COMMITTEES OF THE BOARD

Audit Committee

Deepak S. Parekh

Chairman

Nadir B. Godrej

M. M. Murugappan

R. K. Kulkarni

Remuneration/Compensation Committee

Narayanan Vaghul

Chairman

Keshub Mahindra

Nadir B. Godrej

M. M. Murugappan

Share Transfer and Shareholders/

Investors Grievance Committee

Keshub Mahindra

Chairman

Anand G. Mahindra

Bharat Doshi

A. K. Nanda

R. K. Kulkarni

Loans & Investment Committee

Keshub Mahindra

Chairman

Anand G. Mahindra

Bharat Doshi

A. K. Nanda

R. K. Kulkarni

Research & Development Committee

A. S. Ganguly

Chairman

Anand G. Mahindra

Nadir B. Godrej

M. M. Murugappan

Bharat Doshi

GROUP MANAGEMENT BOARD

Anand G. Mahindra

Vice-Chairman & Managing Director

Bharat Doshi

President - Trade & Financial Services Sector

A. K. Nanda

President – Infrastructure Development Sector

Anjanikumar Choudhari

President - Farm Equipment Sector

Rajeev Dubey

President – Human Resources & Corporate Services

Pawan Goenka

President – Automotive Sector

Hemant Luthra

President – Systems & Technologies Sector

Raghunath Murti

Managing Director – Mahindra Intertrade Limited

Uday Y. Phadke

President – Finance & Legal Affairs

Ulhas N. Yargop

President – Telecom & Software Sector

BOARD OF DIRECTORS

Keshub Mahindra

Chairman

Anand G. Mahindra

Vice-Chairman & Managing Director

Deepak S. Parekh

Nadir B. Godrej

M. M. Murugappan

Narayanan Vaghul

A. S. Ganguly

R. K. Kulkarni

Anupam Puri

Thomas Mathew T.

Nominee of Life Insurance Corporation of India

Bharat Doshi

Executive Director

A. K. Nanda

Executive Director & Secretary

1

“Every great business is built on friendship” according to

the great American retailer J.C.Penney. As far as the

Mahindra Group is concerned, truer words were never

spoken. For sixty years, Mahindra has grown and prospered

by making its customer its friend and partner in prosperity.

Who is the Mahindra customer? The Mahindra customer

has as many faces as India does. Our customer is the growing

family that needs a safe, comfortable and reliable car; the

farmer in the field; the rural taxi driver; the company

executive who wants to get away for the weekend; the lady

who buys Lego for her children; the young techie looking for

the latest telecom solution; the hard working family man

who wants to give his family a holiday; the ambitious engineer

who wants to design an engine for a European firm; the

newly married couple looking for a house; the grower of

grapes seeking an export market; the IT entrepreneur looking

for an SEZ to showcase his new venture; the small farmer

who needs a loan; the small trader looking for a genset

during power cuts. Mahindra customer is all these and more.

Our customer also has a global face. The European

businessman seeking new markets; the holiday farmer in the

US; the Chinese peasant near Nanchang; the young hot-

rodder in Spain; the safari enthusiast in South Africa –

these too are our customers. Urban and rural, high end and

budget, local and international – between our Group

companies, we serve them all.

With such a range and variety of customers, it’s no wonder

that the customer is always central to Mahindra’s thoughts

and actions. At Mahindra we go beyond customer service to

customer partnership. That means listening to the customer,

finding out what he wants, identifying what makes her happy,

and then incorporating it into our products. The new Scorpio

for example is literally the car the customer built.

We systematically captured customer feedback and

incorporated it to provide 43 new features. Similarly, in

housing, we don’t just give the customers a house – we give

them the healthy living that they crave. In rural finance, we

give the customer the conveniences that other banking

systems cannot – quick sanctions of loans without the rigidity

of a bank, the facility to pay back in the manner convenient

to him – even if it means accepting payments in small change

tied in a cloth bundle. For holidays, we give families what

they need– a memorable, hassle-free bonding opportunity in

beautiful surroundings. The Chinese farmer or the American

one gets an affordable tractor that is as good-looking as it

is hardworking.

We must be doing something right, because this year’s profits

are the highest ever, beating even last year’s record high. It

is increasingly obvious to us that if you look after your

customer, the customer will repay you with his loyalty,

patronage and endorsement. And since we operate in a wide

range of businesses, the customer of one business will turn

to us for the satisfaction of other needs as well. The satisfied

Scorpio buyer also trusts us to plan his vacations. The farmer

looks to us when he is ready to upgrade to a four-wheeler.

And if he is happy with us, he tells his friends and relations

as well.

We have found that it pays to make a fine art out of meeting

the customer’s needs. It makes for good business. But better

still, it makes for great friendships and a life long

relationship. The net result is that our employees are our

best advertisement and our customers are our best

ambassadors. We believe that J.C Penney was right. Our

customers are our friends because they are at the center of

our thoughts and actions. That is why, on the right hand

corner of the cover of our Annual report we have proudly

called ourselves a C3– a truly customer centric corporation.

A CUSTOMER CENTRIC CORPORATION

2

Contents

Directors’ Report ..................................................................................................... 5

Management Discussion and Analysis ..................................................................... 20

Corporate Governance ........................................................................................... 36

Accounts ............................................................................................................... 62

Statement pursuant to Section 212 ...................................................................... 115

Consolidated Accounts ......................................................................................... 117

Bankers

Bank of America N. T. & S.A.

Bank of Baroda

Bank of India

Canara Bank

Central Bank of India

HDFC Bank Limited

Standard Chartered Bank

State Bank of India

Union Bank of India

Auditors

A. F. Ferguson & Co., Allahabad Bank Buildings,

Bombay Samachar Marg, Mumbai 400 001.

Advocates

Khaitan & Co., Meher Chambers,

R K Marg, Ballard Estate, Mumbai 400 038.

Registered Office

Gateway Building, Apollo Bunder, Mumbai 400 001.

Branches

7, Dr. Ishaque Road (Old KYD Street), Kolkata 700 016.

Mahindra Towers, 2-A Bhikaji Cama Place, New Delhi 110 066.

Mahindra Towers, First Floor, 17/18, Pattulous Road, Chennai 600 002.

Raheja Chambers, First Floor, 12, Museum Road, Bangalore 560 001.

3

Dear Shareholder,

The debate continues all over the world as to what is the social responsibility of

Business. Corporations are redefining themselves seeking new identities. No one

has a clear answer since societies spread all over the world have different

traditions and culture and their needs vary from region to region. There cannot

be one model which can suit all societies. Business therefore has to be sensitive

enough to perceive the needs of the society in which they operate, and fashion

their strategy and objectives to meet them.

Indian business has always worked in tandem with the nation’s needs and has

been a part of the larger social fabric of the nation. During the freedom struggle,

Indian business participated whole-heartedly in the political revolution. In the

last decade it has been in the vanguard of the economic revolution. In fact, the

growth of Indian business has been a crucial component of the revolution of

rising aspirations that we are witnessing all around us. And philanthropy has

always been a part of the Indian business tradition.

Corporate Social Responsibility has been basic to our philosophy at the Mahindra

Group since our birth in 1945. It has been an intense but deliberately low

profile activity based on the belief that social responsibility is a privilege and

not a portal for publicity. Today, there is a clarion call for business to lend a

hand to tackle the social challenges that are being thrown into relief because of

our increasing prosperity.

It is our belief and conviction that India’s recent spectacular growth provides us

with an opportunity to redress some of the weaknesses that exist in our social

fabric. One cannot have a large section of a population denied even the basic

amenities like water, housing, health care and education. This is not an acceptable

situation. We are therefore convinced and believe that the weaker sections of

our society need help and support. We feel that the route to addressing their

problems is through education and training. We need to impart skills which

make it possible for them to be employed.

The focus of our CSR therefore is on appropriate education, vocational education

and livelihood training for the economically and socially disadvantaged, primary

education for the girl child and higher education for those who merit it.

We plan on setting up Mahindra Pride Schools that will provide youth from

socially disadvantaged sections of society with training to enable them to gain

employment based on their skills. Studies are currently on to decide the locations

of these schools. Concurrently, work has begun on curriculum development for

the courses that will be offered. Courses will be carefully designed based on the

requirements of industry, in terms of manpower and skills. Sunrise and booming

sectors with growth potential and shortage of skilled manpower will be targeted.

We hope this will lead to economic and social empowerment for many young

people who are, today, disadvantaged.

We will also support six government schools in Mumbai. The aim is to improve

the overall quality of education in these schools and to achieve improved learning

4

outcomes by working with teachers, children and the community. Again, the

main beneficiaries will be the children attending these schools.

In India only 3 girls out of every 10 who enroll in Std. I go on to complete Std.

X. To make a dent in this problem, the Group supports the education of 6,000

disadvantaged girl children through the Nanhi Kali project of the K. C. Mahindra

Education Trust. These girls belong to urban slums, backward and tribal areas

in rural India, where education is not a priority for girls. Through the Nanhi

Kali project they will not only receive education, but also get direct support in

the form of uniforms, clothes, stationery, etc. thus removing some of the barriers

to their completing school.

We are also doubling the number of Mahindra All India Talent Scholarships

from 300 to 600. These scholarships are given to students who wish to pursue

job-oriented diploma courses in recognized Government Polytechnics, enabling

them to qualify for employment. Scholarships are given to economically

disadvantaged and socially weaker strata in both rural and urban India.

Deafness is another kind of disadvantage that is rarely acknowledged in our

society. As a special gift to the hearing impaired, the Group will donate 60

Cochlear Implants over a 3-year period to beneficiaries below the age of 5

years. With training, this will enable 60 profoundly deaf children to lead a

normal life and realise their full potential. Each Cochlear Implant costs

approximately Rs. 5 lacs. So far 7 children, all from the lower socio-economic

strata, have received the implant.

Our employees believe that social responsibility does not end with the giving of

money. It is equally important to give of our time, and of ourselves. The Group

has launched a unique ESOPs (Employee Social Options) Plan, through which

its 24,000 strong workforce can choose from a menu of social options, and

participate in CSR activities by volunteering their time. Through this plan, on

any given day, Mahindra employees somewhere in the country will be contributing

directly to society.

In order to ensure that sufficient funds are available for us to undertake this

task in a modest manner, we as a Group have committed that one percent of our

Profits after Tax will be available on a continuing basis to support this CSR

initiative largely to benefit the socially and economically disadvantaged.

I shall be reporting to you on behalf of the Group from time to time.

Regards,

Yours sincerely,

Keshub Mahindra.

5

DIRECTORS’ REPORT TO THE SHAREHOLDERS

Your Directors present their Report together with the audited accounts of your Company for the year ended 31st

March,

2006.

Financial Highlights

(Rs. in lakhs)

2006 2005

Gross Income 945143 780409

Less: Excise Duty on Sales 112489 103504

Net Income 832654 676905

Profit before Depreciation, Interest, Provision for Contingencies,

Exceptional items and Taxation 107188 87943

Less : Depreciation /Amortisation 20001 18405

Profit before Interest, Provision for Contingencies,

Exceptional items and Taxation 87187 69538

Less : Interest (Net) (1840) (558)

Profit before Provision for Contingencies, Exceptional items and Taxation 89027 70096

Less : Provision for Contingencies 78 34

Profit before Exceptional items and Taxation 88949 70062

Add: Exceptional items 21001 1355

Profit before Taxation 109950 71417

Less : Provision for tax – Current tax (including Fringe Benefit Tax) 28540 21500

Less: Provision for tax – Deferred tax (Net) (4300) (1350)

Profit for the year 85710 51267

Balance of profit for earlier years 99640 74284

Add : Transfer from Debenture Redemption Reserve 44 1040

Investment Allowance Reserve Written Back - 245

Profit available for appropriation 185394 126836

Less : General Reserve 10000 10000

Dividend paid for the previous year

[Rs. Nil credit (previous year : Rs.0.23 lakhs credit)]

Income-tax on dividend paid

[Rs. Nil credit (previous year : Rs.0.03 lakhs credit)]

Proposed Dividends 24397 15081

Income-tax on Proposed Dividends 3422 2115

Balance carried forward 147575 99640

6

Performance Review

Automotive Sector:

The Automotive Sector of your Company continued its growth

in vehicle production and sales for the fourth consecutive

year. During the year under review, your Company produced

1,28,601 vehicles [i.e. multi utility vehicles (MUV) and

light commercial vehicles (LCV) including 2,705 LCV

produced for Mahindra International Limited (MIL)] and

22,317 three-wheelers as compared to 1,24,795 vehicles

and 23,230 three-wheelers in the previous year. Your

Company recorded sales of 1,27,005 vehicles (of which 1,833

LCV were sold by MIL) and 22,419 three-wheelers as

compared to 1,22,071 vehicles and 22,952 three-wheelers

in the previous year registering a growth of 4% in vehicles

sales.

Your Company’s domestic MUV sales volumes grew by 3%

as against the industry MUV sales growth of 6%. Your

Company’s LCV sales volumes were lower than the last year

by 14% as against the industry decline of 7% in this segment.

In the large three-wheeler segment, your Company’s sales

volumes declined by 21% against a 20% decline for the

industry as a whole. Your Company entered the small three-

wheeler segment during the year with the launch of a 0.5

MT payload cargo carrier named Champion Alfa in select

markets. By the end of the year under review, your Company

had sold 4,307 Champion Alfa in select markets. The Spare

Parts sales increased to Rs.236.00 crores (including Exports

of Rs.12.84 crores) during the year under review as compared

to the previous year figures of Rs.227.85 crores (including

Exports of Rs.34.04 crores).

Your Company has intensified its efforts to identify niche

markets for its automotive products throughout the world,

especially geographical areas that have similar sales,

distribution and marketing conditions as India. Over the

last three years, your Company’s vehicles have been

introduced in Europe, the Middle East, South America,

South-East Asia and Africa with a customised business model

for each country. These initiatives resulted in a quantum

increase in export volumes.

For the year under review, your Company sold 5,534 vehicles

in the overseas markets which is an increase of 82% over

the previous year.

Recently, the Scorpio range of pick-ups was launched for

the international markets in South Africa. This will drive

growth in the overseas markets.

Your Company commissioned a new plant in Haridwar in

the State of Uttaranchal for the manufacture of low end

products like three-wheelers.

Your Company launched a new version of the Scorpio in

March, 2006. It has been well received in the market and

would have a full impact in the current year.

The Automotive Sector plans to develop a family of new

generation engines to power the present and future Mahindra

vehicles. These engines would offer improved efficiency,

refinement and performance. New vehicle development,

including a new UV and the Logan passenger car is going

as per plan. These vehicles carry the promise of comfort,

economy, ruggedness and a pleasurable driving experience.

In an increasingly competitive market, the Sector banks on

its innovation to give it the edge. On the technology front,

the Sector is taking forward the research and development

on telematics, embedded system and promising alternative

energy technologies viz. Hydrogen, Biodiesel and Hybrids.

Further technology developments in the field of safety, nano-

materials and other innovations are expected to be introduced

into the product line soon.

With a view to effectively exploit the growth and business

opportunities of the Commercial Vehicles business, your

Company entered into a Joint Venture (JV) with International

Truck and Engine Corporation (ITEC) for manufacture of

commercial vehicles in India. Pursuant to the approval of

7

the shareholders obtained by Postal Ballot in July, 2005,

the LCV business of the Company was transferred to a Joint

Venture Company (JVC), Mahindra International Private

Limited (now Mahindra International Limited) with effect

from 1st

November, 2005, in which your Company has a

51% shareholding, the balance 49% being held by ITEC.

This JVC is engaged in the Light Commercial Vehicles

business. Going forward, this JVC will also enter the Medium

and Heavy Commercial Vehicle segments and participate to

a larger extent in the Indian commercial vehicles market.

In order to facilitate a meaningful comparison your

Company’s production and sales volumes include MIL

volumes.

Your Company’s Joint Venture with Renault s.a.s. of France

to introduce the Logan in India is progressing well and is on

target with respect to cost and time. The project is proposed

to be financed through an appropriate mix of Equity and

Debt and till date, both the Joint Venture Partners have

contributed Rs.51.5 crores into the Joint Venture Company

as equity in proportion to their shareholding.

Farm Equipment Sector:

For the third consecutive year, the Tractor Industry grew

substantially registering a growth of 18% for the year under

review. This was mainly on account of a good monsoon,

better availability of credit and focus on retail tractor

financing by the Banking Sector.

During the year, your Company sold 85,029 tractors as

against 65,390 tractors sold in the previous year recording

a significant growth of 30% and produced 87,075 tractors

as against 67,115 tractors produced in the previous year

recording a notable growth of 29.7%. Your Company

maintained its market leadership for the 23rd

consecutive

year in the domestic tractor market.

Last year your Company launched two new products - 235

DI and 245 DI - in the domestic market in the low HP

segment and new Arjun Ultra-1 range in the high HP

segment. These products have significantly strengthened your

Company’s position in these segments.

Your Company sold 14,692 engines during the year under

review as against 6,672 engines sold during the previous

year, registering a massive growth of 120%. The engine

business which started from a customer base of a single

client in 2002, has currently 22 corporate clients. Your

Company has also made a foray into the retail and non-

genset segments. Beginning from this year your Company

has also sold 1,084 Mahindra branded Diesel Generators

(DG Sets).

Your Company’s focus on exports continued with export

volumes growing by 29.6%. The major export markets are

USA, SAARC countries, Africa, Australia and China. Your

Company established a Joint Venture Company (JVC) in

China under the name of Mahindra (China) Tractor Company

Limited (MCTCL) in which a wholly owned subsidiary of

your Company, Mahindra Overseas Investment Company

(Mauritius) Limited, has a 80% shareholding, the balance

20% being held by Jiangling Motors Co., Group, China.

This JVC has a capacity of 12,000 tractors in 18-33 HP

range. This JVC became fully operational in July, 2005.

Your Company has also started its East European operations

by launching tractors in Serbia. Your Company sold spare

parts worth Rs.127.88 crores (including exports Rs.11.7

crores) during the year under review as compared to sales

of Rs.108.83 crores (including exports Rs.7.6 crores) in the

previous year, registering a healthy growth of 17.5%.

Your Company plans to offer various product solutions by

offering value for money and reliable products in domestic

market. This will help your Company expand its product

range in low HP segment. Apart from new products, it is

important to upgrade existing products with contemporary

features. Your Company will be introducing upgrades of

existing products in domestic market in a phased manner

8

over the next 3 years. For the export markets, the Sector

will expand its product range in compact segment and

introduce products in existing HP range which are economical

and rugged. Keeping in line with the growth plans, your

Company will be introducing new products in Engine

Application business segment.

Profits:

The Profit for the year before Depreciation, Interest,

Provision for Contingencies, Exceptional items and Taxation

was Rs.1,071.88 crores as against Rs.879.43 crores in the

previous year registering an increase of approximately

21.88%. Profit after tax was Rs.857.10 crores as against

Rs.512.67 crores in the previous year recording an increase

of approximately 67.18%. Your Company continues with its

rigorous cost restructuring exercises, which has resulted in

significant savings through value engineering, economising,

optimisation of plant capacity utilisation, cost

competitiveness and right sizing in almost all areas.

A detailed analysis of the Company’s performance is

contained in the Management Discussion and Analysis Report,

which forms part of this Annual Report.

Issue of Bonus Shares

Pursuant to the Resolution passed at the Annual General

Meeting of your Company held on 28th

July, 2005, your

Company has on 8th

September, 2005, allotted 11,60,08,899

Ordinary (Equity) Shares as fully paid-up Bonus Shares in

the ratio of one Bonus Share for every one existing Equity

Share of the Company held by shareholders as on the Record

Date i.e. 2nd

September, 2005.

Dividend

Your Directors have recommended a dividend of 75% and

a Special Dividend of 25% on the enhanced share capital

aggregating Rs.10 per share. The special dividend has been

recommended in light of the very successful listing of the

Mahindra & Mahindra Financial Services Limited equity

shares on the Stock Exchanges. The dividend, together

with the tax on distributed profits, will absorb a sum of

Rs.278.19 crores (previous year Rs.171.96 crores

comprising of a dividend of 100% and a special dividend

of 30%) and will be paid to those shareholders whose

names stand registered in the books of the Company as on

the book closure date.

Finance

Your Company follows a prudent financial policy, which has

resulted in improvement in its Capital structure and debt

protection levels. Your Company’s Debt to Equity ratio has

improved from 0.53 at the beginning of the year to 0.31 as

at 31st

March, 2006. Interest coverage ratio has improved

from 28.4 times as at 31st

March, 2005 to 29.9 times as at

31st

March, 2006.

In March, 2006 your Company exercised its Call option to

redeem high cost debentures of Rs.75 crores. Pursuant to

this, the debentures were redeemed in April/May.

During the year, both CRISIL Limited (CRISIL) and Fitch

Ratings India Private Limited (FITCH) reaffirmed the AA+

and AA+ positive rating assigned by them to your Company’s

outstanding debentures in the previous financial year. The

ratings indicate high safety on timely payment of interest

and principal and low expectation of credit risk.

