year ended
March 31, 2010 March 31, 2009

Revenues 57,419.31 69,781.33
Cost of Revenues 42,919.14 47,228.54
Gross Profit 14,500.17 22,552.79
Non-operating Income (net) 2,446.58 (3,539.51)
Exceptional Item - 1,519.70
Profit before Income taxes 9,292.23 7,082.68
Income Taxes Expense, net (including FBT) 1,740.50 2,852.27
Profit after Tax 7,551.73 4,230.41
Appropriation:
Proposed Equity Dividend 1,084.44 1,084.44
Interim Dividend 542.22 -
Dividend Tax 276.45 184.30

(Previous year's figures have been regrouped wherever necessary to conform
to the current year's presentation).

Your Company's performance in the financial year may be summed by what
George S. Clason, the well known US writer said, 'Opportunity is a haughty
goddess who wastes no time with those who are unprepared'.

During the turbulent period in this financial year, your Company has
proactively taken several measures to ensure that there is sufficient
growth in bottom line despite challenges in maintaining top line growth. In
parallel the management team has ensured that, going forward your Company
emerges stronger and is poised for growth. This will be by a two pronged
strategy of leveraging on its deep competencies to grow existing business
and tap into market adjacencies, consumer electronics, defense, aerospace
and satellite communications.

A few notable achievements that we are proud of in the current year include
the path breaking development of the 'lsat Phone Pro', a handheld satellite
phone for Inmarsat plc, UK, the leader in global mobile satellite
communications services. Inmarsat completed its first call from Hawaii and
this unique phone is set for a planned global launch in June 2010.

One of the most important elements of the lsatPhone Pro development has
been the contribution of your Company in the R&D of this phone. Our global
multi-site teams have successfully delivered on all key milestones in the
last 13 months of this engagement. We were entrusted with the
responsibility for end-to-end development of this satellite phone, which
has been made possible through the coordinated efforts of multiple global
centers of excellence spanning India, Finland and Germany. Sasken's global
footprint, multifaceted capability and access to the best talent across the
world place it in a unique position to deliver at optimal and cost
effective solutions to its customers.

During the year under review your Company joined the 'Open Handset
Alliance', a group of 65 technology and mobile companies who have come
together to accelerate innovation in mobile devices and offer consumers a
richer, affordable, and superior mobile experience. As a member of the Open
Handset Alliance, your Company will work with other member companies to
enable our customers to launch differentiated customer owned equipment like
phones and other communication devices/appliances. The ability to enhance
the user experiences through its unique combination of consultancy and
services in both hardware and software is a key and critical determinant of
'market acceptance' for such products. Sasken is able to integrate its
software products to platforms such as Android and service a burgeoning
market for devices that intersperse mobile communication and web
technologies.

Your Company is privileged to be part of the Open Handset Alliance as it
brings its extensive experience and leadership in helping build
differentiated applications and solutions to the Android platform. Android
provides the ideal platform for rich media consumption and a differentiated
user experience, which is already shaping the nature of these devices. Our
work with leading members of this community and the membership to the Open
Handset Alliance strengthens our position to service customers in their
quest to provide an enhanced quality of service.

During the year your Company acquired certain product portfolio, assets as
well as certain customers of Ingenient Technologies Inc. USA. This has
enabled your Company to offer turn key solutions to consumer electronics,
security & surveillance, enterprise, infrastructure and automotive
electronics markets. This has also helped in having a foothold in Korea as
well as expanding its business operations in Japan.

Opportunities are opening up in the semiconductors and handset space while
networks business remains a challenge. Your Company is working on re-
vectoring network capabilities towards the satellite infrastructure space.
While we strike the right balance in keeping the business profitable and in
protecting the interests of your Company, we have seen challenging times
and our conviction is that things will improve from here onwards. We have
expanded our engagements within the areas of modem development and testing,
leveraging our deep expertise and experience in communication protocol
stacks.

Field-testing of wireless modems and handsets, both at the radio level and
applications is an area of focus and expected growth. We are engaged with
Tier 1 customers across multiple geographies, helping them test their
products for launch in various countries and operators. Mobile Internet,
broadly delivering web services on the mobile are other areas where we are
focusing, though still in early stages.

Your Company's revenues have decreased by 17.7% in rupee terms, from
Rs.69,781.33 lakhs in 2008-09 to Rs.57,419.31 lakhs in 2009-10. Software
Services, including Network Engineering Services, dropped by 14.7%,
contributing 95% to the revenues, while the Software Products revenues
contributed 4%. The net profits grew from Rs.4,230.41 lakhs in FY 09 to
Rs.7,551.73 lakhs during the year, registering a growth of 78.5%. This has
also translated to an Earnings Per Share of Rs.27.85 in 2009-10 vs.
Rs.15.17 in 2008-09.

Dividend

Your Company paid an interim dividend of 20% in November 2009 and the Board
recommends a final dividend of 40% (Rs.4 per equity share) thus making the
total dividend of 60% for the year.

Scheme of Arrangement

Your Company had approached the Hon'ble High Court of Karnataka for its
sanction to create a Business Restructuring Reserve from out of the
Securities Premium Account in terms of a Scheme under Section 391/394 of
the Companies Act, 1956. The Scheme provides for the Business Restructuring
Expenses to be directly adjusted against the said Business Restructuring
Reserve. Pursuant to the Scheme and as approved by the Hon'ble High Court
of Karnataka, vide its order dated March 31, 2010, a sum of Rs.14,578.08
lakhs has been transferred from the Securities Premium Account and credited
to Business Restructuring Reserve Account. The Company has adjusted
Rs.1,519.70 lakhs, being impairment loss on capitalized software, which was
charged to Profit and Loss Account in the previous year, being considered
as a Restructuring Expense incurred after the Appointed Date, i.e. April 1,
2008, has been credited to Profit and Loss Appropriation Account and
adjusted against Restructuring Reserve Account.

Had the Scheme not prescribed the aforesaid treatment, the balance in
Profit and Loss Account would have been lower by Rs. 1,519.70 lakhs and
Business Restructuring Reserve higher by Rs.1,519.70 lakhs, with no impact
on overall reserves of the Company.

Employees Stock Option Plan (ESOP)

The Company's ESOP continues with the philosophy of sharing wealth with its
employees and encourages the employees to be partners in the growth of the
organization.

ESOP 2000 Scheme

No new grants were made under this scheme during the year under review.
There were 28,696 options outstanding with employees as of March 31, 2010.

ESOP 2006 Scheme

New grants made under this scheme during the year are detailed in Annexure
1. The options outstanding with employees including Directors, as of March
31, 2010 are 2,125,000 options. There are 679,250 unissued options as on
March 31, 2010.

The details required under SEBI (Employee Stock Option Scheme & Employee
Stock Purchase Scheme), Guidelines 1999, as on March 31, 2010 are given in
Annexure 1 forming part of this Report.

Corporate Social Responsibility (CSR)

As a responsible Corporate Citizen, your Company is committed to
contributing to the society, environment and community. The focus areas in
which your Company strives to 'Make a Difference Everyone' or 'MaDE' and
our endeavor is to serve the community, environment, differently abled
citizens, children, under privileged and academia. Sasken translates this
into action by providing financial and non-financial support, as well as
extending and encouraging volunteer participation in CSR initiatives.

Your Company has been supporting Vathsalya Charitable Trust over several
years. Vathsalya is an NGO, working for the welfare of orphan children.
Sasken bears all their medical bills, on monthly basis subject to a pre-
fixed limit. Your Company also extends its support to other non-
governmental voluntary organizations on a case-by-case basis.

Prakruti Mela' is conducted every year at Sasken premises to promote sale
of environmentally friendly products through partner vendors. Awareness
programs on AIDS, Cancer and CSR are conducted at regular intervals.
Support for setting up stalls is provided for non profit organizations for
sale of their products to employees.

Patents

The following table gives details about the various patent applications
made by your Company, till date.

US India Other Acquired
Countries

Applied 40 21 9 -
Granted 26 8 1 1
Granted since last report 3 - - -
Abandoned 5 7 2 -
Sold 4 - - -
Pending 9 6 6 -

There has been a conscious effort on the part of the Company to obtain a
return on investment on the patents. In this direction, the Company chose
to sell four patents for a consideration of USD 450,000. However, the
Company continues to retain the right to use these patents in its own
products. Your Company will continue to actively explore various options
for licensing the patents, through well established and credible
Intellectual Property consultants.

Corporate Governance

Your Company is committed to maintain the highest standards of Corporate
Governance. Your Directors adhere to the standards set out by the
Securities and Exchange Board of India's (SEBI) Corporate Governance
practices and accordingly have implemented all the major stipulations
prescribed. Your Company's Corporate Governance Compliance Certificate
dated April 22, 2010 in line with Clause 49 of the Stock Exchange Listing
Agreement is given in Annexure 2 forming part of this Report.

Directors' Responsibility Statement

As stipulated in Section 217(2AA) of the Companies Act 1956, your Directors
subscribe to the 'Directors' Responsibility Statement' and confirm that:

* In the preparation of the annual accounts, the applicable accounting
standards and in relation to the Scheme of Arrangement, the Order of the
High Court of Karnataka have been followed. (Refer Note No.5 of the
Abridged Financial Statements/Note No.4(a) of Notes forming part of the
Consolidated Accounts for details of the same).

* The Directors have selected such accounting policies and applied them
consistently and made judgements 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 or loss of the
Company for that period.

* The Directors have taken proper and sufficient care of the maintenance of
adequate accounting records in accordance with the provisions of the Act
for safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities; and

* The Directors have prepared the annual accounts on a going concern basis.

Subsidiary Companies

As required under Accounting Standard 21, Consolidated Financial Statements
incorporate the results of the following subsidiary companies, viz. (a)
Sasken Network Engineering Limited, (b) Sasken Network Solutions Inc., USA,
(c) Sasken Communication Technologies Mexico S.A. de C.V., (d) Sasken
Communication Technologies (Shanghai) Co. Ltd., (e) Sasken Communication
Technologies Oy, (f) Sasken Finland Oy, (g) Sasken Inc. USA and (h) Sasken
Japan KK.

In terms of the Central Government approval under Section 212(8) of the
Companies Act, 1956, the audited Financial Statements along with the
reports of the Board of Directors and the Auditors pertaining to the above
subsidiaries have not been attached to this Report. The Financial
Statements of the said subsidiaries will be kept for inspection by any
investor at the registered office of your Company and that of the
subsidiary companies. Investors who want to have a copy of the above may
write to the Company Secretary at the registered office.

Directors

Mr. Sanjay M. Shah and Dr. G. Venkatesh retire by rotation at the ensuing
Annual General Meeting and being eligible, offer themselves for re-
appointment.

Mr. Kiran S. Karnik was co-opted as an Additional Director on October 12,
2009 and as such he holds office upto the date of this Annual General
Meeting. A notice under Section 257 of the Companies Act, 1956 has been
received from a member signifying his intention to propose Mr. Kiran S.
Karnik as a candidate for the office of Director and accordingly a
resolution is placed before the members at the forthcoming Annual General
Meeting.

At its meeting held on April 22, 2010, the Board of Directors considered
the valuable contributions made by Ms. Neeta S. Revankar, CFO and Global
Head HR, IT & Administration, ever since she joined the Company in 1995 and
decided to elevate her to the Board with immediate effect as a Whole Time
Director. Towards this end, the Board co-opted her as an Additional
Director to hold office until the forthcoming Annual General Meeting. A
notice under Section 257 of the Companies Act, 1956 has been received from
a member signifying his intention to propose Ms. Neeta S. Revankar as a
candidate for the office of a Whole Time Director and accordingly a special
resolution is placed before the members at the forthcoming Annual General
Meeting.

At the Annual General Meeting held on June 10, 2005, Mr. Rajiv C. Mody and
Mr. Krishna J. Jhaveri were appointed as Chairman & Managing Director and
Whole Time Director respectively for a period of five years and their term
expired on March 31, 2010. The Board at its meeting held on April 22, 2010
re-appointed them for a further period of five years with effect from April
1, 2010.

The terms of appointment of Mr. Rajiv C. Mody and Mr. Krishna J. Jhaveri
are detailed in the Notice convening the Annual General Meeting for
members' approval. The remuneration payable to Mr. Rajiv C. Mody as
Chairman & Managing Director and the remuneration payable to Mr. Krishna J.
Jhaveri, Dr. G. Venkatesh and Ms. Neeta S. Revankar as Whole Time Directors
for the year 2010-11 are detailed in the Notice convening the Annual
General Meeting for members' approval.

Conservation of Energy, Technology Absorption and Foreign Exchange Outgo

Annexure 3 forming part of this Report gives information in accordance with
the provisions of Section 217(1)(e) of the Companies Act, 1956 read with
Companies (Disclosure of Particulars in the Report of Board of Directors),
Rules 1988 regarding conservation of energy, technology absorption and
foreign exchange earnings and outgo.

ISO 14001

Sasken is compliant with the Environmental Management System Standard-ISO
14001, an International Standard. Sasken is committed to be a responsible
member of the communities in which it works. This reaffirms your Company as
a responsible corporate citizen.

ISO 27001

Sasken adheres to the Information Security Management System-ISO 27001, an
International Standard. This is important for assuring our customers of our
commitment in protecting their IP as well as sensitizing all employees
about confidentiality and integrity of information.

TL 9000 (including ISO 9001:2008)

Sasken is compliant with the telecom industry specific Quality Management
System Standard-TL 9000 Rs. 0 an International Standard which by definition
includes the ISO 9001:2008 requirements.

ISO/IEC 17025

Sasken Test Lab is compliant with the Test Lab specific Quality Management
System Standard-ISO/IEC 17025, an International Standard. This is important
for assuring quality and reliability of test lab reports as required by our
customers to meet Global Communication Forum requirements.

Particulars of Employees

We present abridged accounts under Section 219 of the Companies Act, 1956.
Pursuant to the Rules and Forms read with Section 219 of the Companies Act,
1956, the particulars of employees, as required under Section 217(2A) of
the Companies Act, 1956 read with the Companies (Particulars of Employees)
Rules, 1975 have not been provided. However, these particulars are
available for inspection at the Registered Office of the Company and upon
written request from a shareholder, we will arrange to mail these details.
It may be noted such particulars will not include details of employees of
the Company posted and working outside India as per the relevant rules.

Deposits

Your Company has neither accepted nor renewed any deposits during the year.
As such, no amount of principal and/or interest is outstanding as on the
balance sheet date.

Auditors

M/s. S.R. Batliboi & Co., auditors of the Company retire at the forthcoming
Annual General Meeting and have confirmed their eligibility for re-
appointment.

Acknowledgement

Your Directors place on record their appreciation of co-operation and
support extended by customers, shareholders, vendors, bankers and all
governmental and statutory agencies. Your Directors thank the employees for
their valuable contribution during the year and look forward to their
continued support.