Your Company in May, 2004, made a US$ 100 million

Foreign Currency Convertible Bonds (FCCBs) offering to

international investors. During the period upto 29th

May,

2006 several Bondholders exercised their conversion option

resulting into Bonds of value US $ 87.10 million getting

converted into 1,19,53,617 Equity Shares/GDRs each GDR

representing One Equity Share of the Company.

9

In April, 2006 your Company successfully completed its

US$ 200 million FCCBs offering to international investors.

The issue received an overwhelming response. The demand

was 3.22 times the issue size and was priced at Zero Coupon

for a five year tenure with a redemption price of 128.03%

to yield 5% till maturity. The conversion price was fixed at

Rs.922.04 at 40% premium to the then prevailing share

price of Rs.658.60. The issue proceeds will be used for

product development, modernisation and expansion of

existing manufacturing facilities and expansion by internal

growth as well as overseas acquisitions and for such purposes

as may be permitted from time to time under applicable

laws.

Stock Options

On the recommendation of the Remuneration/Compensation

Committee of your Company, the Trustees of the Mahindra

& Mahindra Employees’ Stock Option Trust have granted

15,67,144 Stock Options (after giving effect to the 1:1

Bonus Issue made in September, 2005) to Eligible Employees

during the year under review.

Details required to be provided under the Securities and

Exchange Board of India (Employee Stock Option Scheme

and Employee Stock Purchase Scheme) Guidelines, 1999

are set out in Annexure I to this Report.

Industrial Relations

Industrial Relations generally remained cordial throughout

the year. However during negotiations of the wage

agreement at the Company’s Zaheerabad plant, the

workmen’s Union issued an intent to strike notice. The

production was hampered for a few days, but did not have

any major impact on the Company’s operations. The

Management Discussion and Analysis gives an overview of

the developments in Human Resources/Industrial Relations

during the year.

Safety, Health and Environmental Performance

Your Company has a well-established Safety, Occupational

and Environmental Policy to ensure the optimum safety of

the employees, public, plant and equipment, which are

embedded in the core organisational values of your Company.

The Policy interalia necessitates necessary compliances with

all statutory rules and regulations, imparting training to

employees, carrying out safety audits of the various facilities

of the Company, conducting regular medical check up of its

employees and promoting eco-friendly activities. Your

Company’s Kandivli Plant of the Automotive Division and

Nagpur and Jaipur Plants of the Tractor Division have been

certified for Occupational Health and Safety Management

System (OHSAS 18001) certification which aims to eliminate

or minimise risk to employees and other parties who may be

exposed to Occupational Health and Safety risks associated

with the activities of your Company. Various safety promotion

campaigns and special initiatives were carried out in the

Plants. Your Company’s Nashik and Igatpuri Plants of the

Automotive Division and Kandivli, Nagpur and Jaipur Plants

of the Tractor Division have been certified with the amended

standards for Environmental Management System (ISO

14001:2004).

Directors

Mr. Alan E. Durante retired as the Executive Director of

the Company on 25th

September, 2005 and ceased to be a

Member of the Board of Directors of the Company with

effect from the same date. Mr. Durante also ceased to be a

Member of the Research & Development Committee and

Loans & Investment Committee of the Company. Mr. Durante

served the Company in various responsible positions since

1962 and also as an Executive Director since 1992 – a

career spanning over 43 illustrious years.

Unit Trust of India withdrew the nomination of Mr. V. K.

Chanana as a Nominee Director with effect from 22nd

March,

10

2006. Consequently, Mr. V. K. Chanana ceased to be a

Director of the Company and also ceased to be a Member of

the Audit Committee of the Company.

Mr. T. S. Vijayan had been appointed as an Additional

Director representing Life Insurance Corporation of India

(LIC) at the Meeting of the Board of Directors held on 28th

July, 2005. Subsequent to the year-end, LIC withdrew the

nomination of Mr. Vijayan as a Nominee Director and

nominated Mr. Thomas Mathew T. as LIC’s representative

as an Additional Director on the Board of Directors of the

Company with effect from 29th

May, 2006. He holds office

upto the date of the forthcoming Annual General Meeting.

A Notice has been duly received from a Member proposing

the candidature of Mr. Thomas Mathew T. for the office of

Director at the said Meeting.

The Board has placed on record its sincere appreciation of

the valuable services rendered by Mr. Alan E. Durante during

his tenure of service with the Company and Mr. V. K.

Chanana and Mr. T. S. Vijayan during their tenure as

Directors.

Mr. Deepak S. Parekh, Mr. N. Vaghul, Mr. A. K. Nanda and

Mr. Bharat Doshi retire by rotation and, being eligible,

offer themselves for re-appointment.

Directors’ Responsibility Statement

Pursuant to section 217(2AA) of the Companies Act, 1956,

your Directors, based on the representations received from

the Operating Management, and after due enquiry, confirm

that:

(i) in the preparation of the annual accounts, the applicable

accounting standards have been followed;

(ii) they have, in the selection of the accounting policies,

consulted the Statutory Auditors and these have been

applied consistently and reasonable and prudent

judgments and estimates have been made so as to give a

true and fair view of the state of affairs of the Company

as at 31st

March, 2006 and of the profit of the Company

for the year ended on that date;

(iii) proper and sufficient care has been taken 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;

(iv) the annual accounts have been prepared on a going

concern basis.

Subsidiary Companies

During the year under review, Mahindra-BT Investment

Company (Mauritius) Limited, Mahindra (China) Tractor

Company Limited, Mahindra Automotive Steels Limited

(formerly Mahindra Automotive Steels Private Limited),

Mahindra Europe s.r.l., Mahindra Ugine Steel Company

Limited (MUSCO), Console Estate & Investments Limited

(since merged with MUSCO), Mahindra Renault Private

Limited, Mahindra World City (Jaipur) Limited, Mahindra

World City (Maharashtra) Limited (formerly Mahindra

Realty Limited), Mahindra International Limited (formerly

Mahindra International Private Limited), Tech Mahindra

(R&D Services) Limited, Tech Mahindra (R&D Services)

Inc., Tech Mahindra (R&D Services) Pte. Limited, Stokes

Group Limited, Jensand Limited, Stokes Forgings Limited,

Stokes Forgings Dudley Limited, Plexion Technologies

(India) Private Limited, Plexion Technologies (UK)

Limited, Plexion Technologies GmbH, Plexion Technologies

Inc., USA, Tech Mahindra (Thailand) Limited and Tech

Mahindra Foundation became subsidiaries of your

Company.

11

Your Directors are pleased to report that during the year

under review, your Company divested 99,91,450 Equity

Shares in Mahindra & Mahindra Financial Services Limited

(MMFSL) through an Offer for Sale as a part of the Initial

Public Offering (IPO) of MMFSL resulting in a gross

cash realisation of Rs.199.83 crores. The IPO of MMFSL

was for a sum of Rs.400 crores comprising a fresh issue of

one crore Equity Shares and an Offer for Sale of one crore

Equity Shares by the Company and certain other shareholders

of MMFSL at a price of Rs.200 per share. Post IPO, the

Company’s holding in MMFSL stands at 67.72%. The

Company continues to retain a majority stake in MMFSL in

view of its strategic importance to the Company’s

business. This divestment was made in line with the

Company’s policy of promoting investments in

appropriate businesses and monetizing the same at an

opportune moment for creating wealth for the Company’s

shareholders. MMFSL got itself listed on 17th

March, 2006

on National Stock Exchange of India Limited and Bombay

Stock Exchange Limited. The IPO received an overwhelming

response and was subscribed by 26.88 times.

Subsequent to the year-end, PT Tech Mahindra Indonesia

became a wholly owned subsidiary of Tech Mahindra Limited,

Mahindra Intermodal Transportation Private Limited became

a wholly owned subsidiary of Mahindra Gesco Developers

Limited which are subsidiaries of your Company and

Mahindra Automotive Steels Limited (formerly Mahindra

Automotive Steels Private Limited) ceased to be a subsidiary

of your Company.

The Statement pursuant to section 212 of the Companies

Act, 1956 containing details of the Company’s subsidiaries

is attached.

The Consolidated Financial Statements of the Company and

its subsidiaries, prepared in accordance with Accounting

Standard AS21 prescribed by The Institute of Chartered

Accountants of India, form part of the Annual Report and

Accounts.

In terms of approval granted by the Central Government

under section 212(8) of the Companies Act, 1956, copy of

the Balance Sheet, Profit and Loss Account, Reports of

the Board of Directors and Auditors of the subsidiaries

have not been attached with the Balance Sheet of the

Company. The Assistant Company Secretary will make these

documents available upon receipt of request from any

Member of the Company interested in obtaining the same.

However as directed by the Central Government, the

financial data of the subsidiaries have been separately

furnished forming part of the Annual Report. These

documents will also be available for inspection at the

Registered Office of the Company and the concerned

subsidiary companies, during working hours upto the date

of the Annual General Meeting. Further, pursuant to

Accounting Standard AS21 issued by The Institute of

Chartered Accountants of India, Consolidated Financial

Statements presented by the Company includes financial

information of its subsidiaries.

Auditors

Messrs. A. F. Ferguson & Co., Chartered Accountants, retire

as Auditors of the Company and have given their consent

for re-appointment. The shareholders will be required to

elect Auditors for the current year and fix their

remuneration.

As required under the provisions of section 224 of the

Companies Act, 1956, the Company has obtained a written

certificate from the above Auditors proposed to be re-

appointed to the effect that their re-appointment, if made,

would be in conformity with the limits specified in the said

section.

12

Public Deposits and Loans/Advances

Out of the total 4,593 deposits of Rs.843.06 lakhs from the

public and shareholders as at 31st

March, 2006, 376 deposits

amounting to Rs.66.31 lakhs, which had matured, had not

been claimed as at the end of the financial year. Since then,

149 number of these deposits of the value of Rs.27.89 lakhs

have been claimed.

The particulars of loans/advances and investment in its own

shares by listed companies, their subsidiaries, associates,

etc., required to be disclosed in the annual accounts of the

Company pursuant to Clause 32 of the Listing Agreement

are furnished separately.

Current Year

During the period 1st

April, 2006 to 28th

May, 2006, 21,237

vehicles were produced as against 21,800 vehicles and

20,828 vehicles were despatched as against 20,755 vehicles

during the corresponding period in the last year. 16,515

tractors were produced and 15,724 tractors despatched

during the same period as against 12,432 tractors produced

and 12,402 tractors despatched during the corresponding

period in the previous year.

Sustained and broad-based industrial growth, high prospects

of a good agricultural harvest following a good monsoon

and a very positive business sentiment have all led to a

strong GDP growth in the economy. Business confidence and

consumer sentiments are extremely positive. These augur

well for both the major Sectors of your Company. However

the uncertainty over global crude prices and exchange rate

volatility need to be carefully monitored. Your Company

looks forward to the rest of the year with cautious optimism.

Acquisitions and other matters

During the year, Systems & Technologies Sector of your

Company, made its foray into the forging business through

Mahindra Automotive Steels Limited [formerly Mahindra

Automotive Steels Private Limited (MASL)], a wholly

owned subsidiary of your Company under a Scheme of

Arrangement (Scheme) by way of demerger of the Chakan

Unit of Amforge Industries Limited (AIL) from AIL to

MASL. The Chakan Unit is the third largest manufacturer

of closed die forgings in India and manufactures

Crankshafts, Connecting rods and Stub axle forgings. MASL

has also set up a machining facility at Chakan for machining

of automotive forgings. The Scheme was approved by High

Court of Bombay on 21st

March, 2006 and the Chakan

Unit stands transferred and vested into MASL with effect

from 1st

April, 2005. Consequent upon allotment of Equity

Shares by MASL pursuant to the Scheme of Arrangement,

the shareholding of your Company stands at 47.11% of

MASL’s enlarged equity capital.

Further consolidating its presence in the forging business, in

January, 2006, your Company also acquired 98.6% of the

equity share capital of Stokes Group Limited (Stokes), the

largest automotive forging company in United Kingdom

(U.K.), engaged in manufacture of Ring Gears, Pinions,

Hubs/Wheel blanks and having manufacturing facilities at

Walsall and Dudley near Birmingham, U.K. Subsequent

to a rights issue of equity shares by Stokes, your

Company now holds 99.2% of the issued equity share capital

of Stokes.

During the year, your Company as part of its initiatives of

consolidating its engineering design businesses, acquired a

100% stake in Plexion Technologies (India) Private Limited

(Plexion), a Bangalore based high-end engineering design

services company, with a strong customer base in USA and

Europe. Plexion provides engineering design services to

aerospace and automotive industry and is also engaged in

design and fabrication of aircraft. The acquisition of

Plexion, combined with the manufacturing ability of

13

Systems & Technologies Sector, would enable your Company

to offer a range of Design to Delivery services for the

automotive and aerospace industries.

In February, 2006, a Scheme of Arrangement consisting of

merger of Pranay Sheetmetal Stampings Limited (PSSL),

Valueline Hotels & Resorts Limited (Valueline) and Console

Estate & Investments Limited (Console) with Mahindra Ugine

Steel Company Limited (MUSCO), a subsidiary of your

Company was approved by the High Court of Bombay.

Console was a wholly owned subsidiary of MUSCO. PSSL

was an Associate of MUSCO and MUSCO held significant

shareholding in Valueline. With this merger and the

consolidation of stamping operations with MUSCO,

management control systems are made more efficient and

cost effective, enabling harnessing of synergies and in addition

resulting in simplification of the group structure.

During the year, your Company entered into long term

agreements with International Truck and Engine Corporation

(ITEC) to provide Engineering Services and component

sourcing services directly to ITEC.

Energy Conservation, Technology Absorption and Foreign

Exchange Earnings and Outgo

Particulars required to be disclosed under the Companies

(Disclosure of Particulars in the Report of Board of Directors)

Rules, 1988 are set out in Annexure II to this Report.

Particulars of Employees

The Company had 126 employees who were in receipt of

remuneration of not less than Rs.24,00,000 during the year

ended 31st

March, 2006 or not less than Rs.2,00,000 per

month during any part of the said year. However, as per the

provisions of section 219(1)(b)(iv) of the Companies Act,

1956, the Directors’ Report being sent to the shareholders

does not include this Annexure. Any shareholder interested

in obtaining a copy of the Annexure may write to the

Assistant Company Secretary at the Registered Office of the

Company.

For and on behalf of the Board

KESHUB MAHINDRA

Chairman

Mumbai, 29th

May, 2006

14

ANNEXURE I TO THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

Information to be disclosed under the Securities and Exchange Board of India (Employee Stock Option Scheme and

Employee Stock Purchase Scheme) Guidelines, 1999 :

(a) Options granted 44,36,289

(b) 1st

Tranche 2nd

Tranche 3rd

Tranche 4th

Tranche 5th

Tranche

The pricing formula Average Average Discount Discount Average

price price of 5.13% of 4.85% price

preceding preceding on the on the preceding

the specified the average average the

date - 27th specified price price specified

September, date - 30th preceding the preceding date - 14th

2001 May, 2003 specified the specified September,

date - 31st date - 30th 2005

May, 2004 May, 2005

Average price - Average of the daily high and low of the prices for the Company’s

equity shares quoted on Bombay Stock Exchange Limited during

the 15 days preceding the specified date

The specified date - Date on which the Remuneration/Compensation Committee

decided to recommend to the Mahindra & Mahindra Employees’

Stock Option Trust (Trust), the grant of Options

(c) Options vested 28,81,949 Options stand vested on 31st

March, 2006.

(d) Options exercised 23,50,231

(e) The total number of shares 23,50,231 equity shares of Rs.10 each. These were transferred from the Trust to the

arising as a result of Eligible Employees.

exercise of option

(f) Options lapsed 1,85,817

(g) Variation of terms of options Nil

(h) Money realised by exercise Rs.10,67,31,853. This amount was received by the Trust.

of options

(i) Total number of options 20,50,200

in force

(j) Employee-wise details of

options granted to:

(i) Senior managerial As per Statement attached

personnel

(ii) Any other employee Nil

who receives a grant in

any one year of option

amounting to 5% or

more of option granted

during that year

(iii) Identified employees Nil

who were granted

option, 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

15

(l) Where the company has calculated the

employee compensation cost using the intrinsic

value of the stock options, the difference

between the employee compensation cost so

computed and the employee compensation cost

that shall have been recognised if it had used

the fair value of the options, shall be disclosed.

The impact of this difference on profits and

on EPS of the company shall also be disclosed.

The Company has calculated the employee compensation

cost using the intrinsic value of stock options. Had the

fair value method been used, in respect of stock options

granted on or after 30th

June, 2003, the employee

compensation cost would have been higher by Rs.2.98

crores, Profit after tax lower by Rs.2.98 crores and the

basic and diluted earnings per share would have been

lower by Re.0.13 & Re.0.12 respectively.

(m) Weighted-average exercise prices and

weighted-average fair values of options shall

be disclosed separately for options whose

exercise price either equals or exceeds or is

less than the market price of the stock.

Options Exercise Fair value

Grant Date price (Rs.) (Rs.)

14th

June,2005 227.00* 83.13

26th

October, 2005 361.00 83.86

* after giving effect to 1:1 Bonus

(n) A description of the method and significant

assumptions used during the year to estimate

the fair values of options, including the

following weighted-average information:

The fair-value of the stock options granted on 14th

June,

2005 and 26th

October, 2005 have been calculated using

Black-Scholes Options pricing Formula and the significant

assumptions made in this regard are as follows:

STATEMENT ATTACHED TO ANNEXURE I TO THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

Name of Senior Managerial Persons to whom Options granted in Options granted in

Stock Options have been granted December, 2001 June, 2005

Mr. Deepak S. Parekh 20,000* 5,000

Mr. Nadir B. Godrej 20,000* 5,000

Mr. M. M. Murugappan 20,000* 5,000

Mr. Narayanan Vaghul 20,000* 5,000

Dr. A. S. Ganguly 20,000* 5,000

Mr. R. K. Kulkarni 20,000* 5,000

Mr. Anupam Puri 20,000** 5,000

Mr. Alan Durante @ 1,00,000* 10,000

Mr. Bharat Doshi 1,00,000* 10,000

Mr. A. K. Nanda 1,00,000* 10,000

@ Retired on 25th

September, 2005

* All the above Options have been exercised.

** of which 13,332 Options have been exercised (including 6,668 Options on account of Bonus issue of the Company in September, 2005)

14th

June, 2005 26th

October, 2005

(i) risk-free interest rate, 6.27% 6.42%

(ii) expected life, 2.5 years 2.5 years

(iii) expected volatility, 36.84% 36.93%

(iv) expected dividends, and 3.84% 3.84%

(v) the price of the underlying share in

market at the time of option grant. Rs.274.80 Rs.361.40

(k) Diluted Earnings Per Share (EPS) pursuant

to issue of shares on exercise of option

calculated in accordance with Accounting

Standard (AS) 20 ‘Earnings per Share’

Rs. 34.93

16

A) Conservation of Energy

During the year, the Company has taken the following

initiatives for conservation of energy:

1. Engineering Initiatives

a) Installation of heat pump working on vapour

compression cycle and using atmospheric heat

for heating purpose in Engine PU at Kandivli.

b) Compact Fluorescent Lamp (CFL) tubes for

lighting, Electronic chokes for lighting over

regular bulbs.

c) Change over relay for street lights at Kandivli

and Igatpuri. Along with automatic on and off,

this provides for full illumination in working

hours and half illumination in non-working

hours.

d) Energy efficient screw compressor with Variable

Frequency Drive installed at Kandivli.

e) Effective Air-Conditioning system by automation

of chilled water system.

f) Automatic Power factor controller at all

locations to improve the power factor and

control the maximum demand.

g) Conversion of 90 KW horizontal oven from

electrical to Piped Natural Gas in Foundry.

h) Induction heating and press quenching of NGT

syncrosleeve instead of gas fired muffle furnace

at heat treatment Transmission PU. This has

resulted in eliminating use of one furnace.

ANNEXURE II TO THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

PARTICULARS AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF

DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED

31ST

MARCH, 2006

i) Modification in Air compressor cooling water

circuit resulted in substantial reduction in

number of Pumps thereby reducing energy

requirement.

j) Reduction in maximum demand by 480 KVA

by Power factor improvement through

rationalisation of Capacitor banks transformer

wise, switchgear replacement/repairs,

monitoring and correction cycle.

k) Auto control of recalculation pump and cooling

tower fans at R&D Engine Test Lab with

Temperature controller application.

l) In Nagpur Power factor maintained close to

Unity throughout the year.

m) At Nagpur 50% of the street lights were

switched off during non working night shifts

through an Auto arrangement integrated with

the real time clock.

n) Light weight impeller pumps used in place of

old high weight impeller pumps resulted in

increasing the motor efficiency at Nagpur.

2. Through Process Improvement

a) Installation of Variable Frequency Drives for

pumps at Nashik, Kandivli, Zaheerabad resulted

in power saving.

b) Kaizens are implemented on continuous to

intermittent running of motors, Timers for

Blowers, Delta – Star conversion, Higher HP

to Lower HP motors.