For and on behalf of the Board of Directors

Place: Bangalore Rajiv C. Mody
Date : April 22, 2010. Chairman & Managing Director

Annexure 1

Disclosures under SEBI (Employee Stock Option Scheme & Employee Stock
Purchase Scheme), Guidelines 1999:

Description ESOP 2000 ESOP 2006

1. Total number of Options 181,173 240,750
outstanding as on April 1, 2009

2. Total number of Options granted - 2,180,000
during the year

3. Total number of Options vested (but not - 2,000
exercised) cumulative till March 31, 2010

4. Total number of Options exercised
during the year - -

5. Total number of shares arising as a - -
result of exercise of option

6. Total number of Options lapsed (due to 152,477 295,750
resignation, etc.) during the
year ended March 31, 2010

7. Total number of Options outstanding 28,696 2,125,000
as on March 31, 2010

8. Money realized by the exercise - -
of Options (in Rs.)

9. Total number of Options in force 28,696 2,125,000

10. Variation of terms of Options

ESOP 2000:

During the year, the exercise period of 25,213 options issued in June 2004
have been extended by 2 years. Consequently, the exercise period for these
options now ends on March 31, 2012/June 30, 2012, all other terms remaining
unaltered.

ESOP 2006: Nil

11. Pricing formula for the grant:

Pricing of the Option will be the weighted average of the stock traded
price, as on the last day of the quarter previous to the month of grant of
Option with a progressive increase for subsequent years or as may be
determined by the Compensation Committee from time to time. The first lot
of Options will vest after one year from the date of grant of Option and
the subsequent lots will vest thereafter. The Option-holder will have 2
years from the date of vesting to exercise the Options. On the expiry of
the exercise period, Options that have not been exercised will lapse and
cease to be valid. However, the exercise period can be extended for
exceptional cases based on approval by the Compensation Committee.

Following is a snapshot of Vesting Schedule applied at different grants:

Options granted Vesting Schedule Price Range (Rs.)
during

2004-05 July 2005-July 2008 160-256
2005-06 July 2006-July 2009 225-321
2006-07 July 2007-July 2009 234-321
Oct 2007-Oct 2010 298-394
Jan 2008-Jan 2011 367-559

2007-08 Apr 2008-Apr 2011 475-667
July 2008-July 2011 554-746
Oct 2008-Oct 2011 410-602

2008-09 Apr 2009-July 2009 120

2009-10 April 2010-Oct 2012 52-155

12. Details of Options granted to some of the senior managerial personnel
during the year under review:

Name No. of Options Vesting Price
Schedule Range (Rs.)

Dr. G. Venkatesh 150,000 Apr 2010-Jan 2012 52
Ms. Neeta S. Revankar 150,000 Apr 2010-Jan 2012 52
Mr. Rajesh Maniar 75,000 Apr 2010-Jan 2012 52
Mr. S. Ramaraj 75,000 Apr 2010-Jan 2012 52

Name No. of Options Vesting Price
Schedule Range (Rs.)

Mr. T.K. Srikanth 75,000 Apr 2010-Jan 2012 52
Mr. Hannu Jyrkka 60,000 Apr 2010-Jan 2012 52
Mr. Ashok Bhaskar 50,000 Apr 2010-Jan 2012 52
Mr. Kalle Toivonen 60,000 Oct 2010-July 2012 155

13. Employee-wise details of Options granted to:

Any other Employees who were in receipt of grants
amounting to 5% or more of total Options granted
during the year : Nil

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 : Nil

14. Consolidated Diluted Earnings Per Share (EPS) : Rs. 26.62 per share
pursuant to issue of shares on exercise of Option
calculated in accordance with the Indian
Accounting Standard 20.

15. Description of method and significant assumptions used during the year
to estimate fair value of Options:

The method applied was the Black-Scholes-Merton formula with the following
assumptions:
April 2009 June 2009 July 2009 Sept. 2009
Average risk free
interest rate 7.39% 7.39% 7.39% 7.39%

Weighted average 2.63 2.63 2.63 2.48
expected life of
options granted
(in years)

Expected dividend 6.84% 3.73% 3.21% 2.46%
yield

Volatility
(annualized)* 67.62% 70.26% 70.25% 70.33%

Weighted average
market price (Rs) 58.50 107.10 124.65 162.65

Weighted average
fair value of the
options 22.03 53.53 79.32 87.28

Exercise Price 52.00 76.00 52.00 108.00


Oct. 2009 Jan. 2010 Jan. 2010
Average risk free
interest rate 7.41% 7.69% 7.69%

Weighted average 2.63 2.63 2.63
expected life of
options granted
(in years)

Expected dividend 2.48% 1.98% 1.98%
yield

Volatility
(annualized)* 70.14% 69.00% 69.00%

Weighted average
market price (Rs) 161.35 202.12 202.15

Weighted average
fair value of the
options 71.69 153.05 103.52

Exercise Price 155.00 52.00 155.00

* Based on historical market price of the Company's shares for the period
since listing.

On the basis of our examination of the records produced, explanations and
information furnished, we certify that the Company has complied with:

(a) All the mandatory conditions of the said Clause 49 of the listing
agreement.

(b) The following non-mandatory requirements of the said Clause 49:

* Constitution of Remuneration Committee (designated as Compensation
Committee).

* Implementation of the Whistle Blower Policy

* Audited financial results for half year ended September 30, 2009 were
mailed to shareholders.

For J. Sundharesan & Associates
Company Secretaries

J. SUNDHARESAN
Partner
Practising Company Secretary
FCS 5229, CP No. 5164
Date : April 22, 2010
Place: Bangalore

Annexure 3

Particulars pursuant to the provisions of Section 217(1)(e) of the
Companies Act, 1956, read with Companies (Disclosure of Particulars in the
Report of Board of Directors) Rules, 1988.

A) Conservation of Energy-Environmental Management System (EMS):

'SAVE ENERGY TODAY FOR A BRIGHTER TOMORROW'

Sasken, being a responsible corporate citizen focuses equally on the
environment as well as its business. Our employees being important
Stakeholders have been acting as a major 'Change Agents' in supporting
initiatives such as:

* 100% compliance to all applicable legislations.

* Creating awareness on the consumption of environment's resources through
various campaigns.

* Recycling and re-using resources in our Business operations.

* Promoting environment friendly products

Sasken has been committed to achieving high standards of environmental
quality and product safety, as well as providing a safe and healthy
environment for its employees, contractors and the society.

To create awareness and contribute to conserve the environment, extensive
environmental drives were initiated in FY 09-10 which attracted a huge
participation from Employees. Under the 'Prakruti Mela' initiative, we
encourage employees to procure environment friendly products which helped
employees to understand the importance of natural resource conservation. A
Six Sigma Project on employee cubicle cost management was done where
environment friendly materials were used for which Sasken also won the 'Six
Sigma Excellence Award'.

We have been successful in reducing our energy consumption by about 18%,
waste generation by about 30% and paper consumption by 20% respectively. We
have also successfully carried out various waste recycling programmes. Set
of guidelines have been put in place by the EMS team to ensure that EMS
awareness is driven at the design stage of all hardware and software
related projects.

At Sasken, our commitment to continuous improvement on environmental
performance is integrated into our programs. This is driven by individual
commitment of various team members and strong support from the management.

At Sasken our philosophy is:

'Every drop counts, every tree is precious and every watt is valuable. We
pledge to take the initiative and make a difference.'

B) Research and Development and Technology Absorption

The Company has made significant strides in product R & D during the year,
especially in Multimedia.

Your Company has acquired the product portfolio of Ingenient Technologies
Inc. Ingenient headquartered in Chicago, offers best-in-class Multimedia
codecs in Audio, Video, Image and Speech space. It is a leading supplier of
custom multimedia components in USA, Japan and Korea. Ingenient's customers
are key players in Consumer Electronics, Security and Surveillance and
Broadcast segments.

The acquisition positions your Company as a global leader in multimedia
software solutions and widens the Company's customer base to include
Consumer Electronics vendors. Ingenient's multimedia software complements
the Company's portfolio. This is in line with your Company's strategy of
diversifying its portfolio and expanding into market adjacencies.