17

c) Heat recovery from flue gases using

recuparators on the Carburising Furnace

resulting in thermal saving.

d) Effective insulation for thermic fluid lines in

Paint shop resulting in reduction of radiation

losses.

e) Optimize air fuel ratio in paint shop and heat

treatment.

f) Turbine Air Ventilators instead of Exhaust fans

in Paint Shop and Vehicle PU.

g) Rain water harvesting at Kandivli and Igatpuri.

h) By improving the quality of one cleaning

machine at Hydraulics Plant in Nagpur, the

double cleaning of components is eliminated

without effect on quality.

i) Interlocking of Inlet & Exhaust blowers with

respective spray pumps to avoid wastage of

power for Chasis Pre treatment booth at

Kandivli.

j) Interlocking of Hot air circulation fan with

temperature sensors to stop Top coat and CED

ovens at CED Paint shop in Kandivli, thus

reducing power requirements.

k) Disconnection of Chassis line Dry-off oven, flue

gas exhaust motors are replaced with direct

natural draft at Kandivli.

3. Awareness for Energy Conservation

a) Kaizens towards energy conservation are

encouraged. The Management provides

employees with all support in the Kaizen

execution phase.

b) Training sessions and seminars on energy

conservation were organized.

c) To increase Energy conservation awareness

further, slogan/suggestion/poster competition

was organised during 21st

June, 2005 to

28th

June, 2005.

d) Energy audits are an integral part of the drive

towards efficient energy management.

e) The Senior Management of the Company

demonstrates commitment to the energy

efficiency cause through Budget allocation for

incorporating use of non-conventional sources

of energy and alternate fuel sources.

f) Electrical Safety Audit process initiated for

entire Plant Distribution System to ensure

Electrical Safety of Plant Distribution Network

at Kandivli.

g) Reward and Recognition of Power saving

projects.

h) Staggering of start of major electrical load to

control maximum demand.

The Kandivli Plant of the Automotive Sector received

the special prize from the Ministry of Power,

Government of India in National Energy

Conservation Award Competition for the year 2005

for the third year in succession.

B) Technology Absorption

The Company spent Rs.12,658.63 lakhs on Research

and Development work during the year, which is

approximately 1.33% of the total turnover.

18

C) Imported Technology for the last 5 years

Technology Imported Year of Status

Import

I. Development of Transmission and Hydraulics for 2001 In the process of Absorption

Higher HP segment

II. MDI Engine upgradation 2002 Technology Absorbed

III. Design of 4 Wheel Drive 2002 Technology Absorbed

IV. Power shift transmission for higher HP tractors 2003 In the process of Absorption

V. NEF TCI 2004 Technology Absorbed

VI. NEF performance improvements 2004 Technology Absorbed

VII. MDI Engine upgradation 2004 Technology Absorbed

VIII. Antilock Braking System on utility vehicle 2004 In the process of Absorption

IX. Common Rail Diesel on utility vehicle 2004 In the process of Absorption

X. New CRDe Engine development 2004 In the process of Absorption

XI. Development of a new MPV 2004 In the process of Absorption

XII. Euro IV Emission development for exports 2004 Technology Absorbed

XIII. Multi Link Suspension for utility vehicle 2004 Technology Absorbed

XIV. Development of Air Bags on utility vehicle 2005 In the process of Absorption

XV. Development of Cruise control on Utility vehicle 2005 In the process of Absorption

XVI. Fatigue Lab and track design for MRV, Chennai 2005 In the process of Absorption

XVII. Sandwich material for noise absorption 2005 In the process of Absorption

XVIII. Development of Nano-technology for IP etc. 2005 In the process of Absorption

XIX. Climate control (Heated and Cooled) seats 2005 In the process of Absorption

XX. Bio-Diesel and Gas based engine 2005 In the process of Absorption

XXI. Transmission Design of Compact Tractor 2006 In the process of Absorption

Foreign Exchange Earnings and Outgo

The information on foreign exchange earnings and outgo is furnished in the Notes on Accounts.

For and on behalf of the Board

KESHUB MAHINDRA

Chairman

Mumbai, 29th

May, 2006

19

Particulars of loans/ advances and investment in its own shares by listed companies, their subsidiaries, associates,

etc., required to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing

Agreement.

Loans and advances in the nature of loans to subsidiaries:

Rupees in lakhs

Name of the Company Balances Maximum

as on outstanding

31st

March, during the

2006 year

Mahindra & Mahindra Financial Services Limited 400.00 400.00

Mahindra Holdings & Finance Limited 2,500.00 2,500.00

(including loans where the repayment schedule is more than seven years

and no interest) (2,500.00) (2,500.00)

Mahindra Intertrade Limited 713.50 1,013.50

(including loans where there is no interest) (713.50) (1,013.50)

Bristlecone India Limited 802.76 802.76

Mahindra Gujarat Tractor Limited 100.00 100.00

Mahindra Shubhlabh Services Limited 0.00 250.00

Mahindra Engineering Design & Development Company Limited 0.00 190.00

Mahindra International Limited 0.00 125.00

Plexion Technologies (India) Private Limited 75.00 75.00

Mahindra Ugine Steel Company Limited 200.00 900.00

(formerly Pranay Sheetmetal Stampings Limited,

since merged with Mahindra Ugine Steel Company Limited)

Loans and advances in the nature of loans to firms / companies in which Directors are Interested:

Rupees in lakhs

Name of the Company Balances Maximum

as on outstanding

31st

March, during the

2006 year

Housing Development Finance Corporation Limited 2,500.00 2,500.00

Except as indicated above, the Company has not made any loans and advances in the nature of loans to associates or loans

and advances in the nature of loans where there is no repayment schedule or repayment beyond seven years or no interest or

interest below section 372A of the Companies Act, 1956.

Investments by the Loanee in the shares of Subsidiary Company, when the Company has made loans or advances in the

nature of loan:

Investment in the shares of the Subsidiary Company

Rupees in lakhs

Name of the Company Balances Maximum

as on Investment

31st

March, during the

2006 year

Mahindra Holdings & Finance Limited 1,200.00 1,200.00

20

Industry Structure

The Automotive Sector

The Indian automotive industry is one of the

fastest growing automotive industries in the

world. It grew 30% in volumes in 2004 against

a growth of 6% globally (Source OICA). Vehicle

production in India has grown at a CAGR

of 20% over F-02 to F-06 (Source SIAM).

In F-06, vehicle production increased by 10%

over the last year (Source: SIAM). India also

provides the largest market in the world for

three-wheelers. The Automotive Sector of M&M

which is engaged in the Multi Utility Vehicle

(MUV), Light Commercial Vehicle (LCV) and

three-wheeler segments, has been a full participant

in the robust growth of the Indian industry.

MUVs are a family of vehicles having versatile

forms for various applications like passenger

transport or goods transport or a combination

of the two. The Company categorizes MUVs

further into soft tops, hard tops and pick-ups.

There are six manufacturers of MUVs in India.

M&M is the largest manufacturer of MUVs in

India, offering a range of over 20 models.

240,847 MUVs were sold in India in the year

F-06, a growth of 6% over F-05.

LCVs carrying 2MT to 4MT of payload are

commercial vehicles used mostly for intra-state

movement of goods. M&M competed in the upto

4 tons category of LCVs. Since November 1,

2005 the business has been transferred to a

joint venture with International Truck & Engine

Corporation, USA. In F-06 41,492 LCVs were

sold in India in this category – a decline of 7%

over F-05. There are six manufacturers in India

in this specific LCV segment.

360,187 three-wheelers were sold in India in

F-06 demonstrating a healthy growth of 17%.

M&M entered the large three-wheeler segment

i.e. three-wheelers with a gross vehicle weight

(GVW) of over 1MT in 2001. This segment

accounted for roughly 12% of the three-wheeler

market in volume terms in F-06. In F-06 M&M

also made an entry into the ‘smaller three-

wheeler category’ (which accounts for the larger

share of the market) with the launch of the

Champion Alfa three-wheeler in select markets.

The Farm Equipment Sector

The Indian Tractor market is the largest in the

world, in volume terms. In the year under review

262,621 tractors were sold in India and 30,339

tractors were exported.

The tractor market is segmented by horsepower

into the 25 HP (lower) segment, the mid segment

of 35 HP and the higher segment of beyond 45

HP. All major players cater to all the three

segments. However, their relative strengths and

market positions differ from segment to segment.

Many factors affect tractor sales including the

monsoon, government declared support prices

for crops, commodity prices, crop production

expenses (including fuel, fertilizer, pesticides and

other costs) and the credit policy announced by

banks. This last factor is relevant since more

than 90% of tractor sales are on credit.

M&M’s Farm Equipment Sector (FES), which

designs, develops, manufactures and market

MANAGEMENT DISCUSSION & ANALYSIS

21

tractors for Indian and overseas markets, is the

largest manufacturer of tractors in India and

has sustained its market leadership in the Indian

tractor market for over 23 years. FES is

globalising at a rapid rate. Mahindra tractors

are exported to U.S.A., China, Australia, African

countries and SAARC countries like Nepal,

Bangladesh and Sri Lanka, where they are sold

under the Mahindra brand name. This year

M&M made its foray into East Europe by

launching its tractors in Serbia.

Industry Developments

The Automotive Sector

Compared to the galloping 20% growth in

vehicle production seen in India over the last

four years, vehicle production increased by a

lower 10% in F-06. The much higher base, the

relative increase in prices of vehicles due to a

strong increase in raw material costs and some

taxes, significant increases in fuel prices and an

increase in interest rates were some of the

factors that contributed to this.

The total number of MUVs sold in India

increased by 6%. Within the MUV segment, the

pick-up market had shown a very high growth

of 38% in F-05, on the back of a 78% growth

in F-04. In F-06 it declined by 7%. The hard

top sub segment, which is the largest sub

segment in MUVs, enjoyed a volume increase of

15% in F-06. The soft tops sub segment that

has been declining significantly over the last

few years, continued to drop volumes and posted

a 22% reduction, in spite of some growth in

this segment per se, over the last 2 years.

The LCV segment had mixed fortunes. The 4-6

MT LCV segment grew 5%. The 2-4 MT LCV

segment saw volumes decline by 7%.

The large three-wheeler segment witnessed a

decline in volumes of 20% after a long period

of high growth. The small three-wheeler segment

grew 23%.

The Farm Equipment Sector

F-06 was an encouraging year for agriculture.

Going forward, due to a good monsoon and

water availability during the year, crop

production is expected to be higher by 2.5%

over last year. As a result of this, it is estimated

that the agricultural GDP of India will grow

by 3.2%.

Better availability of credit and focus on retail

tractor financing by the banking sector, also

boosted the growth of the tractor industry. As a

result, the growth witnessed in F-05 continued

into F-06. The domestic tractor industry showed

a growth of 16% in F-06 over and above the

29% growth seen in F-05. 262,621 tractors

were sold in India in F-06, compared to 226,114

in F-05. In addition, India exported 30,339

tractors in F-06, a growth of 43% over last

year. M&M led the growth in the domestic

industry.

The industry had to bear the impact of hikes in

the price of raw materials. Over the last three

years, the prices of important input materials

like steel, pig iron, and rubber have continuously

increased. The prices of crude oil increased

significantly. Margins therefore continued to be

under pressure, despite the upturn in the

industry.

22

M&M Performance

The Automotive Sector

In F-03, the production and sales volume of the

Automotive Sector reached a first time high of

87,088 and 86,890 respectively. In every

subsequent year, M&M vehicle production and

sales have bettered the record of the previous

year. In F-06, this record-breaking streak

continued for the fourth consecutive year.

1,50,918 vehicles and three-wheelers were

produced (including 2,705 produced for MIL).

1,43,890 (including 1,833 sold under MIL) were

sold in the domestic market and 5,534 vehicles

were exported in F-06. The domestic total sales

volume was higher by 1.3% than the F-05 record

of 1,41,977.

In the MUV segment, a record number of

114,694 MUVs were sold in the domestic

market in F-06 as against the sale of 111,138

MUVs in the previous year. M&M’s domestic

MUV sales volumes grew 3%. The success of

the Scorpio and the recent launch of a number

of new Bolero variants helped M&M grow by

13% in the hard top MUV sub segment. The

Scorpio story received international attention,

and has been developed into a case study by the

Harvard Business School. During this period,

the Bolero, along with its variants, was the

largest selling MUV brand in India, with sales

of 40,027 units (Source: Industry Sources,

SIAM March 2006 report).

In the pick-up sub segment, M&M volumes

declined 3%, which is less than the industry

segment decline of 7%. The soft top and pick-

up segments, where M&M has a larger market

share, under performed as compared to the hard

top category. This was one of the reasons why

the Company’s MUV market share declined from

49.0% in F-05 to 47.6% in F-06.

In the LCV segment, M&M has a presence only

in the lower GVW (< 4MT) sub segment of the

market. This LCV sub segment witnessed a

decline of 7% in F-06, while M&M’s LCV sales

declined 14%. This led to a decline in M&M’s

market share in this sub segment, from 17.7%

in F-05 to 16.3% in F-06.

During the year M&M’s LCV business was

transferred to the joint venture with

International Truck and Engine Corporation,

USA, Mahindra International Ltd. (with effect

from 1 Nov 2005). M & M continues to produce

and sell LCVs for MIL under a manufacturing

and a distribution contract for a fee. In order

to facilitate comparison your M&M’s production

and sales volumes include that done for MIL,

with a mention of the numbers included for your

reference. However discussions on the LCV

market and market share is done as if they

were all sold by M&M to facilitate a meaningful

comparison and analysis.

The large three-wheeler segment which had

witnessed rapid growth since 2001, declined for

the first time in F-06. M&M sold 22,112 large

three-wheelers against 22,953 in F-05, a decline

of 21% in line with a segment decline of 20%.

In August 2005, M&M entered the small

three-wheeler segment, with the launch of a

cargo three-wheeler named the Champion Alfa.

23

It has now been introduced in four states.

The market response has been encouraging.

4,307 Champion Alfa were sold in F-06. A new

plant that will focus on manufacturing three-

wheelers has been set up at Haridwar in

Uttaranchal.

The high growth of the Indian economy has led

to a significant growth in the demand for

commercial vehicles. This demand is likely to

be fuelled over the next several years by strong

economic growth. Hence M&M has strengthened

its presence in the commercial vehicle segment

through a joint venture with International Truck

and Engine Corporation of USA, for entering

the medium and heavy commercial vehicle

segments in India, through joint development.

The joint venture has been named Mahindra

International Ltd. (MIL). M&M also transferred

its existing LCV business to MIL effective 1st

Nov 2005. Hence MIL will now be the

Company’s focused initiative in India’s

commercial vehicle sector. M&M believes that

this strong focus will help to increase the

Mahindra presence, (which is currently rather

limited), in this segment. In order to enable

comparability, all the LCV sales figures

presented in this analysis have been shown as

M&M sales. However, due to the sale of the

LCV business to MIL during the year, out of the

6,777 LCVs sold under the Mahindra brand

during the year, 4944 were sold by M&M and

1833 by MIL.

Total domestic spare part sales during the year

under review increased to Rs.223.16 crores

compared to the previous year’s Rs.193.81

crores, a growth of 12%.

M&M’s joint venture with Renault, to introduce

the Logan in India is in the process of

operationalisation, and is on target with respect

to cost and time. The Logan has done exceedingly

well in the markets where it has been introduced

so far. M&M will launch the Logan in India in

2007. With this initiative, M&M expects to

expand its footprint in the Indian automotive

industry significantly.

In tune with its ambitious globalisation

aspirations, M&M has intensified its efforts to

identify niche markets for its automotive

products throughout the world, especially in

geographical areas that have similar sales,

distribution and marketing conditions as India.

Over the last three years M&M vehicles have

been introduced in Europe, the Middle East,

South America and South-East Asia and Africa

with a customized business model for each

country. The beachhead for Europe is a JV in

Italy that sells the Scorpio (called the Goa in

Europe) and the Bolero. The JV has now

introduced these vehicles into France and Spain

as part of a plan to cover Europe over a period

of time. In F-05 M&M commenced CKD

operations in Uruguay to address the Mercosur

and South American markets. The Bolero (called

the Mahindra Cimmaron in Uruguay) was the

President of Uruguay’s vehicle of choice to carry

him during his inauguration parade. Petrol

versions of the Scorpio have been launched in

the Middle East and Malaysia and these

have received an encouraging response.

A subsidiary was set up in F-05 in South Africa

as an entry point for the Southern African

continent.

24

These initiatives resulted in a quantum increase

in export volumes. After increasing 85% in

F-05, exports further increased by 82% in F-06

to 5534. In line with the Company’s objective

of promoting and establishing the “Mahindra”

brand across the globe, the entry into all these

new markets was under the “MAHINDRA”

brand name.

In the area of operations, the Company has set

up a new plant in Uttaranchal and focused on

rigorous cost reduction. The Automotive Sector’s

Kandivli plant was presented with the “National

Energy Conservation Award” for the third year

in succession. This is a very creditable

achievement, in view of the fact that Kandivli is

M&M’s oldest Automotive Sector plant.

The Farm Equipment Sector

FES sustained its leadership position for the

23rd consecutive year with a market share of

29.7% in the total tractor industry. It sold

85,029 tractors in F-06 as against 65,390

tractors sold during F-05. This includes export

of 6,981 tractors as against 5,385 tractors

exported last year.

In F-05 FES expanded its plant at Rudrapur as

a part of its manufacturing strategy. This year,

the Sector was able to quickly ramp up

production at Rudrapur to the installed capacity.

This plant has the lowest cost amongst the

various manufacturing facilities of FES. Thus

this will help bring down overall manufacturing

cost.

Last year M&M launched two new products -

235 DI and 245 DI - in the domestic market in

the low HP segment. These products, along with

the Arjun Ultra-1 range, have significantly

strengthened the company’s position in these

segments. The response to all these products

has been encouraging. M&M was ahead of most

tractor players in making its tractors BS-III

compliant in the month of April 05, ahead of

the extended Government deadline of October

2005. Apart from this, the company continued

to evolve new products and upgrade the

aesthetics, styling and ergonomics of existing

products.

The thrust on the engine business continued.

14,692 engines were sold in F-06 as against

6672 sold during F-05, a growth of 120%.

Starting from a customer base of a single

company in F-02, the engine business today has

22 corporate clients. FES also has made a foray

into the retail and non-genset segments. This

year FES started selling Mahindra branded

Diesel Generators (DG set) and sold 1084 DG

sets.

Mahindra USA’s retail grew significantly by

24%, in contrast to the tractor industry in the

USA, which was down by 2.5%. In consonance

with it’s global thrust, M&M has entered into a

Joint Venture with Jiangling Tractor Company

of China. The Mahindra China Tractor Company

Ltd. (MCTCL) has a capacity of 12,000 tractors

in the 18-33 HP range. M&M holds a majority

stake in the JV. Strategically, this JV offers

M&M a faster entry into China and a

complementary product range for China as well

as export markets. The JV was operational in

July 2005 and MCTCL was able to reach its

capacity by the year-end. The Australia

25

operations launched last year are doing

extremely well.

In F-04, FES won the Deming Award for Quality.

Lean Manufacturing and TPM practices are

being implemented at its plants. M&M was

awarded the BS7799 certification for

information security in F-06. The Sector filed

for 8 engineering patents in F-06.

FES continues to improve its supply chain by

reducing both dealer stock and outstandings.

FES believes that its dealer stocks and

outstandings, in number of days, are much lower

than other industry players.

Opportunities

The Indian economy has been growing between

6-8% p.a. for the last three years making it one

of the fastest growing large economies in the

world. There are concerted efforts being made

to achieve 10% growth. This kind of growth

focus, combined with M&M’s diligent expansion

of its technological and product development

capacities, its active search for overseas partners

and markets, and the major savings opportunities

arising from synergies of resources between the

Automotive and Farm Equipment Sectors,

especially for sourcing, augurs well for the

coming years.

The Automotive Sector is poised to take

advantage of India’s growth potential. India’s

automotive sector is one of the fastest growing

in the world. With the Indian economy on a

high growth path and with the consequent

increased disposable incomes of the population

at large, the Indian automotive industry is

expected to have significant growth

opportunities. The Indian Government is also

working on a plan to increase the growth

prospects of the Indian automobile industry so

as to double its contribution to the Indian

economy over the next ten years. With M&M’s

enhanced presence in the Indian automotive

industry through its joint ventures for CVs and

cars as well as with its entry into the smaller

three-wheeler category, it is well poised to garner

an increasing share of this fast growing segment

of the Indian economy.

In the Automotive Sector, M&M believes that

its core MUV market is likely to proportionately

increase in the light vehicles category because

the inherent versatility of MUVs makes them

ideal for a fast growing developing country. The

proportion of MUVs in India is relatively low

compared to corresponding figures in Asian

countries that share a similar or more developed

profile. In the long term, we believe that the

light vehicle market will expand at a fast clip in

India and that MUVs will take an increasing

share of this market. M&M’s entry into the car

market through its joint venture with Renault,

and its strong presence in the MUV segment,

will enable M&M to leverage the full range of

opportunities.

The ongoing WTO and Free Trade Area

negotiations with Thailand, ASEAN, SAARC

countries and the Mercosur countries are likely

to lead to lowered tariffs across many target

export markets. This could provide a significant

opportunity to generate larger volumes from

export sales and further M&M’s strategic

emphasis on globalisation and the development

of exports.

26

Given the current state of road infrastructure in

the interiors, as well as the extremely high cost

required for improvement, MUVs will continue

to be the most appropriate and economical

vehicles for transporting people in the interiors.

Rural public transportation is not as extensively

developed as in the urban areas, providing

further opportunities for MUVs and LCVs.

MUVs and CVs are preferred vehicles for

projects and construction sites like the golden

quadrilateral road project and the North, South,

East and West corridor project. A higher level

of industrial development generally leads to a

greater demand for MUVs and CVs. Hence if

the planned rate of GDP growth is achieved

over the next decade, the demand for MUVs

and CVs should increase commensurately.

Regulatory measures on compulsory scrapping

of vehicles beyond a particular vintage have been

mooted in some States. The adoption of these

norms could lead to higher demand due to a

surge in the replacement demand.

The pressing need of overseas automotive players

to cut costs has created an outsourcing

opportunity for India in the area of automotive

systems/aggregate production. India has a

competitive edge due to its strong base of highly

skilled (and relatively low cost) engineers.

M&M already has domain expertise in many of

the required areas and can offer global O.Es

and Tier 1 suppliers, products and services

across the chain, right from the sourcing of

steel to the design of systems. These capabilities

have been strategically integrated into a single

sector, the Systems and Technologies Sector. This

move is expected to result in further business

growth and to establish the Mahindra brand in

the global automotive arena. It will also partially

de-risk the cyclicality inherent in the Automotive

and Farm Equipment businesses.

For the FES, the external environment looks

favourable. Successive crop failures coupled with

limited financing options as well as surplus food

grain stocks during the period from 1998 to

2001 had led to a stagnation of demand, with

the sales numbers falling during the period from

2000 to 2002. However, with three consecutive

years of good monsoon seasons in India, the

tractor demand is increasing. In the year under

review the all-India monsoon was just 1% lower

than normal, and the water level in 71 reservoirs

across India was higher than last year by almost

29%. The second monsoon is good, creating

better prospects of Rabi crops. In addition, better

credit facilities coupled with the pro-farmer

policies of Central and State governments

enabled good growth in the industry this year.

In the event of a normal monsoon next year,

there would be further moderate growth over

and above last two years’ high growth. This

gives a market leader like M&M a good

opportunity to grow.

M&M spotted an opportunity at the lower HP

end of the tractor market, where there were not

enough products to serve customer needs. Hence,

new models 235 and 245 DI were introduced in

select domestic markets. The company has

successfully ramped up its production. This

expanded product portfolio will give an

opportunity to grow in the low HP segment.

27

There are certain states in India where the

opportunity for growth is high. FES will leverage

this opportunity by various marketing initiatives

such as brand building, creating stronger

franchises, restructuring dealers and the

introduction of new products.

The USA and China are among the top 3 tractor

markets in the world apart from India. FES

plans to continue its focus on these markets.

Mahindra USA plans to introduce a new series

of models in US markets that will open up new

customer segments. In China, M&M has

established the Mahindra (China) Tractor

Company Ltd as a JVC. This company has

already started selling tractors in the domestic

Chinese market. Its capacity has been ramped

up successfully, and M&M is well positioned to

exploit the Chinese market further. M&M is also

exploring various global tractor markets in

Africa, East Europe and Middle East.

Expansion at the Rudrapur plant and the China

manufacturing facility will ensure low cost

manufacturing bases for FES. China will also

serve as a low cost sourcing base.

Threats

For the Automotive Sector more stringent

regulatory norms are being introduced. For the

Farm Equipment Sector new emission norms

were introduced in October 2005 in India.

Similarly, USA has also announced new emission

norms for the coming 2 to 5 years. While these

measures are welcome, they may result in an

increase in manufacturing costs, which, in turn,

may affect margins or demand in a price

sensitive situation.

Import tariffs have been progressively reduced

and are expected to be reduced further in the

future in line with India’s obligations under the

WTO and its bilateral free trade agreements

with certain countries, with the possible eventual

elimination of import tariffs on imports from

these countries. This will increase competitive

pressures on vehicle manufacturers.

Exports, a strong thrust area, can be adversely

affected if the Rupee continues to appreciate.

Current trends indicate that interest rates for

vehicle and tractor loans given by NBFCs and

Banks in India are likely to increase over the

years and this may affect sales volumes.

The entry of new players has made the passenger

car and MUV markets much more competitive,

affecting the margins of all participants. M&M

is countering this threat by a stronger focus on

reducing costs and increasing efficiency of

operations. It also hopes to garner greater

economies of scale from its entry into the car

market through its joint venture with Renault.

Any reduction in the price differential between

petrol and diesel could increase demand for

petrol MUVs at the expense of diesel MUVs,

especially with the decontrol of fuel pricing.

M&M has petrol versions of some of its MUVs

like the Scorpio. However even after three years

of fuel price decontrol, a substantial differential

has been maintained.

Mandatory use of vehicles powered by alternative

energy sources could lead to a demand for

different types of vehicles. To minimise this risk,

M&M is developing products powered by

alternate energy like CNG and electricity to

28

provide less polluting products for a better

environment. Hence the Company is well placed

to move with the trend towards alternative

energy vehicles should it take place.

With M&M’s strong focus on globalisation, any

form of tariff/non-tariff barriers imposed by any

country where M&M has a significant presence

or has plans to grow will be a threat. As for all

exporters, any political, economic uncertainty/

natural calamity in the countries of export would

be a potential threat.

A major threat to both Sectors lies in the

escalation in raw material prices. Such price

hikes, especially for iron, steel and rubber are

likely to put pressure on prices and could affect

margins or demand.

Apart from this, a steep increase in crude oil

prices globally, has an inflationary impact on

the overall economy. Directly, high fuel prices

increase the running cost of vehicles, and may

therefore impact demand for automobiles. The

tractor industry may also be affected. Diesel

constitutes over 60% of the running cost of a

tractor. Thus the increasing price of diesel may

adversely impact input costs for farmers. If not

compensated by a crop price increase, this can

impact the availability of funds with farmers

and, in turn, the tractor demand.

Risks and Concerns

Stringent legislation on pollution and emission

requirements will increase the cost of the

Company’s products for the Automotive Sector.

To the extent that one is unable to pass on these

additional costs, there would be an impact on

the profitability. Price increases on the other

hand could impact volumes. If price rises in

commodities - especially oil and steel - continue

unabated, it could impact the predicted GDP

growth of the economy, with consequential effects

on profitability of all companies.

For the FES a weakening of the dollar could be

a risk. However, M&M, as a practice, is taking

appropriate steps to hedge currency exposure

thus limiting the impact of risk.

Domestically, about 90% of the farmers buy

tractors against loans. Continued delivery of

bank credit is therefore critical. Any slow down

in this could affect the tractor demand. Similarly,

interest rates for tractor loans tend to be higher

than for housing and car loans. Increases in

interest rates could impact the loan repayment

ability of the farmers, and are therefore a

concern. Apart from this, the farmer has to

mortgage both the tractor and his land; this is

a concern area for the tractor industry.

Rising input costs are also a concern. However

the encouraging rabi crop outlook, continued

credit support and a normal monsoon in F-07,

should enable the industry to continue to show

steady growth.

Excise

In 1991, an excise dispute arose at the Nashik

and Kandivili factories relating to the

Commander range of ten-seater vehicles. The

jurisdictional Central Excise authorities, after

due inquiry, approved the classification of these

vehicles as ten-seaters which attracted a lower

rate of excise duty under Tariff Entry 8702.

29

The Company successfully contested the

subsequent challenge by the excise authorities,

in two different fora. The Excise Department

accepted these decisions and the classification

of the vehicle as a ten-seater was consistently

approved by the authorities.

Inspite of the above, the Excise Department

subsequently disputed the classification on the

ground that classification of the Commander

under Tariff Entry 8702 as ten-seater did not

meet certain parameters of the Motor Vehicles

Act, 1988 and the Maharashtra Motor Vehicles

Rules, 1989, and demanded differential duty.

The Department’s stand was that the Commander

should be classified under Tariff Entry 8703,

attracting a higher rate of excise duty. The

Company challenged these demands by writ

petitions before the Bombay High Court, which

stayed the further proceedings unconditionally.

The High Court remanded these matters for

adjudication before the Excise authorities.

The Commissioner (Adjudication), Navi Mumbai

passed an order dated 30th March 2005

confirming the demand of Rs.216.03 crores and

imposed a penalty of Rs. 88.08 crores. The

Company has filed an appeal and a stay

application in the Tribunal challenging this order.

Initially, a bench of the Tribunal passed an order

(stay order) directing the Company to pay Rs.

54 crores and furnish bank guarantee of Rs. 54

crores as pre-deposit. The Company challenged

this before the Bombay High Court, which was

pleased to set aside this stay order and remand

the matter back to the Tribunal for hearing on

the stay application afresh. The matter is yet to

be heard.

In another concurrent proceeding, the Tribunal

passed an order in July 2005 holding that the

vehicles were appropriately classifiable under

Tariff Entry 8702 as ten-seaters. The

Department has challenged this order by filing

a Civil Appeal, before the Supreme Court, which

has been admitted. The matter is yet to be finally

heard.

The Company does not expect any liability on

this account as it has been advised that an

extraneous legislation like the Motor Vehicles

Act cannot be referred to for the purpose of

excise classification. The Excise Commissioners,

the Tribunal and various expert/statutory bodies

holding the vehicle to be a ten-seater have

accepted this stand.

Outlook

Both the Automotive and Farm Equipment

Sectors, with their updated product portfolios

and their exploration of global horizons, will

strive to maintain their leadership position and

should outperform the market. Simultaneously,

M&M will continue its focus on achieving cost

leadership in every way possible. Initiatives for

focused cost optimization, value engineering,

improved efficiency measures, supply chain

management, countrywide connectivity of all

suppliers and dealers and exploitation of

synergies between its Sectors, will enable M&M

to leverage all its strengths.

If the Indian economy continues to grow at a

high rate, demand conditions in the Automotive

Sector for the short to medium term are

expected to remain strong. Due to the high base

however, there is a possibility that the growth

30

in F-07 may also be relatively low similar to

that in F-06. In the longer term, given the high

correlation of the automotive industry to GDP

growth and the fact that the industry itself

accounts for about 4.5% of India’s GDP, the

outlook for the automotive industry on a GDP

growth forecast of more than 6% pa is quite

bright. Over the longer term, the Automotive

Sector will be increasing its participation in the

growth of the Indian auto industry by entering

into other segments like cars and M&HCVs

through its JVs.

The Indian tractor industry too has grown

significantly in F-06 and thus corrected its base.

In the mid term perspective, the industry may

grow at a moderate rate. The government’s

emphasis on development of the rural economy

and supporting the agriculture sector provides

excellent longer-term opportunities for faster

farm mechanisation. This offers FES a number

of possibilities and it is working on the

development of a number of new products,

particularly value for money solutions, for small

farmers.

Material developments in human resources/

industrial relations

With the objective of aligning its human capital

to its strategic plans, and achieving optimal

resource effectiveness, M&M has been focusing

on five major HR levers: organization structures,

the performance management system, a talent

management process, a reward & recognition

system and communication.

The Talent Management process saw the active

functioning of a network of Sector and

Functional Councils that seek to map and

manage talent, with a sharp focus on succession

planning for critical positions and job rotations

across Sectors and Functions.

Shadow Boards have been created across all

Sectors to give young managers an opportunity

to engage with issues normally handled by top

management, thus providing a platform for

grooming future leaders while simultaneously

getting out-of-the-box solutions to problems.

Creating the Global Manager is another major

initiative. The Company has joined an

international consortium of reputed Companies

from the U.S., Europe, China and India in a

Global Leadership Program. In addition, for the

second consecutive year, we have been recruiting

from Ivy League Universities in the U.S.A.

“Bodhivriksha”, the refurbished state-of-the-art

Mahindra Management Development Centre was

inaugurated at Nashik. It functions as a centre

for leadership development. The Mahindra

Institute for Quality has been set up in Nashik.

Regular 360-degree feedback for senior

management, the Gallup Employee Satisfaction

Survey conducted across Sectors and innovative

communication platforms like Reach Out, Town

Hall, Open House and skip-level meetings at

plant locations are other HR initiatives. Internal

communications have been further strengthened

using Mahindra Connect, web-based chats and

regular newsletters.

Industrial relations during the year were cordial

at all the plants and area offices of M&M.

A major wage-settlement was signed in the

31

Automotive Sector in March 2006. The

Company has also initiated a transformational

Industrial Relations process which seeks to

enhance employee involvement and emotional

connect through intensive structured

communication, innovative training and

development and re-looking at the collective

bargaining process.

The permanent employee strength of the

Company as on 31st March 2006 was 12089.

Internal Control Systems

The Company maintains adequate internal

control systems, which provide, among other

things, reasonable assurance of recording the

transactions of its operations in all material

respects and of providing protection against

significant misuse or loss of company assets.

The Company uses an Enterprise Resource

Planning (ERP) package, which enhances the

internal control mechanism. The Company has

a strong and independent internal audit function.

The Chief Internal Auditor reports directly to

the Chairman of the Board. Professionally

qualified technical and financial personnel of

the internal audit function conduct periodic

audits to ensure that the Company’s internal

control systems are adequate and are complied

with.

Discussion on Financial Performance with

respect to Operational Performance

Overview

The financial statements have been prepared in

compliance with the requirements of the

Companies Act, 1956, and Generally Accepted

Accounting Principles (GAAP) in India.

The Group’s consolidated financial statements

have been prepared in compliance with the

Standard AS 21 on Consolidation of Accounts

and presented in a separate section. The

Company has provided segment reporting on a

consolidated basis as per Standard AS 17 on

segment reporting. This information appears

along with the consolidated accounts.

A. Financial Information

1. Fixed Assets:

As at 31st March, 2006 the Gross Block of

Fixed Assets and Capital Work in Progress

increased to Rs. 3064.71 crores from Rs.

2810.44 crores as at 31st March, 2005. During

the year, the Company incurred capital

expenditure of Rs. 294.57 crores (previous year

Rs. 277.86 crores). The major items of capital

expenditure are for Capacity Enhancement, New

Product Development and Research &

Development. This includes purchase of

Intangible assets aggregating to Rs. 10.62 crores

(previous year Rs. 7.78 crores).

2. Inventories:

March 31, 2006 March 31, 2005

Raw materials and bought out components as a %

of consumption 5.52% 6.45%

Finished goods as a % of gross sales 4.70% 4.41%

32

Better inventory management has resulted in decrease in raw material as a percentage of consumption.

The marginal increase in finished goods inventory is in step with higher sales speed towards the end

of F-06.

3. Sundry Debtors:

Sundry debtors amount to Rs. 637.97 crores as at March 31, 2006, as compared with Rs. 511.53

crores as at March 31, 2005. Debtors as a percentage of gross sales and income from operations

are 6.82 % for the year ended March 31, 2006, as compared to 6.65 % for the previous year. The

marginal increase in sundry debtors as a percentage to gross sales and income from operations is

due to competitive pressures in the market.

B. RESULTS OF OPERATIONS

1. Income :(Rs. crores)

Particulars F – 2006 F – 2005 Inc./(Dec.)

Amount % Amount % %

Gross Sales/Income from operations 9347.57 113.68 7695.59 115.54 21.47

Less : Excise Duty on Sales 1124.89 13.68 1035.04 15.54 8.68

Net Sales/Income from operations 8222.68 100.00 6660.55 100.00 23.45

Other Income 103.86 1.26 108.50 1.63 (4.28)

Other Income:

Other income during F-06 at Rs. 103.86 crores was marginally lower than Rs. 108.50 crores

earned in the previous year. It comprises mainly of dividends from subsidiaries/ other companies,

income from surplus fund investments and other miscellaneous income.

2. Expenditure:(Rs. crores)

Particulars F – 2006 F – 2005 Inc./(Dec.)

Amount % to Net Amount % to Net %

Income Income

Raw materials, Finished and Semi-

finished Products 5713.77 69.49 4602.64 69.10 24.14

Personnel expenses 551.78 6.71 464.25 6.97 18.85

Interest, commitment and finance (18.40) (0.22) (5.58) (0.08) 229.75

charges

Depreciation 200.01 2.43 184.05 2.76 8.67

Other expenses 989.11 12.03 822.73 12.35 20.22

Provision for contingencies 0.78 0.01 0.34 0.01 129.41

Total Expenditure 7437.05 90.45 6068.43 91.11 22.55

33

Though the total expenditure has increased in

absolute amount, it has declined as a percentage

of Net sales / Income from Operations from

91.11 % last year to 90.45 % in the current

year.

Material Cost :

For the year ended March 31, 2006, material

cost as a percentage of net sales shows an

increase over the previous year mainly due to

increase in input costs, changes in product mix,

and compliance with regulatory norms relating

to pollution control. The impact of these was

partially offset through selling price increase

and continued cost-reengineering initiatives

undertaken by the Company.

Personnel Cost :

Personnel cost as a percentage of sales has

dropped marginally from 6.97 % to 6.71 %.

Increase in personnel cost in absolute value is

mainly due to increase in officers’ strength,

annual increments and the impact of wage

settlements.

Other Expenses :

Other expenses as a percentage of net sales

shows a decrease over the previous year due to

cost control measures undertaken by the

Company. The increase in other expenses in value

terms is mainly because of increase in variable

expenses on account of higher volumes.

Depreciation :

The depreciation for the year ended March 31,

2006 is at Rs. 200.01 crores as compared to

Rs. 184.05 crores in the previous year. The

increase is mainly on account of accelerated

depreciation for vehicles and tractors used for

research and development and obsolescence of

certain dies.

Interest (Net) :

The interest expense (net of interest income) for

the year ended March 31, 2006 is a net interest

income of Rs. 18.40 crores as against a net

interest income of Rs. 5.58 crores in the previous

year. Gross of interest income (F-06 Rs. 45.36

crores, F-05 Rs. 35.82 crores) the interest cost

for F-06 at Rs. 26.96 crores was lower than

Rs. 30.24 crores in the previous year due to

more efficient funds management.

Exceptional Items :

The profit on account of Exceptional items

during the year ended March 31, 2006 is

Rs. 210.01 crores as against Rs. 13.55 crores

last year. The profit in the current year is mainly

on account of profit on sale of shares of

Mahindra & Mahindra Financial Services

Limited offered as a part of that Company’s

Initial Public Offering and profit arising out of

the transfer of the right to carry on LCV business

along with congeries of rights therein and

intellectual property rights to the subsidiary

Mahindra International Limited .

Provision for taxation :

The provision for current tax, fringe benefit tax

and deferred tax for the year ended March 31,

2006 as a percentage to profit before tax is

lower than the previous year, due to lower

incidence of tax on the exceptional items

mentioned above and due to a deferred tax credit

on account of revaluation of deferred tax liability

34

as on April 1, 2005 due to change in the rate

of income tax from 36.59% to 33.66%.

Consolidated Financial Position of the M&M

Group

As required by the Accounting Standards, the

Company has published the consolidated Profit

and Loss Account and Balance Sheet for the

M&M Group as a whole. The Group comprises

of the flagship holding company, Mahindra &

Mahindra Limited, 56 Subsidiaries, 4 Joint

Ventures and 8 Associates engaged in various

businesses.

The Gross turnover for the year ended March

31, 2006 of Consolidated Mahindra Group is

Rs. 13908.4 crores as against Rs. 10635.3

crores for the previous year. The Group’s net

turnover grew by 32% to Rs. 12648.4 crores in

the current year from Rs. 9565.5 crores in F-

05. The profit before exceptional items and tax

for the current year is Rs. 1539.1 crores as

compared to Rs. 979.2 crores in the previous

year – a growth of 57%. This is due to the

excellent performance of the parent company

and group companies like Tech Mahindra

Limited, Mahindra & Mahindra Financial

Services Limited, Mahindra Holidays and

Resorts India Limited, Mahindra Gesco

Developers Limited, Mahindra Ugine Steel

Company Limited, Mahindra Intertrade Limited

and others. The consolidated group Profit after

Tax after including the share in profits of

Associates for F-06 is Rs. 1404.0 crores as

against Rs. 724.1 crores earned last year – a

growth of 94%.

Such a significant growth in profits could be

achieved due to the excellent performance by

some Group companies, a few of which are

mentioned here.

The Group’s Finance company, Mahindra &

Mahindra Financial Services Limited (MMFSL),

despite very stiff competition, achieved a 47 %

growth in its total income from Rs. 404.8 crores

to Rs. 596.4 crores. It continues to be a leading

NBFC in financing of four wheelers and its profit

after tax grew by 32 % from Rs. 82.3 crores in

the previous year to Rs. 108.3 crores in the

current year.

The Group’s trading subsidiary, Mahindra

Intertrade Limited, grew its total income by

41 % from Rs. 524.3 crores in F-05 to

Rs. 737.4 crores in F-06. The subsidiary is

engaged in imports, exports and domestic

trading, marketing and distribution activities for

a wide portfolio of products. The profit after

tax of the subsidiary increased to Rs. 25.1 crores

in the current year as compared to Rs. 21.2

crores last year – growth of 18%.