The Company continued to work closely with a leading Japanese customer and
has been part of many successful handset launches with Sasken's Multimedia
Subsystem offering designed into them. The Company is currently engaged
with this customer in providing multimedia codec components on next
generation platforms. This Intellectual Property is part of the handsets
that were launched in Q2'09. The Company is also engaged in developing an
offering in Microsoft's Device Stage 7, which is expected to become a de
facto standard for accessing and synchronizing any consumer device that
connects to a PC.

The Company has focused more closely on working with Open Source Forums
like Symbian Foundation and Open Handset Alliance (Android). Active efforts
are going on towards contributing advanced features or technology to these
forums to maintain the Company's leadership in handset space.

Your Company has consolidated its position in the satellite communication
space. It has been involved in a full phone design for Inmarsat. It has
successfully re-engineered the GSM protocol stack to GMR2+satellite
communications standard. It has licensed its Application framework for this
phone. The phone has been designed to accommodate the Company's GSM
solution in the future if there is a need.

Your Company continues to participate in R&D efforts in Broadband Wireless
domain through industrial forums, such as CEWiT (Centre of Excellence in
Wireless Technology) and IU-ATC (India-UK Advanced Technology Centre). With
CEWiT, the Company is actively exploring collaboration in Long Term
Evolution (LTE) technology, which is expected to be the next generation

(4G) wireless technology. The Company has consciously invested a team on
developing part of this technology in-house.

As member of IU-ATC, your Company is supporting a project granted by DST
(Department of Science and Technology). As part of this exercise the
Company will contribute in kind to the exploration of setting up an end-to-
end Indo-UK transnational wireless test bed.

C) Foreign Exchange Earnings and outgo
Amount in Rs. lakhs

Foreign exchange earnings 36,871.17

Foreign exchange outgo (including capital goods 9,758.53
purchased, Travel Expenses (Net) and Dividend Paid
in foreign currency).

MANAGEMENT DISCUSSION AND ANALYSIS

IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING
STATEMENTS, FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL PERFORMANCE AND ELSEWHERE IN THIS REPORT. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF:

Management's Discussion and Analysis of Financial Performance

The consolidated financial statements have been prepared in compliance with
the requirements of the Companies Act, 1956, and Generally Accepted
Accounting Principles (GAAP) in India. The management accepts
responsibility for the integrity and objectivity of these consolidated
financial statements, as well as for various estimates and judgements used
in preparing the financial statements. The management's discussion and
analysis is based on the consolidated financial statements.

Company Brief

Sasken Communication Technologies Limited (Sasken), established in 1989 and
headquartered in Bangalore, India is an embedded communications solutions
company, that helps businesses across the communications value chain
accelerate product development life cycles. Sasken offers a unique
combination of research and development consultancy, wireless software
products and software services, and works with Network OEMs, Semiconductor
Vendors, Terminal Device OEMs and Operators across the world. Global
Fortune 500 and Tier 1 companies in these segments are part of Sasken's
customer profile. Sasken employs 3,153 people, operating from state-of-the-
art research and development centers in Bangalore, Pune, Chennai and
Hyderabad in India, Kaustinen, Tampere and Oulu in Finland and Monterrey in
Mexico. Sasken is also present in Beijing (China), Bochum (Germany),
Kanagawa (Japan), Guildford (UK), Chicago, Dallas & Santa Clara (USA) and
Seoul (South Korea).

Committed to innovation, Sasken works with customers to help them get to
market ahead of the competition, and stay focused on new product
development and manufacturing. With deep understanding of the
communications industry, access to current and emerging technologies,
mature development processes, global resources and a proven track record,
Sasken creates complete solutions to help clients succeed. Clients choose
Sasken for the comprehensive range of application solutions and services,
backed by a proven reputation for expert support and high quality. Our
growth strategy is offering compelling value propositions to our customers
by spotting and exploiting opportunities to help them grow.

In addition to being directly involved in the development of a variety of
technologies, Sasken is a member of premier technology bodies including
ITU, 3GPP, GCF, MPEG-ISO, WiMAX, NFC, DLNA and ATM, DSL & SDR forums.
Sasken is SEI CMM Level 5 certified and its' solutions are backed by ISO
9001:2000, ISO 27001 and TL 9000 certifications. Sasken's proprietary
quality management systems strengthen our business offerings and ensuring
customer satisfaction. Sasken's commitment to environment is highlighted by
its ISO 14001 certification.

Outlook

We began the year with a lot of apprehension and uncertainty, not knowing
how long we would face the effects of the recession. Over the course of the
year, we took a few firm steps towards being a disciplined and efficient
organization. Though we saw a revenue decline of 17.7% in FY 2010, we still
managed to show higher profi ts largely due to certain measures taken
during the year. Going by the current demand, we expect that the trend of
revenue will decline very soon and return to growth levels that we saw
earlier.

R & D outsourcing by handset OEMs and semiconductor vendors continues to
increase due to the need to reduce R&D costs and Sasken is well placed to
take advantage of these increased R&D outsourcing spends as we have
preferred vendor status with all the leading handset players. We expect the
forthcoming year to be a very exciting one. Outsourcing of applications,
user interface solutions and testing of different elements at unit, system
and field testing level will continue to grow, as OEMs and operators look
to move activities to third parties located in low cost locations such as
India and China.

The convergence of computing and communications continues and is bringing
about in its wake exciting prospects for enhanced personal and professional
communication. Netbooks and Smartphones are increasingly becoming essential
tools to keep pace with the demands of life and work. Open system alliances
like OHA and Symbian Forum are advancing these technologies rapidly making
them accessible to a large audience by continuously improving the
price/performance ratios. Smartphones with their ease of use make possible
a rich communication experience that embraces social networking, access to
the internet, rich media as well as Mobile office communication
requirements like e-mail and corporate applications. As multiple companies
in the communication and semiconductor space seize these opportunities they
are under pressure to get it right the first time. In the near term, we see
the blurring of boundaries between traditional communications and
computing, opening up newer vistas in the white spaces. Sasken through its
global operations and expertise in R&D services is able to provide
unparalleled value to key players helping them develop platforms that
enable them to rapidly introduce new convergent devices and stay
competitive in the market-place.

Sasken is a member of the Symbian Foundation and has been actively working
with Symbian platforms for the past few years. In the last year, Sasken
also became a member of the Open Handset Alliance Forum, championed by
Google. Open Handset Alliance, OHA, is a group of technology and mobile
companies who have come together to accelerate innovation in mobile and
offer consumers a richer, less expensive, and better mobile experience. The
OHA consortium comprises Google, T-Mobile, HTC, Qualcomm, Motorola and
others who are collaborating on the development of Android, an open and
comprehensive platform for mobile devices.

The Networks business continues to remain a challenge but we are gaining
some traction with leading satellite communication companies for providing
network infrastructure solutions. We continue to make investments in 4G
technologies like LTE which we believe is the growth area in the network
space.

We are continuously exploring opportunities to extend our competencies to
tap adjacent markets and expand our customer base and offerings. In line
with this strategy, we have identified market adjacencies like consumer
/automotive electronics, where we see good fit and opportunity for Sasken.
We plan to acquire new customers in these adjacencies so that revenue from
these accounts should contribute to about 10% of FY 2011 revenues. In line
with this strategy, we entered into an agreement in the second half of FY
2010 with Chicago based Ingenient Technologies Inc. that transfers
customers, contracts and certain other key assets including products and
IP. Ingenient's multimedia software offerings will provide an excellent fit
to that of Sasken. Sasken's strength in the area of professional services
enables it to extend the product offerings of Ingenient leading to greater
share of wallet with their existing marquee customers. The ability to
provide multimedia solutions to the consumer lifestyle which leads the
personal communication market will put Sasken in a position of advantage to
exploit imminent convergence ahead of competition.