The Group’s major IT subsidiary, Tech Mahindra

Limited (Consolidated), witnessed a Revenue

growth of 34 % with total income increasing

from Rs. 954.2 crores last year to Rs. 1276.7

crores in the current year. The profit after tax

during the year was Rs. 235.4 crores as

compared to Rs. 102.4 crores in the previous

year – an increase of 130 %.

During the year, the Group increased its equity

interest in Mahindra Ugine Steel Compnay

Limited (MUSCO) thereby making it its

subsidiary. The Company is in the business of

steel and stampings. The total income of the

Company grew by 27% from Rs. 588 crores to

35

Rs. 748.6 crores and profit after tax for the

year increased by 35% from Rs. 48.2 crores to

Rs. 65.1 crores.

Mahindra Holidays and Resorts India Limited,

during the year under review, continued to grow

towards dominance in the Holiday Segment with

membership growing to 38691 nos. The total

income grew by 48% from Rs. 106.1 crores to

Rs. 156.7 crores. The profit after tax for the

year registered a growth of 126% from Rs. 9.2

crores in F-05 to Rs. 20.8 crores in F-06.

Mahindra Gesco Developers Limited (MGDL),

the Group’s subsidiary in the business of real

estate and infrastructure development showed

impressive growth during the year under review.

The demand for housing is buoyant and is

expected to remain so at least for the near

medium term. The Company (through its

subsidiary, Mahindra World City Developers

Limited) has successfully operationalised the

SEZ at Chennai and has responded to invitations

from the Governments of Rajasthan and

Maharashtra to partner them in their respective

states. The Company’s total income increased

from Rs. 95.0 crores to Rs. 124.1 crores – a

growth of 31% The profit after tax during the

year increased by 41% from Rs. 7.8 crores to

Rs. 11.0 crores.

Segment Results

The results achieved by major business segments of the Group are given below:

(Rs. crores)

Segments F-2006 F-2005

1. Automotive Segment 538.46 473.37

2. Farm Equipment Segment 308.28 191.39

3. Financial Services 150.87 131.59

4. IT Services 253.91 77.34

Certain statements in the Management Discussion and Analysis describing the Company’s objectives,

projections, estimates, expectations or predictions may be “forward-looking statements” within the

meaning of applicable securities laws and regulations. Actual results could differ from those expressed

or implied. Important factors that could make a difference to the Company’s operations include raw

material availability and prices, cyclical demand and pricing in the Company’s principal markets,

changes in Government regulations, tax regimes, economic developments within India and the

countries in which the Company conducts business and other incidental factors.

36

CORPORATE GOVERNANCE

Corporate Governance is reflected in the manner

in which the Company deals with its

shareholders, employees, customers as also

every other stakeholder including the society in

which the Company operates. Your Company is

committed towards transparency in all its

dealings, adhering to the corporate values and

leveraging the corporate resources in alignment

with the benefits to the stakeholders.

The Promoters of your Company are committed

to moulding Governance with the culture of the

Company that is built upon core values, beliefs

and ethics. All Mahindra Group Companies are

managed in a manner that meets not only

stakeholders’ aspirations but societal

expectations as well.

Your Company’s pursuit towards achieving good

governance is an ongoing process and it

continues to practise Corporate Governance of

the highest standard. A report on the compliance

with the Code of Corporate Governance as

prescribed by the Securities and Exchange

Board of India and incorporated in the Listing

Agreement is given below.

I. Board of Directors

The Company has a Non-Executive Chairman

and the number of Independent Directors is

more than 1/3rd of the total number of Directors.

The number of Non-Executive Directors is more

than 50% of the total number of Directors. The

composition of the Board is in conformity with

Clause 49 of the Listing Agreement.

The Company is managed by the Vice-Chairman

& Managing Director and the two Executive

Directors of the Company. The Board reviews

and approves strategy and oversees the results

of management to ensure that the long term

objectives of enhancing stakeholder value are

met.

Apart from reimbursements of expenses incurred

in the discharge of their duties, the remuneration

that these Directors would be entitled to under

the Companies Act, 1956 as Non-Executive

Directors and the remuneration that some of

the Directors may receive for professional

services rendered to the Company either in

individual capacity or through a firm in which

one of them is a partner, none of these Directors

has any other material pecuniary relationships

or transactions with the Company, its

Promoters, its Directors, its Senior Management

or its subsidiaries and Associates which in their

judgement would affect their independence.

Khaitan & Co., Advocates & Solicitors, in which

Mr. R. K. Kulkarni, Non-Executive Director is

a partner, received professional fees of

Rs. 155.87 lakhs.

The Senior Management have made disclosures

to the Board confirming that there are no

material, financial and/or commercial

transactions between them and the Company

which could have potential conflict of interest

with the Company at large.

A. Composition of the Board

The Company presently has twelve Directors.

The Vice-Chairman & Managing Director and

37

the two Executive Directors are Whole-time

Directors. The Chairman, who is a Non-

Executive Chairman and the Vice-Chairman

& Managing Director, though professional

Directors in their individual capacities, belong

to the Company’s promoter group. Unit Trust

of India (UTI) has withdrawn the nomination

of Mr. V. K. Chanana from the Board with

effect from 22nd March, 2006. Life Insurance

Corporation of India (LIC) had with effect from

28th July, 2005 nominated the then Managing

Director of LIC, Mr. T. S. Vijayan as a

Nominee Director on the Board. With effect

from 29th May, 2006, LIC withdrew the

nomination of Mr. T. S. Vijayan and nominated

Mr. Thomas Mathew T., its current Managing

Director as its representative on the Board in

his place with effect from the said date. The

remaining eight Non-Executive Directors

(including the Nominee Director) are

Independent Directors and professionals, with

expertise and experience in general corporate

management, finance, banking, insurance and

other allied fields.

The names and categories of Directors, the

number of Directorships and Committee

positions held by them in the companies are

given below. None of the Directors on the Board

is a Member on more than 10 Committees and

Chairman of more than 5 Committees (as

specified in Clause 49 of the Listing Agreement),

across all the companies in which he is a

Director.

Director Category Total number of Total number Total number ofCommittee of Chairmanships Directorships*memberships+ of Committees+ of publicof public companies of public companies companiesas on as on as on31st March, 2006 31st March, 2006 31st March, 2006

NON-EXECUTIVEMr. Keshub Mahindra Promoter 1 1 6(Chairman)

Mr. Deepak S. Parekh Independent 8 5 13

Mr. N. B. Godrej Independent 7 4 13

Mr. M. M. Murugappan Independent 4 3 10

Mr. Narayanan Vaghul Independent 4 1 11

Dr. A. S. Ganguly Independent 1 - 4

Mr. R. K. Kulkarni Independent 6 2 7

Mr. T. S. Vijayan@ Independent - - 4

Mr. Anupam Puri Independent 3 1 6

EXECUTIVEMr. Anand G. Mahindra Promoter 1 - 12(Vice-Chairman &Managing Director)

Mr. Bharat Doshi Non-independent 5 1 9(Executive Director)

Mr. A. K. Nanda Non-independent 7 4 13(Executive Director& Secretary)

* excludes Directorships in private limited companies, foreign companies, Section 25 companies andgovernment bodies but includes Directorship in Mahindra & Mahindra Limited

+ Committees considered are Audit Committee and Shareholders/Investors Grievance Committee, includingin Mahindra & Mahindra Limited

@ Resigned as Nominee Director of LIC with effect from 29th May, 2006

38

B. Board Procedure

A detailed Agenda folder is sent to each Director

in advance of Board and Committee Meetings.

To enable the Board to discharge its

responsibilities effectively, the Vice-Chairman

& Managing Director apprises the Board at

every Meeting of the overall performance of

the Company, followed by presentations by the

Sector Presidents. A detailed functional report

is also placed at Board Meetings. The Board

also reviews strategy and business plans, annual

operating and capital expenditure budgets,

investment and exposure limits, compliance

reports of all laws applicable to the Company,

as well as steps taken by the Company to rectify

instances of non-compliances, review of major

legal issues, minutes of the Board Meetings of

your Company’s unlisted subsidiary companies,

significant transactions and arrangements

entered into by the unlisted subsidiary

companies, adoption of quarterly/half-yearly/

annual results, significant labour issues,

transactions pertaining to purchase/ disposal

of property, major accounting provisions and

write-offs, corporate restructuring, minutes of

Meetings of the Audit and other Committees of

the Board, and information on recruitment of

Officers just below the Board level, including

the Compliance Officer.

C. Number of Board Meetings, attendance

record of the Directors at Meetings of the

Board and at the Annual General Meeting

Seven Board Meetings were held during the

period 1st April, 2005 to 31st March, 2006 on

the following dates – 30th May, 2005, 14th June,

2005, 28th July, 2005, 26th October, 2005, 31st

January, 2006, 14th February, 2006 and 22nd

March, 2006. The gap between two meetings

did not exceed four months. These were well

attended.

The fifty-ninth Annual General Meeting (AGM)

was held on 28th July, 2005.

The attendance of the Directors at these

Meetings is as under:

Director No. of Board Attendance at theMeetings Attended AGM

Mr. Keshub Mahindra 7 Yes

Mr. Anand G. Mahindra 6 Yes

Mr. Deepak S. Parekh 6 Yes

Mr. N. B. Godrej 6 Yes

Mr. M. M. Murugappan 4 No

Mr. Bharat Doshi 7 Yes

Mr. Alan E. Durante (1) 3 Yes

Mr. A. K. Nanda 7 Yes

Mr. T. S. Vijayan (2) 2 N.A.

Mr. Narayanan Vaghul 4 No

Dr. A. S. Ganguly 4 Yes

Mr. R. K. Kulkarni 7 Yes

Mr. Anupam Puri 2 No

Mr. V. K. Chanana (3) 6 No

(1) Retired with effect from 25th September, 2005

(2) Appointed as Nominee Director of Life Insurance Corporation of India (LIC) with effect from28th July, 2005 and resigned with effect from 29th May, 2006

(3) Resigned as Nominee Director of Unit Trust of India with effect from 22nd March, 2006

39

D. Directors seeking appointment/

re-appointment

Mr. Deepak S. Parekh, Mr. N. Vaghul, Mr. A.

K. Nanda and Mr. Bharat Doshi retire by

rotation and, being eligible, have offered

themselves for re-appointment. Mr. Thomas

Mathew T. has been nominated by Life Insurance

Corporation of India as an Additional Director

on the Board of the Company with effect from

29th May, 2006. He holds office upto the date

of the forthcoming Annual General Meeting. A

Notice has been duly received from a Member

proposing the candidature of Mr. Mathew for

the office of Director at the said Meeting.

Deepak S. Parekh

Mr. Deepak Parekh is a Fellow member of the

Institute of Chartered Accountants (England &

Wales). He has been a Director of the Company

since August, 1990. He is also the Executive

Chairman of Housing Development Finance

Corporation Limited (HDFC Limited) since

February, 1993.

Mr. Parekh is renowned in the fields of finance

and infrastructure and has been the recipient

of several awards, including the Qimpro

Platinum Award for Quality (for his contribution

to the services sector), the Businessman of the

Year 1996 Award from Business India, the JRD

Tata Corporate Leadership Award from the All

India Management Association, and the

Economic Times Lifetime Achievement Award

2003 and most recently i.e. in 2006, the

Padmabhushan by the Government of India.

Mr. Parekh has been a member of various

Committees set up by the Government of India,

the recent one being the Investment Commission

Committee.

Mr. Deepak Parekh is Chairman of

GlaxoSmithKline Pharmacueticals Limited,

HDFC Asset Management Co. Limited, HDFC

Chubb General Insurance Company Limited,

HDFC Standard Life Insurance Co. Limited,

Infrastructure Development Finance Company

Limited and Siemens Limited. He is a Director

of Castrol India Limited, Hindustan Lever

Limited, Hindustan Oil Exploration Co. Limited,

Lafarge India Private Limited, Motor Industries

Co. Limited, The Indian Hotels Company

Limited and an Alternate Director of Bharat

Bijlee Limited, Borax Morarji Limited, Exide

Industries Limited and Zodiac Clothing Co.

Limited.

Mr. Parekh holds 46,090 Ordinary (Equity)

shares in the Company.

Mr. Deepak Parekh is a member of the following

Board Committees:

Sr. No. Name of the Companies Name of the Position heldCommittee

1. The Indian Hotels Co. Limited Audit Committee Member

2. Siemens Limited Audit Committee Member

3. GlaxoSmithKline Audit Committee ChairmanPharmaceuticals Limited

4. Mahindra & Mahindra Limited Audit Committee Chairman

5. Castrol India Limited Audit Committee Chairman

6. Motor Industries Co. Limited Audit Committee Chairman

7. Hindustan Lever Limited Audit Committee Chairman

8. Motor Industries Co. Limited Investors Grievance MemberCommittee

9. Infrastructure Development Remuneration MemberFinance Company Limited Committee

10. Siemens Limited Remuneration MemberCommittee

40

Narayanan Vaghul

Mr. Narayanan Vaghul, currently Chairman of

the Board of ICICI Bank Limited, has been a

Director of your Company since 1996. He has

been associated with ICICI for several years as

its Chairman and CEO, and has served on the

Boards of the Central Bank of India and the

Bank of India. As the Chairman and a member

of several committees and task forces,

constituted by the Government and the Reserve

Bank of India, Mr. Vaghul has been closely

associated with policy formulation at a national

level. He has worked on several assignments

for the Asian Development Bank, the

International Finance Corporation and the

World Bank. For a brief period, he was the

Chairman of the Government’s Foreign

Investment Advisory Board.

Mr. Vaghul is Chairman of Asset Reconstruction

Company India Limited, Himatsingka Seide

Limited, ICICI Knowledge Park Limited,

Mahindra World City Developers Limited and

Pratham India Education Initiative and a

Director of Air India Air Transport Services

Limited, Air India Engineering Services

Limited, Air India Limited, Apollo Hospitals

Enterprise Limited, Azim Premji Foundation,

Hemogenomics Private Limited, Mittal Steel,

Carribean, Mittal Steel, N.V. Rotterdam, The

Netherlands, Nicholas Piramal India Limited

and Wipro Limited. He is a Member of the

Governing Body of National Institute of Public

Finance and Policy, and Member of the

Governing Council of LNM Institute of

Information Technology and a Trustee of LNM

Foundation, Pratham Mumbai, Pratham

Tamilnadu Education Initiative, Pratham, USA

and Chairman of GIVE Foundation and

Chairman of the Board of Governors of Institute

for Financial Management & Research India,

Chennai.

Mr. Vaghul holds 40,000 Ordinary (Equity)

shares in the Company.

Mr. N. Vaghul is a member of the following

Board Committees:

Sr. No. Name of the Companies Name of the Position heldCommittee

1. Wipro Limited Audit Committee Chairman

2. Mahindra & Mahindra Limited Remuneration/ ChairmanCompensation Committee

3. Nicholas Piramal India Limited Compensation Committee Chairman

4. ICICI Bank Limited Board Governance & ChairmanRemuneration Committee

5. Mahindra World City Audit Committee MemberDevelopers Limited

6. Mahindra World City Remuneration Committee MemberDevelopers Limited

7. Air India Limited Audit Committee Member

8. Nicholas Piramal India Limited Audit Committee Member

9. Apollo Hospitals Limited Compensation Committee Member

10. Wipro Limited Board Governance & MemberCompensation Committee

41

A. K. Nanda

Mr. A. K. Nanda is a Graduate in Commerce, a

fellow member of the Institute of Chartered

Accountants of India and a fellow member of

the Institute of Company Secretaries of India.

He has a Degree in Law from the University of

Calcutta. He has also participated in Senior

Executive Programme at the London Business

School.

Mr. Nanda joined the Group in 1973. He was

appointed Company Secretary of the Company

in 1987, before which he held several important

positions within the Group. He joined the Board

in August, 1992. He is also the President of

the Infrastructure Development Sector of the

Group, which deals with the Group’s involvement

in property development, special economic

zones, hotels, time-share and related activities.

Mr. Nanda is a member of various committees

of the Bombay Chamber of Commerce and

Industry and Confederation of Indian Industry.

He is currently the President of the Indo-French

Chamber of Commerce and Industry, a Member

of the Governing Board of The Council of EU

Chambers of Commerce in India and a Member

of the Governing Board of Bombay First. He

was the President of EU Chambers of Commerce

in India in the year 2004-05. He is the

Chairman of “CII National Committee on

Water” for 2006-07. He has chaired and spoken

at various international conferences organised

by the World Bank and UN sponsored agencies.

He is the Chairman of Mahindra Holidays &

Resorts (India) Limited, Owens Corning (India)

Limited, PSL Erickson Limited, Mahindra

Construction Company Limited, Mahindra Acres

Consulting Engineers Limited, Mahindra

Infrastructure Developers Limited and Mahindra

World City (Jaipur) Limited and the Vice-

Chairman of Mahindra Gesco Developers

Limited and Mahindra World City (Developers)

Limited.

He is also on the Board of Directors of

Mahindra Holdings & Finance Limited,

Mahindra Intertrade Limited, Mahindra (China)

Tractor Company Limited, ABN AMRO Asset

Management (India) Limited and Mahindra

Holidays and Resorts USA Inc. He is the

Member of the Advisory Board for Asia Pacific

in Barco Co. Limited.

Mr. A. K. Nanda is a member of the following

Board Committees:

42

Sr. No. Name of the Companies Name of the Position heldCommittee

1. Mahindra & Mahindra Limited Share Transfer and Member

Shareholders / Investors

Grievance Committee

2. Mahindra & Mahindra Limited Loans & Investment Member

Committee

3. Mahindra & Mahindra Limited Corporate Social Member

Responsibility Committee

4. Mahindra Holdings & Audit Committee Chairman

Finance Limited

5. Mahindra Holidays & Audit Committee Member

Resorts (India) Limited

6. Mahindra Holidays & Remuneration Committee Member

Resorts (India) Limited

7. Mahindra World City Audit Committee Member

Developers Limited

8. Owens Corning (India) Limited Audit Committee Chairman

9. ABN AMRO Asset Management Remuneration Committee Member

(India) Limited

10. ABN AMRO Asset Management Audit Committee Chairman

(India) Limited

11. Mahindra Construction Company Remuneration Committee Member

Limited

12. Mahindra Gesco Developers Shareholders & Investors Chairman

Limited Grievance Committee

13. Mahindra Gesco Developers Loans & Investment Chairman

Limited Committee

14. Mahindra Gesco Developers Remuneration Committee Member

Limited

Bharat N. Doshi

Mr. Bharat Doshi joined the Company in 1973

as an Executive. He is a fellow member of both

the Institute of Chartered Accountants of India

and the Institute of Company Secretaries of

India and has a Master’s Degree in Law from

the University of Bombay. He has participated

in the Program for Management Development

at the Harvard Business School.

Mr. Doshi was Executive Vice President

(Corporate Affairs) from July, 1991 to August,

1992. In August, 1992, he joined the Board as

Executive Director in charge of Finance and

Accounts, Corporate Affairs and Information

Technology. He has been the President of the

Trade and Financial Services Sector since

December, 1994. He is the Chairman of

Mahindra Steel Service Centre Limited and the

Vice-Chairman of Mahindra Intertrade Limited.

He is a Director of Tech Mahindra Limited,

Mahindra Holdings & Finance Limited,

43

Mahindra & Mahindra Financial Services

Limited, Mahindra International Limited,

Mahindra USA Inc., Bristlecone Limited and

Mahindra (China) Tractor Co. Limited. He is

also an Independent Director of Godrej

Consumer Products Limited, Franklin Templeton

Trustee Services Private Limited and NSE.IT

Limited. He is a Trustee of the Mahindra

Foundation and K.C. Mahindra Education Trust

and is also on the Board of Governors of The

Mahindra United World College of India and

the Indian Institute of Management, Kozhikode

and is a Member of the Managing Committee

of Bombay Chamber of Commerce & Industry.

He was also a Director on the Board of

Ford affiliate in India from May, 1997 to

March, 2005.

Mr. Doshi is a Fellow of the Salzburg Seminar

on “Asian Economies: Regional and Global

Relationships”, held in December, 2000. He has

addressed several seminars, both national and

international, on the Indian and Global

Economy and other related topics.

Mr. Bharat Doshi was adjudged “India’s Best

CFO” by the leading business fortnightly

‘Business Today’ in April, 2005. He was also

conferred the “CFO of the Year” Award,

honouring financial excellence, instituted by

IMA India, an associate of The Economist

Group, in December, 2005.

Mr. Doshi is a member of the following Board

Committees:

Sr. No. Name of the Companies Name of the Committee Position held

1. Mahindra & Mahindra Limited Share Transfer and Member

Shareholders/Investors

Grievance Committee

2. Mahindra & Mahindra Limited Loans & Investment Member

Committee

3. Mahindra & Mahindra Limited Corporate Social Member

Responsibility Committee

4. Mahindra & Mahindra Limited Research & Development Member

Committee

5. Mahindra Intertrade Limited Compensation Committee Member

6. Mahindra Steel Service Audit Committee Member

Centre Limited

7. Mahindra International Limited Audit Committee Chairman

8. Godrej Consumer Products Limited Audit Committee Chairman

9. Godrej Consumer Products Limited Human Resource Committee Member

10. Godrej Consumer Products Limited Nominations Committee Member

44

11. Mahindra & Mahindra Loans & Investment Member

Financial Services Limited Committee

12. Mahindra & Mahindra Financial Remuneration/ Member

Services Limited Compensation Committee

13. Bristlecone Limited Audit Committee Member

14. Bristlecone Limited Compensation Committee Member

15. Franklin Templeton Trustee Dividend Committee Member

Services Private Limited

Thomas Mathew T.

Mr. Thomas Mathew T., Managing Director, LIC

of India, is a Post-Graduate in Economics,

Graduate in Law, Post-Graduate Diploma in

Management (Marketing) and also an Associate

of the Insurance Institute of India. He joined

Life Insurance Corporation of India (LIC) in

December, 1977 as a Direct Recruit Officer. He

took over charge as Managing Director of LIC

on 24th March, 2006.

Mr. Thomas Mathew has held various important

assignments in LIC. He was the Zonal Manager

of Western Zone of LIC, Chief (Marketing and

International Operations) and Sr. Divisional

Manager-in-Charge of 3 major Divisions. He is

also Managing Director of LIC Housing Finance

Limited and a Director of LIC (Nepal) Limited.

Mr. Mathew has attended various seminars and

training sessions related to Insurance in India

and abroad.

Mr. Mathew does not hold any shares in the

Company.

Mr. Mathew is Chairman of the Executive

Committee of LIC Housing Finance Limited.

E. Codes of Conduct

The Board has laid down two separate Codes

of Conduct - one for Board Members and other

for Senior Management and employees of the

Company. These Codes have been posted on the

Company’s website www.mahindra.com. All

Board Members and Senior Management

Personnel have affirmed compliance with the

Codes of Conduct. A declaration signed by the

Vice - Chairman & Managing Director to this

effect is enclosed at the end of this report.

II. Remuneration to Directors

A. Remuneration Policy

While deciding on the remuneration for

Directors, the Board, Remuneration /

Compensation Committee (Committee) considers

the performance of the Company, the current

trends in the industry, the qualification of the

appointee(s), their experience, past performance

and other relevant factors. The Board /

Committee regularly keeps track of the market

trends in terms of compensation levels and

practices in relevant industries through

participation in structured surveys. This

information is used to review the Company’s

remuneration policies.

Sr. No. Name of the Companies Name of the Committee Position held

45

(Rs.in lakhs)

Director Commission for the year ended31st March, 2005, paidduring the current year

Mr. Keshub Mahindra 32.00

Late Mr. R. K. Pitamber* 8.00

Mr. Deepak S. Parekh 8.00

Mr. N. B. Godrej 8.00

Mr. M. M. Murugappan 8.00

Mr. V. K. Chanana (Nominee of UTI)** 8.00#

Mr. B. R. Gupta

Mr. R. N. Bhardwaj (Nominees of LIC) @6.55#

Mr. Narayanan Vaghul 8.00

Dr. A. S. Ganguly 8.00

Mr. R. K. Kulkarni 8.00

Mr. Anupam Puri 8.00

* Resigned with effect from 30th March, 2005

** Resigned with effect from 22nd March, 2006

# The Commission is payable to the Nominating Financial Institutions

@ Mr. B. R. Gupta resigned with effect from 29th April, 2004 as Nominee Director of LIC and in his place

Mr. R. N. Bhardwaj was appointed as Nominee Director of LIC with effect from the same date. Mr.

Bhardwaj ceased to be a Nominee Director with effect from 24th January, 2005.

B. Remuneration to Non-Executive

Directors for the year ended 31st March,

2006

The eligible Non-Executive Directors are paid

commission up to a maximum of 1% of the net

profits of the Company as specifically computed

for this purpose. A commission of Rs. 101.22

lakhs has been provided as payable to the

eligible Non-Executive Directors in the accounts

of the current year. The Directors are yet to

determine the distribution of this amount

between themselves on the basis of individual

Director’s contribution, guidance, etc.

During the year under review, the Non-Executive

Directors were paid a commission of Rs. 110.55

lakhs (provided in the accounts for the year

ended 31st March, 2005), distributed amongst

the Directors as under:

}

46

Non-Executive Directors are also paid a sitting

fee of Rs. 10,000 for every Meeting of the

Board or Committee attended. The fees paid to

Non-Executive Directors for the year ended

31st March, 2006 alongwith their shareholdings

are as under:

Director Sitting Fees for No. of Ordinary (Equity)Board and Committee shares held as onMeetings paid 31st March, 2006during the year(Rs. in lakhs)

Mr. Keshub Mahindra 1.20 2,01,148

Mr. Deepak S. Parekh 1.30 46,090

Mr. N. B. Godrej 1.50 50,000

Mr. M. M. Murugappan 0.90 40,000

Mr. V. K. Chanana 1.10 Nil

(Nominee of UTI) (1)

Mr. T. S. Vijayan 0.20 Nil

(Nominee of LIC) (2)

Mr. Narayanan Vaghul 0.70 40,000

Dr. A. S. Ganguly 0.50 40,000

Mr. R. K. Kulkarni 2.20 38,788

Mr. Anupam Puri 0.20 26,664

(1) Resigned with effect from 22nd March, 2006

(2) Appointed with effect from 28th July, 2005 as Nominee Director of Life Insurance Corporation of India(LIC) and resigned with effect from 29th May, 2006. Sitting Fees for Board Meetings were paid to LIC

1,60,000 Stock Options had been granted to

Non-Executive Directors under the Company’s

Stock Option Scheme on 6th December, 2001.

In June, 2005, 35,000 Stock Options have been

granted to the Non-Executive Directors. Details

of these are given in the Statement attached to

Annexure I to the Directors’ Report.

C. Remuneration paid/payable to Managing/

Executive Director(s) (Whole-time Directors)

for the year ended 31st March, 2006

Remuneration to Whole-time Directors is fixed

by the Remuneration/ Compensation Committee

and thereafter approved by shareholders at a

General Meeting.

47

Following is the remuneration paid/payable to the Whole-time Directors during the year ended

31st March, 2006.

(Rs.in lakhs)

Director Salary Com- Company’s Perquisites Total Contract No. of No. ofmission Contribu- and Period Options Options

tion to allowances granted $ granted $$Funds* in Dec., in June,

2001 2005

Mr. Anand G. 49.50 99.00 13.36 39.49 201.35 4th April, Nil NilMahindra 2002 to(Vice-Chairman 3rd April,& Managing 2007Director)

Mr. Bharat 38.50 57.75 10.40 18.40 125.05 28th 1,00,000 10,000Doshi August,(Executive 2002 toDirector) 27th

August,2007

Mr. Alan 17.50 26.25 57.77 17.94 119.46 28th 1,00,000 10,000E. Durante August,(Executive 2002 toDirector) @ 25th

September,2005

Mr. A. K. 38.50 57.75 10.39 17.36 124.00 28th 1,00,000 10,000Nanda August,(Executive 2002 toDirector & 27th August,Secretary) 2007

* Aggregate of the Company’s contributions to Superannuation Fund, Provident Fund, Gratuity Paid andPrivilege Leave Encashment

@ Retired as Executive Director with effect from 25th September, 2005

$ The Stock Options granted in December, 2001 have been exercised in full by Executive Directors

$$ Options granted in June, 2005 would vest in June, 2006. These options can be exercised in threetranches over a period of five years from the date of vesting at an Exercise Price of Rs. 227 per share

Notes:a) Notice period applicable to each of the Whole-time Directors – six months.

b) Commission is the only component of remuneration that is performance-linked. All othercomponents are fixed.

c) The overall remuneration to the Vice-Chairman & Managing Director and the ExecutiveDirectors is approved by the Remuneration/Compensation Committee.

III. Risk Management

Your Company has a well-defined risk

management framework in place. The risk

management framework adopted by the

Company is discussed in detail in the

Management Discussion and Analysis chapter

of this Annual Report. Your Company has

established procedures to periodically place

before the Board the risk assessment and

minimisation procedures being followed by the

Company and steps taken by it to mitigate these

risks.

IV. Committees of the Board

A. Remuneration/ Compensation Committee

The role of the Remuneration/Compensation

Committee is to review market practices and to

48

decide on remuneration packages applicable to

the Vice-Chairman & Managing Director, the

Executive Directors and Senior Executives of

the Company. During the course of its review,

the Committee also decides on the commission

and/or other incentives payable, taking into

account the individual’s performance as well

as that of the Company. The Committee has

formulated and administers the Mahindra &

Mahindra Limited Employees’ Stock Option

Scheme and also attends to such other matters

as may be prescribed from time to time.

Mr. N. Vaghul is the Chairman of the

Committee. Mr. Keshub Mahindra, Mr. N. B.

Godrej and Mr. M. M. Murugappan are the

other Members of the Committee. Three

Meetings were held during the year. All the

Meetings were attended by each Member.

B. Audit Committee

This Committee comprises solely of Independent

Directors. The Committee comprises Mr. Deepak

S. Parekh (Chairman of the Committee), Mr.

R. K. Kulkarni, Mr. V. K. Chanana (resigned

with effect from 22nd March, 2006), Mr. N. B.

Godrej and Mr. M. M. Murugappan (appointed

with effect from 29th May, 2006). Mr. A. K.

Nanda, the Company Secretary, acts as the

Secretary to the Audit Committee.

The terms of reference of this Committee are

very wide.

Besides having access to all the required

information from within the Company, the

Committee can obtain external professional

advice whenever required. The Committee acts

as a link between the Statutory and the Internal

Auditors and the Board of Directors of the

Company. It is authorised to select and establish

accounting policies, review reports of the

Statutory and the Internal Auditors and meet

with them to discuss their findings, suggestions

and other related matters. The Committee is

empowered to review the remuneration payable

to the Statutory Auditors and to recommend a

change in Auditors, if felt necessary. It is also

empowered to review Financial Statements and

investments of unlisted subsidiary companies,

Management Discussion & Analysis, material

individual transactions with related parties not

in normal course of business or which are not

on an arm’s length basis. Generally all items

listed in Clause 49 II D of the Listing Agreement

are covered in the terms of reference. The Audit

Committee has been granted powers as

prescribed under Clause 49 II C.

The Meetings of the Audit Committee are also

attended by the Vice-Chairman & Managing

Director, the Executive Director (Finance &

Corporate Affairs), the Executive Director &

Secretary, the President (Finance & Legal

Affairs), the Statutory Auditors, Chief Internal

Auditor and the Head-Secretarial, Compliance

Officer & Assistant Company Secretary. The

Chairman of the Audit Committee, Mr. Deepak

S. Parekh was present at the Annual General

Meeting of the Company held on 28th July,

2005.

The Committee met six times during the year

under review and the gap between two meetings

did not exceed four months. The meetings were

attended by all the members except Mr. V. K.

Chanana and Mr. R. K. Kulkarni who attended

five of these meetings.

49

C. Share Transfer and Shareholders/

Investors Grievance Committee

The Company’s Share Transfer and Shareholders/

Investors Grievance Committee functions under

the Chairmanship of Mr. Keshub Mahindra,

Chairman of the Board and a Non-Executive

Director. Mr. R. K. Kulkarni, Mr. Anand G.

Mahindra, Mr. Bharat Doshi and Mr. A. K. Nanda

are also on the Committee. Mr. Narayan Shankar,

Head- Secretarial & Assistant Company Secretary,

is the Compliance Officer of the Company.

The Committee meets as and when required, to

deal with matters relating to transfers/

transmissions of shares and monitors redressal

of complaints from shareholders relating to

transfers, non-receipt of balance-sheet, non-

receipt of dividends declared, etc. With a view

to expediting the process of share transfers,

the Executive Director & Secretary is authorised

to approve of transfers of shares below 5,000

in number.

The Committee held two meetings during the

year under review. Both the meetings were

attended by all its members except Mr. Anand

G. Mahindra who attended one meeting.

During the year, 73 letters/complaints were

received from the shareholders, all of which

have been attended to/resolved to date.

As of date, there are no pending share transfers

pertaining to the year under review.

D. Research & Development Committee

(a voluntary initiative of the Company)

The Research & Development (R&D) Committee,

which was constituted by the Board in 1998,

provides direction on the R&D mission and

strategy, and key R&D and technology issues.

The Committee also reviews and makes

recommendations on skills and competencies

required and the structure and the process

needed to ensure that the R&D initiatives result

in products that are in keeping with the business

needs.

Dr. A. S. Ganguly is the Chairman of the

Committee. Mr. Anand G. Mahindra, Mr. N. B.

Godrej (with effect from 26th October, 2005),

Mr. Bharat Doshi and Mr. M. M. Murugappan

are the other Members of the Committee.

Mr. Alan E. Durante ceased to be Member with

effect from 25th September, 2005. The

Committee held two meetings during the year

under review, which were well attended.

E. Loans & Investment Committee

(a voluntary initiative of the Company)

The Committee approves of the making of loans

and investment, borrowing moneys and related

aspects of fund management in accordance with

the guidelines prescribed by the Board. Mr. Keshub

Mahindra (Chairman), Mr. Anand G. Mahindra,

Mr. R. K. Kulkarni, Mr. Bharat Doshi and Mr. A.

K. Nanda are members of the Committee. Mr.

Alan E. Durante ceased to be Member with effect

from 25th September, 2005.

V. Subsidiary Companies

The revised Clause 49 defines a “material non-

listed Indian subsidiary” as an unlisted

subsidiary, incorporated in India, whose

turnover or net worth (i.e. paid-up capital and

free reserves) exceeds 20% of the consolidated

turnover or net worth respectively, of the listed

holding company and its subsidiaries in the

immediately preceding accounting year.

Under this definition, the Company has one

‘material non-listed Indian subsidiary’

50

i.e. Tech Mahindra Limited. Mr. Anupam Puri,

an Independent Director of your Company is

also a Director on the Board of Tech Mahindra

Limited.

VI. Management

A. Disclosures

During the financial year 2005-06, there were

no material significant transactions entered into

between the Company and its promoters,

Directors or the management, subsidiaries or

relatives, etc. that may have potential conflict

with the interests of the Company at large.

Further details of related party transactions are

presented in note no. 32 in Schedule XIV to

Annual Accounts of the Annual Report.

B. Disclosure of Accounting Treatment in

Preparation of Financial Statements

The Company has followed the Guidelines of

Accounting Standards laid down by the Institute

of Chartered Accountants of India (ICAI) in

preparation of its financial statements.

C. Code for Prevention of Insider Trading

Practices

In compliance with SEBI’s regulation on

prevention of insider trading, the Company has

instituted a comprehensive Code of Conduct for

prevention of Insider Trading for its designated

employees. The Code lays down Guidelines,

which advises them on procedures to be followed

and disclosures to be made, while dealing with

shares of the Company and cautioning them of

the consequences of violations.

VII. Shareholder Information

1. 60th Annual General Meeting

Date : 26th July, 2006

Time : 3.30 p.m.

Venue : Birla Matushri Sabhagar,

19, Sir Vithaldas

Thackersey Marg,

(New Marine Lines),

Mumbai - 400 020.

2. Dates of Book Closure

1st July, 2006 to 26th July, 2006, both days

inclusive.

3. Date of Dividend Payment

On or after 26th July, 2006.

4. Financial Year of the Company

The financial year covers the period from

1st April to 31st March.

Financial Reporting for :

Quarter ending

30th June, 2006 - End July, 2006

Half-year ending

30th September, 2006- End October, 2006

Quarter ending

31st December, 2006 - End January, 2007

Year ending

31st March, 2007 - End May, 2007

Note: The above dates are indicative

5. Registered Office

Gateway Building,

Apollo Bunder,

Mumbai - 400 001.

51

6. Listing of Ordinary (Equity) Shares &

Debentures on Stock Exchanges

The Company’s Shares are listed on the

Stock Exchanges at Bombay Stock

Exchange Limited (BSE) and National

Stock Exchange of India Limited (NSE).

The Company has applied for approval for

delisting its shares with The Calcutta Stock

Exchange Association Limited and the

approval for delisting of the shares is

awaited. The Global Depositary Receipts

(GDRs) of the Company are listed on the

Luxembourg Stock Exchange. The Zero

Coupon Foreign Currency Convertible Bonds

(FCCBs) due for redemption in 2009 are

listed at Singapore Exchange Securities

Trading Limited. The requisite listing fees

have been paid in full to all these Stock

Exchanges. Subsequent to the year-end, the

Company received the In-Principle approval

from BSE and NSE for issue and allotment

of equity shares which may arise out of

conversion of the US $ 200 Million FCCBs

due for redemption in 2011 into GDRs and/

or Equity Shares.

The Non-Convertible Debentures of the

Company are listed with National Stock

Exchange of India Limited and the

Company has paid the requisite listing fees

in full.

7. Stock Code

1. Bombay Stock Exchange Limited

(BSE) : 500520

2. National Stock Exchange of India

Limited (NSE) : M&M

3. Demat International Security

Identification Number in NSDL and

CDSL for equity shares -ISIN-

INE101A01018

8. Stock Performance

The performance of the Company’s shares

relative to the BSE Sensitive Index is given

in the chart below :

0

100

200

300

400

500

600

700

800

Mar-06

Feb-06

Jan-06

Dec-05

Nov-05

Oct-05

Sep-05

Aug-05

July-05

Jun-05

May-05

Apr-05

0

2000

4000

6000

8000

10000

12000

M&M on BSEBSE Index

Last Trading day of the month

BSE

Ind

ex

M&

M o

n B

SE

(ex-

bo

nu

s w

.e.f

. 1st

Sep

. 20

05

)

52

9. Stock Price Data

Equity Shares GDRs

Bombay Stock National Stock Luxembourg

Exchange Exchange of Stock

Limited India Limited Exchange

High Low High Low High Low

Rs. Rs. Rs. Rs. US $ US $

April, 2005 511.00 420.00 515.00 431.05 5.80 4.95

May, 2005 518.00 435.10 519.00 435.00 5.93 5.13

June, 2005 587.00 501.00 587.00 500.00 6.65 5.82

July, 2005 700.00 553.60 785.00 553.05 7.68 6.54

August, 2005 730.50 667.50 741.90 655.10 8.22 7.75

September, 2005* 380.00 345.00 387.90 345.00 8.65 8.02

October, 2005 411.95 351.00 411.90 351.00 9.15 8.00

November, 2005 481.80 353.20 484.95 353.00 10.35 7.83

December, 2005 524.45 450.00 524.50 449.15 11.27 10.05

January, 2006 561.70 503.20 561.95 504.00 12.53 11.43

February, 2006 627.00 553.80 626.90 552.00 13.70 12.53

March, 2006 651.00 544.00 651.45 576.65 14.15 13.40

* The share price became ex-bonus with effect from 1st September, 2005

10. Registrar and Transfer Agents

Sharepro Services (India) Private Limited

Unit: Mahindra & Mahindra Limited

Satam Estate, 3rd Floor,

Above Bank of Baroda,

Cardinal Gracious Road,

Chakala, Andheri (East),

Mumbai - 400 099.

Telephone No. +91-22-28215168

Fax +91-22-28375646

Email: sharepro@vsnl.com

The Registrar and Transfer Agents also have an office at:

912, Raheja Centre,

Free Press Journal Road,

Nariman Point,

Mumbai - 400 021.

Telephone No.+91-22-22881569

Fax: +91-22-22825484

53

11. Share Transfer System

Trading in Ordinary (Equity) Shares of the

Company is permitted only in dematerialised

form.

Shares sent for transfer in physical form are

registered and returned within a period of thirty

days from the date of receipt of the documents,

provided the documents are valid and complete

in all respects. With a view to expediting the

process of share transfers, the Executive

Director and Secretary is authorised to approve

of transfers of shares below 5,000 in number.

The Share Transfer and Shareholders/ Investors

Grievance Committee meets as and when

required to consider the other transfer proposals

and attend to shareholder grievances.

12. Distribution of shareholding as on 31st March, 2006

Number of Number of Number of % of

Shares held Shareholders shares held Shareholding

1 to 500 93,517 77,85,350 3.23

501 to 1000 5,101 37,51,072 1.56

1001 to 5000 4,209 85,92,257 3.57

5001 to 10000 390 26,92,742 1.11

10001 and above 537 21,80,79,931 90.53

Total 1,03,754 24,09,01,352 100.00

Shareholding Pattern as on 31st March, 2006

Sr. No. Category of Shareholders Total Holdings Percentage

1 Indian Promoters 2,05,148 0.09

2 Persons acting in concert * 5,47,33,578 22.72

3 Mutual Funds 1,39,01,569 5.77

4 Banks, Financial

Institutions, Insurance

Companies (State Government) 3,78,64,229 15.72

5 FIIs/FFIs/FCs* 8,41,56,160 34.93

6 Private Corporate Bodies 79,58,172 3.30

7 Indian Public 2,52,69,815 10.49

8 NRIs/OCBs 21,89,080 0.91

9 Bank of New York (for GDR holders) 1,46,23,601 6.07

Total 24,09,01,352 100.00

* FIIs/FFIs/FCs does not include shareholding aggregating 1,17,50,000 shares representing

4.88% of the paid-up share capital of the Company held by a FII as the same is included under the

category of Persons acting in Concert

54

13. Dematerialisation of Shares

96.95% of the total Equity Capital is held

in a dematerialised form with National

Securities Depository Limited and Central

Depository Services (India) Limited as on

31st March, 2006. The market lot of the

share is one share as the trading in equity

shares of the Company is permitted only in

dematerialised form. Non-promoters’

holding is 77.19% and the stock is highly

liquid.