Over the last few years, Machine-to-Machine (M2M) as a technology domain
flourished with the successful application of wireless technologies like
GSM/GPRS/GPS to the monitoring and management of mobile and immobile assets
from a remote location. Analysts point out that the shipment of M2M module
shipments will grow 10x in the next 4 years to 22 million, and number of
remotely monitored assets will grow more than 3x to 34 million.

Sasken's foray into M2M communication technologies is strengthen by
ConnectM, a Sasken and IDG Ventures company. ConnectM provides end-to-end
solutions, analytics, and business intelligence to the transportation,
industrial, utilities and enterprise markets. These offerings are enabled
by applications powered with cutting-edge M2M communication technology.
ConnectM also works with players across the M2M value chain and provides
them consulting, application development, and product life cycle
development & sustenance services.

Sasken continues to differentiate itself by continuing to pursue the path
of developing intellectual property in the communication space, with a
healthy pipeline of patents. We have been granted 36 patents and 21 are
pending grant. Sasken has demonstrated the ability to monetize its patent
portfolio with a sale of 4 patents providing revenues of approximately
445,000 USD in FY 2010.

Sasken has believed in striking the right balance to the commitments made
to all stakeholders, viz., customers, employees and investors. In the
coming year, we face new challenges. Our employees are looking forward to
revision in their compensation levels. Our customers continue to
consolidate their vendor base and are watchful of cost and quality of the
solutions that they receive. Billing rates are therefore under pressure. We
are working to move a lot of projects to the fixed price model to ensure
better employee satisfaction and financial results. With effective project
management and control, we will be able to place and move employees based
on their strengths and aspirations and also achieve higher profitability.
We are working on improving our training and staffing engine to bring in
efficiencies which will help compensate for the increased compensation
expenses.

Financial Highlights for the year ended March 31, 2010.

* Consolidated revenues decreased by 17.7%, from Rs. 69,781.33 lakhs in FY
2009 to Rs. 57,419.31 lakhs in FY 2010.

* Software Services, Network Engineering Services, Software Product
revenues and Automotive, Utilities and Industrial revenues were
Rs.50,760.01 lakhs, Rs.4,017.01 lakhs, Rs.2,560.71 lakhs and Rs.81.58 lakhs
respectively, for FY 2010.

* The revenue mix amongst Software Services, Network Engineering Services
and Software Products changed from 85:6:9 in FY 2009 to 88:7:5 in FY 2010.

* Gross profit after research and development expenses, was Rs.14,500.17
lakhs, at 25.3% of revenues.

* Selling, General and administration costs have reduced from 13.6% in FY
2009 to 13.0% in FY 2010.

* Consolidated EBITDA margins were Rs. 10,187.66 lakhs in FY 2010, a
reduction of Rs. 6,192.73 lakhs as compared to Rs. 16,380.39 lakhs in FY
2009. EBITDA margins were at 17.7% for the full year 2010.

* Exchange gains of Rs. 1,679.21 lakhs was accounted in FY 2010, as
compared to a loss of Rs. 4,261.48 lakhs in FY 2009.

* Profit Before Tax (PBT) saw a growth of 31.2%, from Rs.7,082.68 lakhs in
FY 2009 to Rs. 9,292.23 lakhs in FY 2010. In absolute amount, the PBT
increased by Rs. 2,209.55 lakhs in FY 2010.

* Consolidated Profit After Tax (PAT) increased by 78.5% in FY 2010, from
Rs.4,230.41 lakhs in FY 2009 to Rs.7,551.73 lakhs in FY 2010. In absolute
amount, PAT increased by Rs.3,321.32 lakhs in FY 2010. The PAT margins for
FY 2010 were 13.2%.

* Consolidated basic Earnings Per Share (EPS) for FY 2010 was Rs.27.85
(Rs.15.17 in FY 2009) and diluted earnings per share was Rs.26.62 (Rs.15.17
in FY 2009). EPS from services business (including Network Engineering
Services), increased by Rs.8.49 in FY 2010 to Rs.28.07 from Rs.19.58 in FY
2009.

* Cash and cash equivalents (including investments in mutual funds)
increased by Rs. 5,392.67 lakhs in FY 2010 and stood at Rs. 18,622.64 lakhs
as at March 31, 2010 as compared to Rs. 13,229.97 lakhs, as at March 31,
2009.

* DSO days (excluding unbilled revenues) reduced by 11 days in FY 2010,
from 73 days as at March 31, 2009 to 62 days as at March 31, 2010.

* Headcount of the group stood at 3,153 as at March 31, 2010.

* The Board of Directors recommended a final dividend of 40% and declared
an interim dividend of 20%.

Results of Operations

Particulars Year ended Year ended Increase/
March 31, 2010 March 31, 2009 Decrease(%)
(Rs. in % (Rs. in %
lakhs) lakhs)

Revenues 57,419.31 100.0 69,781.33 100.0 (17.7)

Cost of Revenues 42,919.14 74.7 47,228.54 67.7 (9.1)

Gross Profit 14,500.17 25.3 22,552.79 32.3 (35.7)

Research and - - 397.64 0.6 (100.0)
Development

Gross Profit after 14,500.17 25.3 22,155.15 31.7 (34.6)
Research and
Development

Selling and 1,404.59 2.4 2,902.34 4.2 (51.6)
Marketing Expenses

Administrative and 5,953.96 10.4 6,842.12 9.8 (13.0)
General Expenses

Employee Stock 119.97 0.2 (251.22) (0.4) (147.8)
Option Compensation
Cost/(Reversal)

Profit from 7,021.65 12.2 12,661.91 18.1 (44.5)
Operations

Amortization of - - 20.54 0.0 (100.0)
Non-compete Fees

Other Income 767.37 1.3 721.97 1.0 6.3

Exchange 1,679.21 2.9 (4,261.48) (6.1) (139.4)
Gain (Net)

Provision for (85.35) (0.1) 117.71 0.2 (172.5)
Diminution in
Value of
Investments/
(Reversal)

Profit Before 9,553.58 16.6 8,984.15 12.9 6.3
Interest and
Income Taxes

Interest 261.35 0.5 381.77 0.5 (31.5)

Exceptional - - 1,519.70 2.2 (100.0)
Item

Profit Before 9,292.23 16.2 7,082.68 10.1 31.2
Income Taxes

Income Taxes 1,740.50 3.0 2,852.27 4.1 (39.0)
including
FBT, Net

Profit After 7,551.73 13.2 4,230.41 6.1 78.5
Income Taxes

Segmental Revenue and EBITDA Amount in Rs. lakhs
Year ended
March 31, March 31,
2010 2009

Total Revenue 57,419.31 69,781.33
Software Services 50,760.01 59,561.03
Network Engineering Services 4,017.01 4,013.47
Software Products 2,560.71 6,146.44
Automotive, Utilities and Industrial 81.58 60.39
EBITDA Margins 10,187.66 16,380.39
Software Services 8,961.34 13,725.95
Network Engineering Services 993.72 768.22
Software Products 595.98 2,615.74
Automotive, Utilities and Industrial (363.38) (729.52)
EBITDA Margins in % 17.7% 23.5%
Software Services 17.7% 23.0%
Network Engineering Services 24.7% 19.1%
Software Products 23.3% 42.6%
Automotive, Utilities and Industrial (445.4%) (1,208.0%)

The consolidated revenues in USD terms were at 121.75 million in FY 2010, a
decrease of 19% from 150.47 million in FY 2009. The revenue in INR terms
decreased by 17.7% year on year. Though the revenue in US Dollar decreased
by 19%, the revenue in Indian Rupee decreased only by 17.7% - this is due
to depreciation of the Rupee against the US Dollar. The rupee depreciated
to an average rate of Rs. 46.38 in FY 2009 to Rs.47.16 in FY 2010.