14. Outstanding GDRs/ ADRs /Warrants or

any Convertible Instruments, Conversion

date and likely impact on equity

1,46,23,601 GDRs were outstanding as at

31st March, 2006. Since the underlying

Ordinary (Equity) Shares represented by

GDRs have been allotted in full, the

outstanding GDRs have no impact on the

Equity of the Company.

1,00,000 Zero Coupon Convertible Bonds

(due 2009) of US$ 1000 each (FCCBs)

aggregating US$ 100 million issued in May,

2004, were at the option of the Bond holders

convertible into around 68,61,911 Equity

Shares / GDRs each GDR representing One

Equity Share of the Company at an initial

conversion price of Rs.647.05 per share at

any time between 7th June, 2004 and 8th

April, 2009. Consequent to the issue of

Bonus Equity Shares by the Company in the

ratio 1:1 in September, 2005, the initial

conversion price of Rs.647.05 per share was

adjusted to Rs. 323.52 per share with effect

from 3rd September, 2005 resulting into an

increase in the number of Equity Shares

underlying FCCBs to around 1,37,24,035.

During the year, FCCBs aggregating US$

6,47,30,000 were converted into 88,83,554

Equity Shares/GDRs. As at 31st March,

2006, FCCBs amounting to US$

3,52,70,000 convertible into around

48,40,467 Equity Shares/GDRs were

outstanding. Subsequent to 31st March,

2006 FCCBs aggregating US$ 2,23,70,000

have been converted into 30,70,063 Equity

Shares/GDRs and as of date FCCBs

amounting to US$ 1,29,00,000 convertible

into around 17,70,400 Equity Shares/GDRs

are outstanding.

2000 Zero Coupon Convertible Bonds (due

2011) of US$ 1,00,000 each aggregating

US$ 200 million issued subsequent to the

year-end in April, 2006, may, at the option

of the Bond holder, be converted into around

96,35,156 Equity Shares/GDRs at an initial

conversion price of Rs.922.04 at any time

between 7th May, 2006 and 7th March, 2011.

15. Plant Locations

The Company’s manufacturing facilities are

located at Kandivli, Nashik, Igatpuri,

Nagpur, Zaheerabad, Jaipur, Rudrapur,

Haridwar and Pune.

16. Address for correspondence

Shareholders may correspond with the

Registrar and Transfer Agents, at:

Sharepro Services (India) Private Limited

Satam Estate, 3rd Floor,

Above Bank of Baroda,

Cardinal Gracious Road,

Chakala, Andheri (East),

Mumbai-400 099

Telephone No. +91-22-28215168

Fax +91-22-28375646

Email: sharepro@vsnl.com

on all matters relating to transfer/

dematerialisation of shares, payment of

55

dividend and any other query relating to

shares in or debentures of the Company.

Shareholders would have to correspond with

the respective Depositary Participants for

shares held in demat mode.

For all investor related matters, Head-

Secretarial, Compliance Officer & Assistant

Company Secretary can be contacted at

Mahindra Towers, 5th floor, Dr. G. M.

Bhosale Marg, Worli, Mumbai - 400 018.

Telephone No: +91-22-24905624,

+91-22-24975074

Fax: +91-22-24900833

e-mail: narayan.shankar@mahindra.com

The Company can also be visited at its

website: http://www.mahindra.com

VIII. Other Disclosures

1. Details of General Meetings and Special Resolutions passed

Annual General Meetings held during the past 3 years and the Special Resolutions passed therein:

Year Date Time Special Resolutions passed

2003 28th July, 2003 3.30 p.m. 1. Appointment of Auditors.

2. Amendment of Object Clause of the

Memorandum of Association of the Company.

3. Approval for commencement of the new

businesses of the Company.

4. Maintaining of the Company’s Register of

Members, etc.

5. Delisting of securities.

2004 28th July, 2004 3.30 p.m. Allotment of further shares to Mahindra &

Mahindra Employees’ Stock Option Trust.

2005 28th July, 2005 3.30 p.m. 1. Payment of Commission to Non-wholetime

Directors including Non-Resident Directors.

2. Revision in the remuneration payable to Mr.

Anand G. Mahindra, Vice- Chairman &

Managing Director and the two Executive

Directors of the Company viz. Mr. Bharat

Doshi and Mr. A. K. Nanda.

3. Approval for commencement of new

businesses of the Company.

4. Increase in limit for holdings by FIIs from 35%

to 49% of the paid-up capital of the Company.

5. Alteration of Article 3 in the Articles of

Association of the Company.

56

Extraordinary General Meetings held during the past 3 years:

Year Date Time

2003 30th October, 2003 11.00 a.m.

2004 29th April, 2004 11.00 a.m.

All the Meetings were held at Birla Matushri Sabhagar, 19, Sir Vithaldas Thackersey Marg,

(New Marine Lines), Mumbai-400 020.

Details of Special Resolutions passed through postal ballot

Sr. No. Date of passing the Description % of Votes in favour

Special Resolution of the Special Resolution

1. 28th July, 2005 Amendment of 99.98

Object Clause of the

Memorandum of

Association.

2. 5th April, 2006 Issue of Securities in 93.51

International / Domestic

markets not exceeding

USD 200 Million.

The procedure for postal ballot is as per the provisions contained in this behalf in the Companies

Act, 1956 and rules made thereunder namely Companies (Passing of the Resolution by Postal

Ballot) Rules, 2001.

No Resolution is proposed to be passed through postal ballot.

2. Details of non-compliance etc.

The Company has complied with all the

requirements of regulatory authorities.

During the last three years, there were no

instances of non-compliance by the

Company and no penalty or strictures were

imposed on the Company by the Stock

Exchanges or SEBI or any statutory

authority, on any matter related to the

capital markets.

3. Means of Communication

The quarterly, half-yearly and yearly results

are published in Business Standard and

Sakal which are national and local dailies.

These are not sent individually to

the shareholders. The Company’s results

and official news releases are

displayed on the Company’s website

http://www.mahindra.com

Presentations are also made to international

and national institutional investors and

analysts.

The Company also regularly posts

information relating to its financial results

and shareholding pattern on the SEBI

EDIFAR Website at www.sebiedifar.nic.in

57

4. The Management Discussion and Analysis

Report (MDA) has been attached to the

Directors’ Report and forms part of this

Annual Report.

5. Office of the Chairman, etc.

[non-mandatory but adopted]

The Company has provided the Chairman

(Non-Executive) with a full-fledged office,

the expenses of which are borne by the

Company. The Chairman is reimbursed all

expenses incurred in the performance of

his duties.

6. Compliance with Mandatory & non-

mandatory requirements

The Company has complied with all the

mandatory requirements of Clause 49 of

the Listing Agreement relating to Corporate

Governance. Further, the Company has

adopted the following non-mandatory

requirements of the Clause:

• The Company has set up the

Re m u n e r a t i o n / C o m p e n s a t i o n

Committee long before application of

Clause 49.

• The financial statements of the

Company are unqualified.

The Company has not adopted the other

non-mandatory requirements as specified

in Annexure ID of the Clause 49.

Mumbai, 29th May, 2006

58

DECLARATION BY THE MANAGING DIRECTOR UNDER CLAUSE 49

OF THE LISTING AGREEMENT

To

The Members of Mahindra & Mahindra Limited

I, Anand G. Mahindra, Vice-Chairman & Managing Director of Mahindra & Mahindra Limited

declare that all the Members of the Board of Directors and Senior Management Personnel have

affirmed compliance with the Codes of Conduct.

Anand G. Mahindra

Vice-Chairman & Managing Director

Mumbai, 29th May, 2006

CERTIFICATE

To

The Members of Mahindra & Mahindra Limited

We have examined the compliance of conditions of Corporate Governance by Mahindra & Mahindra

Limited, for the year ended on 31st March, 2006, as stipulated in Clause 49 of the Listing

Agreement of the said company with stock exchanges in India.

The compliance of conditions of Corporate Governance is the responsibility of the management.

Our examination was limited to procedures and implementation thereof, adopted by the company

for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit

nor an expression of opinion on the financial statements of the company.

In our opinion and to the best of our information and according to the explanations given to us, we

certify that the company has complied with the conditions of Corporate Governance as stipulated

in the above mentioned Listing Agreement.

We state that such compliance is neither an assurance as to the future viability of the company nor

the efficiency or effectiveness with which the management has conducted the affairs of the company.

For A. F. Ferguson & Co.

Chartered Accountants

R. A. Banga

(Partner)

Membership Number: 37915

Mumbai, 29th May, 2006

59

Financial Position at a Glance(Rupees in lakhs)

2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Gross Fixed Assets 306471 281044 255927 248913 241677 223148 185892 161464 142653 114642

Net Fixed Assets 155445 147488 139160 146609 153723 148252 123199 109861 101741 81011

Investments 166909 118979 111115 86227 80013 71000 82299 81030 65596 60934

Inventories 87874 75983 49970 45675 46904 55253 51554 43697 51485 44716

Debtors 63797 51153 40048 51708 64778 63201 46158 59207 51657 20805

Other Current Assets #124469 #102820 62476 63964 61554 52911 68373 80381 72998 72926

Misc. Expenditure not

written off 1805 2438 964 3972 - 22361 15516 9684 5988 3623

BorrowingsLong-term 83717 94140 65203 107190 119180 79088 84481 133457 115147 95847

Short-term 4621 11122 7778 6794 18526 34304 10886 13162 18363 6924

Current Liabilities and

Provisions #206398 #175971 132924 109478 105074 92704 90021 87027 81623 71559

Deferred Tax Liability (Net) 14675 18975 20325 17710 13790 - - - - -

Equity Capital #23340 #11165 11601 11601 11601 11049 11049 10337 10337 10179

Reserves #267547 #187488 165902 145382 138801 195833 190662 139877 123995 99506

Net Worth #290887 #198653 177503 156983 150402 206882 201711 150214 134332 109685

Book Value Per Share (Rupees) *123.29 174.46 150.89 130.56 128.26 165.50 166.90 134.14 122.29 102.20

* Book value per share is shown after giving effect to a 1:1 bonus issue in September, 2005

Book value per share is calculated after reducing Miscellaneous Expenditure not written off and Revaluation Reserve from Net worth.

# After giving effect of the Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants of India.

MAHINDRA & MAHINDRA LIMITED

60

Summary of Operations(Rupees in lakhs)

2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Income @ 945143 780409 600123 459679 399675 435290 440918 416697 405265 356111

MaterialsDirect 571377 460264 335287 250022 211723 235858 221023 222739 215135 196881

Indirect 6824 5987 4323 3939 3173 4893 4550 4307 4906 4413

Excise Duty (Net) 113650 105482 95543 78501 67644 75537 77324 65364 63983 50073

Personnel 55257 46459 42087 38516 37471 40063 39683 37729 38344 33607

Interest (Net) @ (1840) (558) 5159 8690 8267 6216 7463 9384 4758 2115

Depreciation (Net) 20001 18405 16520 16544 13938 14009 12327 11198 9929 6296

Other Expenses 90925 74308 60333 49529 47621 44337 42606 37163 34858 29333

Exceptional items (21001) (1355) (2948) (5765) 1729 1522 1252 805 405 560

Extra-ordinary items - - - - - - (358) - - -

Profit before tax for the year 109950 71417 43819 19703 8109 12855 35048 28008 32947 32833

Tax for the year - Current 28540 21500 6350 1230 360 800 8700 5150 7800 11900

Deferred Tax Liability / (Asset) (4300) (1350) 2615 3920 (2520) - - - - -

Adj. pertaining to Prev. Years - - - - 578 - - 267 - -

Balance profit 85710 51267 34854 14553 9691 12055 26348 22591 25147 20933

Dividends #+27819 +17196 +11779 +7198 5621 +6697 +6745 +6311 +6254 +5599

Equity Dividend (%) #100.00 130.00 90.00 55.00 50.00 55.00 55.00 55.00 55.00 50.00

Earnings per Share (Rupees) * 38.07 23.04 15.02 6.28 4.31 5.46 11.93 10.93 12.17 10.28

Vehicles produced ** (Units) ^148213 148025 117670 87088 66256 63146 76983 70639 77510 74653

Vehicles sold ** (Units) §147591 145024 117399 86890 65338 62927 76437 70548 76954 75568

Tractors produced (Units) 87075 67115 50102 45183 54524 80261 73222 66211 71468 58028

Tractors sold (Units) 85029 65390 49576 47028 58006 79237 70571 69362 67780 57379

@ Interest income netted off in

interest expense 4536 3582 2535 2900 3297 5057 6682 5802 7530 5936

# Proposed Dividend.

+ Including Income tax on Proposed Dividend / Dividends.

* Basic Earnings per share is calculated on effective capital during the year and after giving effect to 1:1 bonus issue in September 2005, for all the

periods above. F2006 and F2005 Earnings per Share is after giving effect of the Guidance Note on Accounting for Employee Share-based Payments

issued by the Institute of Chartered Accountants of India.

** Including CKD packs.

^ Excluding 2705 nos LCV’s produced for Mahindra International Limited

§ Excluding 1833 nos LCV’s sold by Mahindra International Limited under the Mahindra brand name.

MAHINDRA & MAHINDRA LIMITED

61

Financial Highlights

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

20062005200420030

200

400

600

800

1000

3811

5057

6769

8327

146

349

513

857

PAT and Net Income (Rupees Crores)N

et In

com

e

PAT

Net Income PAT

Basic Earnings Per Share (Rupees)

0

10

20

30

40

50

2006200520042003

6.28

15.02

23.04

38.07

Net Segment Revenue F-2006

Others1.8%

Automotive63.7%

FarmEquipment

34.5%

Debt / Equity Ratio

0.00

0.25

0.50

0.75

1.00

2006200520042003

0.75

0.42

0.53

0.31

62

MAHINDRA & MAHINDRA LIMITED

1. We have audited the attached balance sheet of Mahindra &Mahindra Limited as at 31st March, 2006 and also the profitand loss account and the cash flow statement for the yearended on that date annexed thereto. These financialstatements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion onthese financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financial statementsare free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used andsignificant estimates made by the management, as well asevaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for ouropinion.

3. As required by the Companies (Auditor’s Report) Order,2003 issued by the Central Government of India in terms ofsub-section (4A) of section 227 of the Companies Act, 1956,we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.

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

(i) we have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit;

(ii) in our opinion, proper books of account as required bylaw have been kept by the company so far as appearsfrom our examination of those books;

(iii) the balance sheet, profit and loss account and cashflow statement dealt with by this report are in agreementwith the books of account;

(iv) in our opinion, the balance sheet, profit and loss accountand cash flow statement dealt with by this report complywith the Accounting Standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

(v) on the basis of the written representations receivedfrom the directors, as on 31st March, 2006, and takenon record by the Board of Directors, we report thatnone of the directors is disqualified as on 31st March,2006 from being appointed as a director in terms ofclause (g) of sub-section (1) of section 274 of theCompanies Act, 1956;

(vi) in our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956, in the manner so required andgive a true and fair view in conformity with theaccounting principles generally accepted in India:-

(a) in the case of the balance sheet, of the state ofaffairs of the company as at 31st March, 2006;

(b) in the case of the profit and loss account of theprofit for the year ended on that date;

and

(c) in the case of the cash flow statement, of thecash flows for the year ended on that date.

For A.F. Ferguson & Co.Chartered Accountants

R.A. Banga(Partner)

Membership Number: 37915Mumbai, 29th May, 2006

Report of the Auditors to the Shareholders

63

MAHINDRA & MAHINDRA LIMITED

(i) (a) The company is maintaining proper records showingfull particulars, including quantitative details and unitwise situation of fixed assets.

(b) The fixed assets have not been physically verified bythe management during the year but the company hasa system of verifying the fixed assets once every threeyears. In our opinion the frequency of verification is atreasonable intervals.

(c) During the year, in our opinion, a substantial part offixed assets has not been disposed off by the company.

(ii) (a) The inventory of the company has been physicallyverified by the management during the year and at orafter the year end. In respect of stocks lying with thirdparties, a substantial portion was physically verified orhas been confirmed by third parties during the year orat the year end. In our opinion the frequency ofverification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventory followed by the managementwere found reasonable and adequate in relation to thesize of the company and the nature of its business.

(c) On the basis of our examination of records of inventory,in our opinion, the company has maintained properrecords of inventory and the discrepancies noticed onphysical verification between the physical stocks andthe book records were not material in relation to theoperations of the company.

(iii) (a) In our opinion and according to the information andexplanations given to us, the company has grantedunsecured loans to six companies/parties covered inthe register maintained under section 301 of theCompanies Act, 1956. The maximum amount of loansduring the year was Rs. 6909.77 lakhs (including loansaggregating Rs. 4409.77 lakhs which were at call) andthe year end balance of loans granted to suchcompanies/parties was Rs. 4712.77 lakhs out of whichRs. 2212.77 lakhs, are at call.

(b) In our opinion and according to the information andexplanations given to us, the rates of interest and otherterms and conditions on which loans have been grantedto companies, firms or other parties covered in theregister maintained under section 301 of the CompaniesAct, 1956 are not, prima facie, prejudicial to the interestof the company.

(c) In respect of loans granted where stipulations havebeen made, the parties are repaying the principalamount and paying the interest as stipulated or asrescheduled except in respect of a loan of Rs. 459.42lakhs which is at call and has been fully provided for in

Annexure to the Report of the Auditors to the Shareholders of Mahindra & Mahindra Limited for the year ended31st March, 2006.

(Referred to in paragraph 3 thereof)

an earlier year. As a matter of prudence, interest onthe same is not recognised during the year.

(d) In our opinion and according to the information andexplanations given to us, other than the item referredto in (c) above, there is no overdue amount of morethan rupees one lakh.

(e) In our opinion and according to the information andexplanations given to us, the company has not takenany loan secured or unsecured from companies/partiescovered in the register maintained under section 301of the Companies Act, 1956 and accordingly paragraph(iii) (f) and (g) of the said Order are not applicable.

(iv) In our opinion and according to the information andexplanations given to us, having regard to the explanationthat many of the items are of a special nature and theirprices cannot be compared with alternative quotations, thereis an adequate internal control system commensurate withthe size of the company and the nature of its business forthe purchase of inventory and fixed assets and for the saleof goods and services. Further, on the basis of ourexamination and according to information and explanationsgiven to us, we have neither come across nor have webeen informed of any instance of major weaknesses in theaforesaid internal control system.

(v) (a) In our opinion and according to the information andexplanations given to us, the particulars of contracts orarrangements referred to in section 301 of theCompanies Act, 1956 have been entered in the registerrequired to be maintained under that section.

(b) In our opinion and according to the information andexplanations given to us, having regard to thecomments in (iv) above, the transactions made inpursuance of such contracts or arrangements andexceeding the value of rupees five lakhs in respect ofany party during the year have been made at prices,which are reasonable having regard to the prevailingmarket prices at the relevant time.

(vi) In our opinion and according to the information andexplanations given to us, the company has complied withthe provisions of Section 58A, 58AA and any other relevantprovisions of the Companies Act, 1956 and the Companies(Acceptance of Deposits) Rules, 1975, as applicable, withregard to the deposits accepted from the public. Accordingto the information and explanations given to us, no orderunder the aforesaid Sections has been passed by theCompany Law Board or National Company Law Tribunal orReserve Bank of India or any Court or any other Tribunal,on the company.

(vii) In our opinion, the company has an internal audit systemcommensurate with its size and nature of its business.

64

MAHINDRA & MAHINDRA LIMITED

(viii) We have broadly reviewed the books of account maintainedby the company relating to the manufacture of motor vehiclesand tractors pursuant to the rules made by the CentralGovernment for the maintenance of cost records undersection 209 (1) (d) of the Companies Act, 1956 and we areof the opinion that prima facie the prescribed accounts andrecords have been maintained and are being made up. Wehave not, however, made a detailed examination of therecords with a view of determining whether they are accurateor complete. To the best of our knowledge and accordingto the information given to us, the Central Government hasnot prescribed the maintenance of cost records undersection 209 (1) (d) of the Companies Act, 1956, for anyother products of the company.

(ix) (a) According to the information and explanations given tous and according to the books and records as producedand examined by us, in our opinion, the undisputed

statutory dues including provident fund, investoreducation and protection fund, employees’ stateinsurance, income tax, sales tax, wealth tax, servicetax, customs duty, excise duty, cess and other materialstatutory dues as applicable have generally beenregularly deposited by the company during the yearwith the appropriate authorities. According to theinformation and explanations given to us, there are noarrears of outstanding statutory dues as mentionedabove as at 31st March, 2006 for a period of morethan six months from the date they became payable.