In FY 2010, in USD terms, Services revenue (including Network Engineering
segment) contributed to 95.3% of the overall revenues, while Product
revenues contributed to 4.5% of overall revenues. Though there has been
decline in services revenues, the Company has seen growth emerging in the
last two quarters of the financial year. The onsite services revenue has
declined in FY 2010, which has led to the reduction in revenues. The
Products Segment has witnessed a decline in licensing and customization
revenues, year on year, as one of the tier 1 customers decided to exit the
symbian programme towards the end of FY 2009. The sale of new phone models
in Asian market, containing Sasken IP, has declined in FY 2010, due to
which there is a decline in royalty revenues.

EBITDA margins from Software Services business, in the current year has
decreased to 17.7% from 23.0% in FY 2009. This was due to reduction in
revenues in higher margin onsite business, marginally offset by increase in
utilization, bill rates and rupee depreciation. EBITDA margins from Network
Engineering Services, in the current year increased to 24.7% from 19.1% in
FY 2009. This segment seen strong growth in US operations, leading to
better margins.

EBITDA margins from Software Products, in the current year reduced to 23.3%
from 42.6% in FY 2009. The costs have increased due to acquisition of a
business in the US, in Q3 of FY 2010.

Cost of Revenues

Cost of revenues comprise of costs incurred by the business units, towards
revenue generation activities, and operating costs allocated to the
business units. Cost of revenues decreased to Rs. 42,919.14 lakhs for the
year ended March 31, 2010 from Rs. 47,228.54 lakhs for the year ended March
31, 2009, a decrease of 9.10% and by Rs.4,309.40 lakhs in absolute terms.
There have been significant reductions in employment costs in FY 2010. The
employment costs have reduced by Rs. 3,917.17 lakhs, due to lower headcount
in India and European operations. There has been an increase in
professional and consultancy charges and contract staff cost in US
operations, in FY 2010, which has offset the reduction in employment costs.
There has been an increase in warranty costs due to increase in execution
of fixed price projects. As the unamortized portion of capitalized software
cost amounting to Rs. 1,519.70 lakhs was written off as exceptional item in
March 2009, there is no charge in FY 2010 towards the same. There was a
charge for six months in FY 2009 towards amortization of capitalized
software. The increase in amortization of contract rights relates to
contracts that the company acquired, due to the agreement with Ingenient
Inc. The consolidated results also include cost of revenues incurred by the
joint venture-ConnectM Technology Solutions Pvt. Ltd.

Research and Development Expenses

Research and Development (R & D) expenses include the costs of product
development and modifications and enhancements to products. During the
current year, there has been no expenditure towards research and
development and there have been no new investments in existing product
lines. All the R & D projects have moved in to maintenance mode and these
costs are included in cost of revenues. The Joint Venture with Tata Auto
Comp Systems Limited, Taco Sasken Electronics Limited, has been
discontinued since Q4 of FY 2009. In earlier years, the JV also invested in
R & D expenditure.

Selling and Marketing Expenses

Selling and Marketing (S & M) expenses primarily include costs related to
employment and travel expenses of the marketing and sales staff, rent for
foreign offices, provision for doubtful debts and bad debts. The selling
and marketing expenses were Rs. 1,404.59 lakhs for FY 2010, as compared to
Rs.2,902.34 lakhs for FY 2009, amounting to a decrease of Rs.1,497.75 lakhs
year on year. The decrease has been primarily on account of rationalization
of the onsite sales team in the current year, which has led to reduction in
overseas salaries and travel costs. During FY 2009, provisions were created
against certain receivables, the significant portion relating to one of our
customers who had filed for bankruptcy protection and hence the S&M costs
were higher in FY 2009. Since the Company received settlement from a credit
insurance company in FY 2010 and no further material collections are
expected on this account, the provision has been reversed and charged off
as Bad Debts in FY 2010, due to which bad debts are higher in FY 2010.

On a net basis, there has been an impact of Rs.13.66 lakhs on account of
provision for doubtful debts/bad debts in FY 2010.

Administrative and General Expenses

Administrative and general expenses primarily include costs related to
employment expenses of the leadership team, corporate functions, rent,
professional, legal and consultancy fees, training expenses and other
unallocable costs to business units. Administrative and general expenses
were at Rs. 5,953.96 lakhs for FY 2010, as compared to Rs. 6,842.12 lakhs
in FY 2009. Costs have reduced primarily due to, reduction in employment
costs and travel costs by Rs.442.44 lakhs and Rs.132.91 lakhs respectively.

Employee Stock Compensation Cost

The Company records compensation costs based on the fair value of the
options granted during the year, over the vesting period of the options.
During FY 2010, the Company issued 2,180,000 options, which have a vesting
period of ranging from one year to three years, at an average exercise
price of Rs.58.42 per share. The costs of these options and certain options
issued in earlier periods, amounting to Rs. 119.97 lakhs, net of reversals,
have been recorded as employee stock compensation cost. There was a
reversal of Rs. 251.22 lakhs in previous year due to (a) Non-exercise of
options granted (b) non-fulfillment of vesting conditions.

Amortization of Non-Compete Fees

During the year ended March 31, 2006, the Company paid non-compete fees of
Rs.493.08 lakhs to some of its senior employees under a non-compete and
non-solicitation agreement entered into with these employees. The non-
compete fee has been fully amortized as at the end of FY 2009. Hence there
is no charge in the current year.

Other Income and Exchange Gain

Other Income comprises of Interest earned on Fixed Deposits, Dividend on
Mutual Funds and other miscellaneous receipts. Other income amounted to
Rs.767.37 lakhs in FY 2010, an increase of Rs.45.40 lakhs over FY 2009
amounting to Rs.721.97 lakhs. There is an increase in dividends received in
FY 2010, due to higher investments in Mutual Funds in current year. The
Company also received interest on certain income tax refunds.

The Company manages its foreign exchange exposures in line with its hedging
policy. The exchange gain/loss is primarily on account of movements in
receivables and corresponding forward contracts/option contracts. The rupee
has been volatile throughout FY 2010, ending at Rs.45.085 per USD towards
the end of the year. The exchange gain of Rs. 1,679.21 lakhs has been
primarily due to higher rupee rate on forward contracts, settled and
outstanding in FY 2010, in comparison to prevailing rates.

Provision for Diminution in Value of Investments Long term investments are
carried at cost. However, provision for diminution in value is made to
recognize a decline other than temporary in the value of the investments.
Certain provisions on unquoted investments, not considered necessary, have
been reversed in FY 2010.

Exceptional Item

During FY 2009, the Company had provided for impairment loss of Rs.1,519.70
lakhs in respect of capitalized software products, as exceptional item, in
respect of capitalized software products, included in Software Product
Segment.

Interest

The interest expense is predominantly due to the long term loan used for
acquisition of Sasken Finland Oy (erstwhile Botnia Hightech Oy). The
outstanding amount payable to Nordea Bank, has reduced to Rs.2,963.42 lakhs
as at March 31, 2010, compared to Rs. 5,524.79 lakhs, as at March 31, 2009.
The interest charges are lower by Rs.120.42 lakhs, year on year, due to
reduction in outstanding principal.

Income Taxes

The tax charges vary depending on the mix of onsite revenues, offshore
revenues, country of operations, nature of the transaction and revenues
generated from units which enjoy a tax holiday. The group incurs taxation
of 26% and 29% in the subsidiaries in Finland and Mexico respectively. The
income tax expense was 3.0% of revenues for FY 2010, while the income tax
for FY 2009 was 4.1% of revenues. The tax charges are lower in the current
year, due to reductions in royalty revenues, change in profits in overseas
operations partially offset by increase in domestic taxes. The effective
tax rate for the year for the group is 18.7%.

Profit After Taxation

Consolidated profit after taxation increased from 6.1% in FY 2009 to 13.2%
in FY 2010. The profit after taxation for FY 2010 increased by Rs.3,321.32
lakhs, from FY 2009 and was Rs. 7,551.73 lakhs for FY 2010.

Financial Position
As at As at
March 31, 2010 March 31, 2009
Rs. in lakhs % Rs. in lakhs %
Liabilities

Share Capital (including
Share Application) 2,843.11 5.1 2,711.11 5.0

ESOP Outstanding 393.62 0.7 273.64 0.5

Reserves & Surplus 49,121.39 88.1 45,305.56 82.9

Secured Loans 3,405.52 6.1 6,345.63 11.6

Unsecured Loans - - 26.38 0.0

Total Liabilities 55,763.64 100.0 54,662.32 100.0

Assets

Net Fixed Assets 28,930.27 51.9 31,978.03 58.5

Investments 15,906.60 28.5 2,019.98 3.7

Deferred Tax Asset 404.51 0.7 216.66 0.4
Current Assets
Inventories 284.68 0.5 99.92 0.2

Sundry Debtors 9,779.22 17.5 13,896.79 25.4

Cash and Cash Equivalents 3,730.46 6.7 11,715.34 21.4

Other Current Assets 2,761.06 5.0 3,671.32 6.7

Loans and Advances 5,679.08 10.2 4,818.71 8.8

Total Current Assets 22,234.50 39.9 34,202.08 62.6

Less: Current Liabilities 11,712.24 21.0 13,754.43 25.2
and Provisions

Net Current Assets 10,522.26 18.9 20,447.65 37.4

Total Assets 55,763.64 100.0 54,662.32 100.0

Share Capital

The number of outstanding shares was 27,111,051, fully paid up, as at March
31, 2010. The increase of Rs. 132.00 lakhs is on account of share
application money paid towards preferential allotment of 300,000
convertible warrants, each convertible at Rs.176.00, to Mr. Rajiv C. Mody,
Chairman and Managing Director and one of the Promoters of the Company. As
at the year end, 25% of the application money, amounting to Rs. 132.00
lakhs, has been paid.

Employee Stock Options (net of deferred compensation cost)

The employee stock option outstanding (net of deferred compensation cost)
has stood at Rs.393.62 lakhs. During FY 2010, the Company issued 2,180,000
options, which have a vesting period of ranging from one year to three
years, at an average exercise price of Rs.58.42 per share. The issue of new
options has been the primary reason for increase of ESOP outstanding.

Reserves and Surplus

Reserves and surplus as at March 31, 2010 was Rs. 49,121.39 lakhs, as
against Rs.45,305.56 lakhs as at March 31, 2009, an increase of Rs.3,815.83
lakhs.

The movement in reserves and surplus is due to a mix of:

i) Increase in General Reserve, due to transfer of Profit and Loss balance
for the year.

ii) Reduction of Translation Reserve on non-integral operations in Finland,
Mexico and US.

iii) Reduction in securities premium by Rs.14,578.08 lakhs, by creation of
a Business Restructuring Reserve, in accordance with a Scheme approved by
the High Court of Karnataka.

iv) Reduction in Business Restructuring Reserve by Rs.1,519.70 lakhs, due
to an adjustment of impairment loss on capitalized software charged off in
the previous year as exceptional item.

Secured Loans

Secured loans have reduced to Rs. 3,405.52 lakhs as at March 31, 2010, as
against Rs. 6,345.63 lakhs as at March 31, 2009, due to (a) repayment of
loan instalments, which was taken in earlier years, for acquisition of
Sasken Finland Oy and (b) repayment of a secured loan in Finland
operations.

Unsecured Loans

Unsecured loans are Nil as at March 31, 2010, from Rs.26.38 lakhs as at
March 31, 2009. The unsecured loan in Sasken Finland Oy has been completely
settled in the current year.

Fixed Assets

The Net Fixed Assets, including capital work-in-progress, represents 51.90%
of the total assets. The fixed assets, as at March 31, 2010, were at
Rs.28,930.27 lakhs as against Rs. 31,978.03 lakhs as at March 31, 2009.
During the year, the Company invested Rs.2,507.43 lakhs on Fixed assets.
The increase in fixed assets is primarily attributable to:

i) Creation of a new facility in Finland.
ii) Investment in computers and related software.
iii) Acquisition of a business in US.

Investments

The investments, representing 28.50% of the total assets, as at March 31,
2010 were Rs.15,906.60 lakhs, as against Rs.2,019.98 lakhs, as at March 31,
2009.

The Company invests surplus amounts in highly rated Mutual Fund papers,
considering the safety and liquidity as the key determinants for the
investment in a fund. With a view to increase the returns, the Company has
invested significant amount of the surplus amounts in highly rated mutual
funds in FY 2010. There has also been an additional investment in
Omnicapital in FY 2010.

Deferred Tax Asset

Deferred income taxes reflect the impact of current year timing differences
between taxable income and accounting income for the year and reversal of
timing differences of earlier years. Deferred tax assets and deferred tax
liabilities across various countries of operation are not set off against
each other as the Company does not have a legal right to do so. The
Deferred tax assets have been recognized on Mexico, Finland and Network
Engineering Services operations, since there is reasonable certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized.

Inventories

Inventories represent (a) Work-in-progress-costs related to project
milestones that have not been met. The Work-in-progress, as at March 31,
2010 was at Rs. 240.47 lakhs, as against Rs. 59.53 lakhs as at March 31,
2009 (b) Stock-in-trade-costs related to stock of software/hardware and
other components held for sale or included as a part of project costs. The
Stock-in-trade, as at March 31, 2010 was at Rs. 44.21 lakhs, as against
Rs.40.39 lakhs as at March 31, 2009.

Sundry Debtors

Sundry debtors, representing 17.5% of the total assets, as at March 31,
2010 were at Rs. 9,779.22 lakhs, as against Rs. 13,896.79 lakhs as at March
31, 2009. The reduction in debtors is a reflection of improvement in
collections. The DSO for the group, have reduced by 11 days from 73 days to
62 days in FY 2010. The decline in revenues has also led to the reduction
in debtors. The management periodically reviews the quality of receivables
and makes provision where necessary.

Cash and Bank Balances

Cash and Bank balances, representing 6.7% of the total assets, as at March
31, 2010 were at Rs.3,730.46 lakhs, as against Rs. 11,715.34 lakhs as at
March 31, 2009. The Company maintains sufficient cash balance for
operational requirements and invests surplus funds in highly rated Mutual
Fund papers and fixed deposits. In FY 2010, with a view to increasing
returns on surplus funds, the Company switched investments to mutual funds,
upon maturity of certain fixed deposits.

Other Current Assets

Other Current Assets, representing 5.0% of the total assets, as at March
31, 2010 were at Rs.2,761.06 lakhs, as against Rs. 3,671.32 lakhs as at
March 31, 2009. The decrease is primarily due to decrease in unbilled
revenue for March 2010. Unbilled revenue represents amounts recognized
based on services performed in accordance with contract terms and where
invoices have not been raised.

Loans and Advances

Loans and advances, representing 10.2% of the total assets, as at March 31,
2010 were at Rs.5,679.08 lakhs, as against Rs. 4,818.71 lakhs as at March
31, 2009. The increase is primarily due to amounts paid for towards income
taxes and other amounts paid in response to demands raised by taxation
authorities in connection with disputed taxes.

Current Liabilities and Provision

Current liabilities and provisions, representing 21.0% of the total assets,
as at March 31, 2010 were at Rs.11,712.24 lakhs, as against Rs. 13,754.43
lakhs as at March 31, 2009. The decrease is significantly due to reduction
in liability for forward contracts, statutory liabilities and provision for
employee benefits and provident fund obligations.

Cash Flow

The net cash from operating activities was Rs. 11,609.52 lakhs during the
year ended March 31, 2010 as against Rs. 13,288.55 lakhs during the year
ended March 31, 2009.

The cash from operations of Rs.11,609.52 lakhs, for the year ended March
31, 2010, was generated due to improved collections on debtors, increase in
current liabilities, higher profits before taxes, depreciation and
amortization. However, this has been offset by a non-cash increase, in
exchange, gain amounting to Rs. 3,081.66 lakhs.

The net cash used in investing activities was Rs. 15,120.48 lakhs during
the year ended March 31, 2010 as against Rs.1,987.05 lakhs net cash used
during the year ended March 31, 2009. In the current year, the surplus
funds were used for investment in mutual funds. There were also investment
in limited partnerships and purchase of fixed assets/business units.

The net cash used in financing activities was Rs. 4,206.50 lakhs during the
year ended March 31, 2010 and as against net cash used of Rs. 5,955.14
lakhs during the year ended March 31, 2009. The outflow was on account of
repayment of the long term loan, which the Company had borrowed for Sasken
Finland acquisition, payment of interim dividend and related dividend tax.

Opportunities and Threats

As more and more wireless devices and newer players come in to the market
place, the cycle time for getting the device out are shrinking and the cost
at which R & D needs to be done is under pressure. Sasken is well
positioning to address these pain points which our customers face. Our
current focus is to growth the top tier accounts and we have aligned
ourselves accordingly.

Tier 1 companies are now beginning to look at R&D outsourcing like they
used to look at IT outsourcing in the past and one of the consequences of
this is that they are beginning to look at consolidating their R&D
suppliers to a smaller number and in the last year, one of the good things
that has happened is that we have been chosen as the preferred supplier to
most of these customers.

We believe that the momentum of this consolidation process will continue
over the next two to three years because as they start looking to reduce
the R&D costs by moving to locations like India and China and look for
global delivery method to bring overall efficiency in their R&D process and
bring down their number of suppliers we stand to gain as we have been
chosen in their consolidated supplier list and this consolidation process
is what we see as the biggest driver of growth for us going forward in the
next two to three years.

Material developments in HR

Our total employee headcount, excluding contractors, stood at 3,153
employees as of March 31, 2010. Our attrition rate for the full year was
around 24% and this continues to be an area of concern for us. Employee
Retention & Engagement continues to be primary focus for all the HR goals
and plans that we have finalized for FY 2011. We continue to invest in HR
system and practices which would help improve Employee Engagement levels
and help establish stronger alignment between rewards and growth with
individual and team performance. We strongly believe in the power of
appreciation and recognition and its co-relation to High Performance. We
are fairly confident of reaping the benefits of all the People Practices
and Systems that we have put in place in the last year towards building a
culture of winning squarely on the strength of Global Operational
Excellence and High Performance.

Risk and Concerns:

The management of Sasken actively takes steps to manage the various risks
that the Company is exposed to. The major activities to this end are as
follows:

Business Risks

One of the key aspects of our strategy has been to remain focused on the
telecom vertical. This exposes us to the risks associated with operating in
a single industry vertical, as compared to our peers in the industry, who
are more diversified. To mitigate this risk, we have started addressing
customer requirements in adjacent verticals such as consumer electronics,
satellite, government, defense and auto. We expect 10 to 15% of our
revenues in FY 2011 to come from these initiatives. However, our customers
operate in a limited set of industries and factors that adversely affect
these industries or product spend by companies within these industries may
affect our business. Any decrease in R&D spending or outsourcing by these
companies may reduce the demand for our services. We derive a significant
portion of our revenue from our top 10 customers. Reduction in revenues we
receive from one or more of these customers may affect our business.

Protection of Intellectual Property

It is the prime and foremost responsibility of any company in the knowledge
industry to safeguard its own intellectual property. The management has
taken the following measures to protect its IP:

Infosec Actions

Sasken ISMS (Information Security Management System) is defined on the best
practices derived out of ISO 27001. We are compliant and certified with ISO
27001 for our information security practices. This framework requires us to
comply with 133 controls and ensures adherence to international
requirements in information security. Additionally, customer security
standards are met by restriction of physical and logical access, to the
customer's Intellectual Property.

Filing of Patents

The Company actively encourages employees to file patents to protect its
intellectual property. Apart from serving the purpose of protection, these
patents, as and when granted, could lead to revenues from their license, or
to other benefits, by cross licensing of these patents, in exchange for
others that we may want to use.

Filing of Trademarks

Trademarks have acquired much importance to Sasken with the software market
focusing on branding of software products and services. We have also
applied for registration of certain trademarks in USA, EU, Russia, Japan,
China and India.

Protection of Confidentiality

Sasken assigns much importance to the confidentiality of its software,
trade secrets, internal data, systems and processes. Sasken ensures that
the employees, clients, prospects, subcontractors, advisors, consultants,
vendors, prospective investors who are exposed to any of the confidential
information of Sasken, are contractually bound to keep it confidential.

Contracting Process for Limitation of Liability

Each and every contract entered into by Sasken, including both customer and
vendor contracts, undergoes a well-settled legal and commercial contract
review process. The process ensures that, the clauses, which may be imposed
by the customer/vendors that expose Sasken to risks, are proportionate with
the benefits accruing from the contract. Sasken is also protected by
insurance coverage.

Financial Risks:

Foreign Exchange Fluctuation Risk

Most of Sasken's revenues are in US Dollars and Euros, while its expenses
are in Indian Rupees. Operating profits are therefore subject to
fluctuations in exchange rates. The exchange rate between the Rupee and the
US Dollar has changed substantially in the recent year. In FY 2010, the
rupee continued to be choppy. The rupee depreciated by 1.7% against USD,
from March 31, 2009 till March 31, 2010. The rupee closed at Rs.45.085 to a
dollar for FY 2010.

The following are the de-risking measures we adopt to minimize the impact
of exchange fluctuations.

The Company periodically reviews its foreign exchange exposures and takes
appropriate hedges through forward contracts and option contracts,
regularly. The policy of the Company is to take hedges for risk mitigation
and not for profit maximization. The Company has pre set loss limits and
unhedged exposures are subject to these loss limits for the purpose of
deciding the hedge.

Liquidity Risk:

The Board reviews the liquidity position periodically and determines the
need for infusion of equity and debt capital into the business.

The group has met its working capital requirements through internal cash
accruals during the current year. The Company has fund based and non fund
based lines of credit available, to satisfy any working capital
requirements, if required.

Internal Control Systems

The Company continues to comply with the requirements of Enterprise Risk
Management (ERM), which is mandated by Clause 49 of the listing agreement.
Apart from identifying and documenting Entity level' risks and controls,
the exercise involves identifying all significant (a) locations and (b)
business processes, followed by (c) documenting each of the process flows
(d) creation of risk registers and (e) an assessment of controls by way of
testing. The risk register captures all areas of potential financial risks
and operational risks and, the associated internal controls that are
already in place or have been identified. Annual certification is an
important procedure which ends with the CEO and CFO certification. It
starts from the control' owner and then on to the process' owner and
upwards, leading to the CXO's.

As part of the assessment exercise conducted, certain proposed controls
identified in previous periods have been implemented and tested for their
effectiveness, and other proposed controls are being implemented.
Additionally, certain new controls have been identified for matters of
significant importance or relevance, for implementation in the coming
periods.

The Company continues to capture and track', risks and controls. The
Company continues to do a regular assessment of the risks and controls for
the existing and new process flows. The processes followed by other
Subsidiary companies would also be brought under the purview of ERM.

Further, as a good corporate governance measure, all matters of significant
importance or relevance has been reported to the Audit Committee and the
Company's Statutory Auditors.