(b) As at 31st March, 2006 according to the records ofthe company and the information and explanations givento us, the following are the particulars of dues onaccount of income tax, sales tax, wealth tax, servicetax, customs duty, excise duty and cess matters thathave not been deposited on account of any dispute:

Name of the Nature of Amount Period to which Forum where pendingstatute the dues Rs. in lakhs the amount relates

Various yearscovering the period

Income Tax Laws Income Tax 3.26 1998-1999 Appellate Authority - uptoCommissioner level

80.78 1997-1999 Appellate Authority -Tribunal level

Sales Tax Laws Sales Tax 501.21 1988-2005 Appellate Authority - uptoCommissioner level

15.11 1986-2002 Appellate Authority - Tribunal

265.75 1985-2003 High Court

Wealth Tax Laws Wealth Tax 33.42 1998-2000 Appellate Authority - uptoCommissioner level

Service Tax Laws Service Tax 45.48 2001-2003 Appellate Authority - uptoCommissioner level

Excise Duty Laws Excise Duty 1070.20 1994-2005 Appellate Authority - uptoCommissioner level

41084.43 1991-2006 Appellate Authority - Tribunal

Out of the above amounts aggregating Rs. 43099.64 lakhs, Rs.2168.77 lakhs have been stayed for recovery by the relevantauthorities.

(x) The company does not have accumulated losses as at31st March, 2006 and has not incurred cash losses duringthe financial year ended on that date and in the immediatelypreceding financial year.

(xi) In our opinion and according to the information andexplanations given to us, the company has not defaultedin repayment of dues to a financial institution, bank or todebenture holders during the year.

(xii) In our opinion and according to the information andexplanations given to us, the company has not grantedany loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(xiii) The provisions of any special statute as specified underClause (xiii) of the Order are not applicable to the company.

(xiv) In our opinion and according to the information andexplanations given to us, the company is not a dealer ortrader in securities.

(xv) According to the information and explanations given to us,the company has not given any guarantees for loans taken

65

MAHINDRA & MAHINDRA LIMITED

by others from banks or financial institutions, the termsand conditions, whereof, in our opinion, are prejudicial tothe interest of the company.

(xvi) In our opinion and according to the information andexplanations given to us, the term loans were applied forthe purpose for which the loans were obtained.

(xvii) Based on the information and explanations given to usand on an overall examination of the balance sheet of thecompany, in our opinion, there are no funds raised on ashort term basis which have been used for long terminvestments.

(xviii) The company has not made any preferential allotment ofshares to parties and companies covered in the registermaintained under section 301 of the Companies Act, 1956during the year.

(xix) In our opinion and according to the information andexplanations given to us, as the company has not issuedany debentures during the year, Clause (xix) of the Order isnot applicable to the company.

(xx) The company has not raised any money by public issueduring the year.

(xxi) During the course of our examination of the books andrecords of the company, carried out in accordance withthe generally accepted auditing practices in India, andaccording to the information and explanations given to us,we have neither come across any instance of materialfraud on or by the company, noticed or reported duringthe year nor have we been informed of such case by themanagement.

For A.F. Ferguson & Co.Chartered Accountants

R.A. Banga(Partner)

Membership Number: 37915Mumbai, 29th May, 2006

66

MAHINDRA & MAHINDRA LIMITED

Balance Sheet as at 31st March, 20062006 2005

Schedule Rupees Rupees Rupeeslakhs lakhs lakhs

I. SOURCES OF FUNDS :

SHAREHOLDERS’ FUNDS :

Capital ................................................................................... I 233,39.96 111,64.79

Employee Stock Options Outstanding ................................ 1,58.73 2,11.06

Reserves and Surplus .......................................................... II 2,673,88.40 1,872,77.09

2,908,87.09 1,986,52.94

LOAN FUNDS ....................................................................... III 883,38.22 1,052,61.95

DEFERRED TAX LIABILITY (Net) .......................................... 146,75.00 189,75.00

Total.......... 3,939,00.31 3,228,89.89

II. APPLICATION OF FUNDS :

FIXED ASSETS ..................................................................... IV 1,375,25.93 1,364,15.23

CAPITAL WORK-IN-PROGRESS ......................................... 179,18.60 110,72.79

1,554,44.53 1,474,88.02

INVESTMENTS ..................................................................... V 1,669,08.84 1,189,78.90

NET CURRENT ASSETS :

Current Assets, Loans and Advances .......................... VI 2,761,39.88 2,299,56.30

Less : Current Liabilities and Provisions ...................... VII 2,063,98.40 1,759,70.90

697,41.48 539,85.40

MISCELLANEOUS EXPENDITURE (TO THEEXTENT NOT WRITTEN OFF OR ADJUSTED) ................... VIII 18,05.46 24,37.57

Total.......... 3,939,00.31 3,228,89.89

NOTES ON ACCOUNTS ............................................................ XIV

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

67

MAHINDRA & MAHINDRA LIMITED

Profit and Loss Account for the year ended 31st March, 20062006 2005

Schedule Rupees Rupeeslakhs lakhs

SALES - Traded and Manufactured Goods [Note 11(a)] ....................................... 9,113,66.15 7,565,78.17Less : Excise Duty on Sales (Net) ............................................................................ 1,124,89.36 1,035,04.06

Net Sales ................................................................................................................ 7,988,76.79 6,530,74.11Income from Operations and Other Income ............................................................ IX 337,77.15 238,31.32

Net Income ............................................................................................................ 8,326,53.94 6,769,05.43

EXPENDITURE :Raw Materials, Finished and Semi-finished Products ...................................... X 5,713,76.57 4,602,63.66Excise Duty ........................................................................................................ 11,61.05 19,78.08Personnel ........................................................................................................... XI 551,78.39 464,25.17Interest, Commitment and Finance Charges (Net) ........................................... XII (18,40.16) (5,57.56)Depreciation / Amortisation [Note 5(g)(i)] .......................................................... 200,00.53 184,05.45Other Expenses ................................................................................................. XIII 1,004,03.20 834,79.05

7,462,79.58 6,099,93.85Less : Cost of Manufactured Products capitalised ................................................. 26,53.40 31,84.40

7,436,26.18 6,068,09.45Profit before provision for contingencies, exceptional items and taxation .............. 890,27.76 700,95.98Less : Provision for contingencies [Note 10 (b) & (c)] ............................................ 78.45 33.99

Profit before exceptional items and taxation ........................................................... 889,49.31 700,61.99Add : Exceptional Items (Note 24) .......................................................................... 210,01.18 13,55.16

Profit before taxation ................................................................................................ 1,099,50.49 714,17.15Less : Provision for Tax — Current tax (including Fringe Benefit Tax) .................. 285,40.00 215,00.00

— Deferred tax (Net) (Note 25) ...................................... (43,00.00) (13,50.00)

Profit for the year ...................................................................................................... 857,10.49 512,67.15

Balance of Profit for earlier years ............................................................................. 996,39.74 742,84.48Add: Transferred from Debenture Redemption Reserve (Net) ................................ 43.39 10,39.53

Investment Allowance Reserve Written Back ................................................ — 2,45.00

996,83.13 755,69.01

Total of Profit and Loss Account balances shown above ....................................... 1,853,93.62 1,268,36.16Deduct : General Reserve ...................................................................................... 100,00.00 100,00.00

: Dividends Paid ......................................................................................... — (0.23): Income tax on Dividend Paid .................................................................. — (0.03): Proposed Dividends - See Directors’ Report ......................................... 243,97.41 150,81.50: Income tax on Proposed Dividends ........................................................ 34,21.74 21,15.18

Balance for 2005-2006 and earlier years carried to Balance Sheet ...................... 1,475,74.47 996,39.74

EARNINGS PER SHARE (Note 26) :(Face value Rs. 10/- per share) (Rupees)

Basic .................................................................................................................. 38.07 23.04Diluted ................................................................................................................ 34.93 20.72

NOTES ON ACCOUNTS ......................................................................................... XIV

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

68

MAHINDRA & MAHINDRA LIMITED

Cash Flow Statement for the year ended 31st March, 20062006 2005

Rupees Rupees Rupeeslakhs lakhs lakhs

A. CASH FLOW FROM OPERATING ACTIVITIES :

Net Profit before exceptional items and taxation .................................... 889,49.31 700,61.99

Adjustments for :

Depreciation/Amortisation ................................................................. 200,00.53 184,05.45

Unrealised Profit on Exchange (Net) ................................................. (4,02.81) (98.71)

Investment and Interest Income ....................................................... (94,46.56) (110,46.99)

Interest, Commitment and Finance charges .................................... 26,95.61 30,24.13

Amortisation of Expenses ................................................................. 7,57.61 1,76.63

Profit on sale of Investments (Net) ................................................... (8,27.00) (84.00)

(Profit)/Loss on fixed assets sold/scrapped/written off (Net) ........... (17,89.78) 1,57.41

Excess of cost over fair value of current investments (Net) ............ 68.55 (79.07)

Provision for diminution in the value of long term investments (Net) (22,17.50) (6,57.46)

88,38.65 97,97.39

Operating Profit before Working Capital changes ................................... 977,87.96 798,59.38

Changes in:

Trade and other receivables ............................................................. (160,38.43) (148,09.25)

Inventories ......................................................................................... (118,91.41) (260,12.80)

Trade and other payables ................................................................. 274,28.66 249,02.35

(5,01.18) (159,19.70)

Miscellaneous Expenditure (to the extent not written offor adjusted) incurred during the year ...................................................... (75.81) (17,05.42)

Cash generated from operations ............................................................. 972,10.97 622,34.26

Income taxes paid (net of refunds) .......................................................... (285,20.71) (208,30.71)

NET CASH FROM OPERATING ACTIVITIES ........................................... 686,90.26 414,03.55

69

MAHINDRA & MAHINDRA LIMITED

B. CASH FLOW FROM INVESTING ACTIVITIES :

Purchase of fixed assets .......................................................................... (294,26.21) (269,26.21)

Sale of fixed assets .................................................................................. 19,59.46 6,14.54

Purchase of investments .......................................................................... (4,790,29.20) (3,611,14.37)

Sale of investments .................................................................................. 4,309,87.03 3,514,35.78

Interest received ....................................................................................... 55,25.01 31,50.15

Dividends received ................................................................................... 37,48.99 70,50.74

Inter corporate deposits (Net) .................................................................. (27,93.70) 48,76.51

Exceptional Items :

Sales Proceeds (Net) on sale of Long Term Investments ....................... 187,62.82 —

NET CASH USED IN INVESTING ACTIVITIES ........................................ (502,65.80) (209,12.86)

C. CASH FLOW FROM FINANCING ACTIVITIES :

Proceeds from borrowings ....................................................................... 249,35.86 559,36.59

Repayments of borrowings (including premium on prepayments) .......... (140,47.10) (216,08.48)

Dividends paid [including income tax on dividends Rs. 2115.18 lakhs(2005: Rs. 1337.79 lakhs)] ....................................................................... (171,49.73) (117,58.10)

Interest, Commitment and Finance charges paid ................................... (27,16.81) (33,25.18)

NET CASH FROM / (USED IN) FINANCING ACTIVITIES ........................ (89,77.78) 192,44.83

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS..... 94,46.68 397,35.52

CASH AND CASH EQUIVALENTS (Note 1) :

Opening Balance ...................................................................................... 630,68.57 233,33.05

Closing Balance ........................................................................................ 725,15.25 630,68.57

See Notes attached.

Cash Flow Statement (Contd.)2006 2005

Rupees Rupeeslakhs lakhs

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

70

MAHINDRA & MAHINDRA LIMITED

Notes to the Cash Flow Statement for the year ended 31st March, 2006

2006 2005Rupees Rupees

lakhs lakhs

1. Cash and cash equivalents include :

Cash, cheques and stamps on hand .............................................................................. 182,59.56 162,34.17

Balances with scheduled banks :

On current account ................................................................................................... 72,00.32 30,87.59

On fixed deposit account ......................................................................................... 471,71.02 425,85.63

On margin account ................................................................................................... 5.42 5.42

Balances with non-scheduled banks :

On current and fixed deposit account ..................................................................... 3,94.28 4,85.04

730,30.60 623,97.85

Unrealised translation (gain)/loss on foreign currency cash and cash equivalents ........ (5,15.37) 6,70.72

725,15.25 630,68.57

2 During the year, the Company has acquired the following subsidiaries :

a) Mahindra Automotive Steels Limited Rs. 1.01 lakhs.

b) Mahindra Renault Private Limited Rs. 1.00 lakh.

c) Mahindra International Limited Rs. 1.00 lakh.

d) Stokes Group Limited Rs. 2665.91 lakhs.

e) Plexion Technologies (India) Private Limited Rs. 3727.85 lakhs.

3 During the year, the Company has transferred the right to carry on LCV business alongwith the congeries of rights therein andintellectual property rights to its subsidiary Mahindra International Limited for a consideration of Rs. 4840.00 lakhs. This being anon cash transaction does not form part of the Cash Flow.

4 Previous year’s figures have been regrouped/ restated wherever necessary.

71

MAHINDRA & MAHINDRA LIMITED

SCHEDULE I2006 2005

Share Capital (Note 2): Rupees Rupeeslakhs lakhs

Authorised :

27,50,00,000 (2005 - 17,50,00,000) Ordinary (Equity) Shares of Rs.10 each ......................... 275,00.00 175,00.00

25,00,000 Unclassified shares of Rs.100 each .................................................................... 25,00.00 25,00.00

Total ............... 300,00.00 200,00.00

Issued and Subscribed :

24,09,01,352 (2005 - 11,60,08,599) Ordinary (Equity) Shares of Rs.10 each fully paid up .... 240,90.14 116,00.86

240,90.14 116,00.86Less :

75,01,768 (2005 - 43,60,672) Ordinary (Equity) Shares of Rs.10 each fully paid up issued to ESOP Trust but not allotted to employees ........................................ 7,50.18 4,36.07

Adjusted : Issued and Subscribed Share Capital ........................................................................ 233,39.96 111,64.79

SCHEDULE II2005 Additions Deductions 2006

Reserves and Surplus : Rupees Rupees Rupees Rupeeslakhs lakhs lakhs lakhs

1 Capital Reserve .................................................................... 11,50.08 — — 11,50.0811,50.08 — — 11,50.08

2 Securities Premium Account [Note 3(a)(i)] ........................... 171,45.21 347,22.85 2,47.82 516,20.24252,08.16 2,04.70 82,67.65 171,45.21

Less: Premium on shares issued to ESOP Trustbut not allotted to employees .............................................. 21,36.73 — 2,98.80 18,37.93

24,23.31 — 2,86.58 21,36.73

150,08.48 347,22.85 (50.98) 497,82.31227,84.85 2,04.70 79,81.07 150,08.48

3 Revaluation Reserve [Note 3(a)(ii)] ........................................ 14,31.52 — 98.06 13,33.4614,87.82 — 56.30 14,31.52

4 Investment Allowance Reserve Account ............................. — — — —2,45.00 — 2,45.00 ***** —

5 General Reserve ................................................................... 620,82.98 100,00.00 < 116,00.89 • 604,82.09520,82.98 100,00.00 < — 620,82.98

Add: Bonus shares issued to ESOP Trustbut not allotted to employees .............................................. — 3,75.09 — 3,75.09

620,82.98 103,75.09 116,00.89 608,57.18520,82.98 100,00.00 — 620,82.98

6 Debenture Redemption Reserve .......................................... 17,22.26 — 43.39+ 16,78.8727,61.79 — 10,39.53+ 17,22.26

7 Investment Fluctuation Reserve (Notes 28 & 29) ................ 62,42.03 — 12,30.00 50,12.0383,73.52 — 21,31.49 62,42.03

876,37.35 450,97.94 129,21.36 1,198,13.93888,86.04 102,04.70 114,53.39 876,37.35

8 Balance for 2005-2006 and earlier years as perProfit and Loss Account ...................................................... 1,475,74.47

996,39.74

Total ............... 2,673,88.401,872,77.09

<Transfer from Profit and Loss Account Rs. 10000.00 lakhs (2005: Rs. 10000.00 lakhs)• Utilised for issue of Bonus Shares+ Transfer to Profit and Loss Account net of charge created during the year Rs. 331.61 lakhs (2005: Rs. 239.58 lakhs)***** Transfer to Profit and Loss Account

72

MAHINDRA & MAHINDRA LIMITED

SCHEDULE III2006 2005

Rupees Rupees Rupeeslakhs lakhs lakhs

Loan Funds (Note 4) :

(A) Secured:

(1) Debentures/Bonds ............................................................................ 90,50.67 105,50.73

(2) Foreign Currency Loans from Banks ................................................ 92,40.48 150,58.56

(3) Loans and Advances on cash credit account from Banks ............. 33,76.45 80,73.09

216,67.60 336,82.38

(B) Unsecured :

(1) Fixed Deposits .................................................................................. 8,43.06 24,77.04

(2) Short-term Loans :

From Banks ....................................................................................... 3,96.15 3,59.24

From Companies ............................................................................... 5.00 2,13.00

4,01.15 5,72.24(3) Other Loans:

(a) From Financial Institutions ......................................................... 320,95.79 247,84.79

(b) Foreign Currency Loan from a Bank ......................................... 175,85.91 —

(c) Zero Coupon Convertible Bonds .............................................. 157,41.00 437,40.00

(d) From Others [including interest accrued and due Rs. 2.03lakhs (2005 : Rs. 2.03 lakhs)] ................................................... 3.71 5.50

654,26.41 685,30.29

666,70.62 715,79.57

Total ............. 883,38.22 1,052,61.95

73

MAHINDRA & MAHINDRA LIMITED

SCHEDULE IV

Fixed Assets (Note 5) :

Description of Assets Cost/ Additions Deduc- Cost/Pro- Deprecia- Deprecia- Deductions Deprecia- Net NetProfessional and tions fessional tion/Amor- tion / and tion / Balance Balance

valuation adjust- and valuation tisation Amor- adjust- Amortisa- as at as atas at 31st ments adjust- as at 31st to 31st tisation ments tion 31st 31st

March, during the ments March, March, for 2005- of Depre- to 31st March, March,2005 year during 2006 2005 2006 ciation / March, 2006 2005

the year Amorti- 2006sation

Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupeeslakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs

Technical Knowhow ................... 76.55 — 76.55 — 76.55 — 76.55 — — —

Development Expenditure .......... 23,06.29 8,99.34 5,78.00 26,27.63 5,17.69 4,78.20 — 9,95.89 16,31.74 17,88.60

Software Expenditure ................. 5,46.28 1,62.45 1,76.85 5,31.88 2,77.53 2,34.59 1,76.85 3,35.27 1,96.61 2,68.75

Land ............................................ 52,12.14 44,40.27 54.83 95,97.58 84.44 19.69 — 1,04.13 94,93.45 51,27.70

Buildings ..................................... 347,27.16 30,50.50 2,36.43 375,41.23 86,77.22 9,98.43 62.55 96,13.10 279,28.13 260,49.94

Plant and Machinery .................. 2,142,23.08 117,56.49 23,38.06 2,236,41.51 1,186,32.90 169,38.10 19,18.59 1,336,52.41 899,89.10 955,90.18

Furniture and Fittings ................. 65,44.83 6,50.66 43.24 71,52.25 28,94.30 4,06.65 21.69 32,79.26 38,72.99 36,50.53

Vehicles, Cycles, etc .................. 63,35.29 16,50.36 5,25.19 74,60.46 23,95.76 9,71.25 3,20.46 30,46.55 44,13.91 39,39.53

Total.......... 2,699,71.62 226,10.07 40,29.15 2,885,52.54 1,335,56.39 200,46.91 25,76.69 1,510,26.61 1,375,25.93 1,364,15.232,520,86.27 205,53.96 26,68.61 2,699,71.62 1,167,67.46 185,22.95 17,34.02 1,335,56.39 1,364,15.23

74

MAHINDRA & MAHINDRA LIMITED

SCHEDULE VInvestments (At Cost, unless otherwise specified) :

Note 2006 2005

Face Value Long Term Current Long Term CurrentPer Unit Rupees Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs lakhsShares (Non-trade and fully paid-up unless otherwise specified) :Unquoted :(a) In Subsidiary Companies :

(i) Equity Shares :53,78,235 10 Mahindra Engineering & Chemical Products Limited ................ 5,63.88 — 5,63.88 —

2,71,00,006 10 Mahindra Intertrade Limited [including 1,50,00,000 sharespartly paid-up] ............................................................................. 16,60.00 — 16,60.00 —

37,23,874 10 Mahindra Steel Service Centre Limited ..................................... 6,38.38 — 6,38.38 —12,16,00,593 10 Mahindra Holdings & Finance Limited ....................................... 121,60.06 — 121,60.06 —

— 10 Mahindra & Mahindra Financial Services Limited(transferred to Quoted during the year) ..................................... (b) — — 176,79.83 —

4,50,00,000 US $ 0.10 Mahindra USA Incorporated ....................................................... 19,37.89 — 19,37.89 —91,81,188 10 Mahindra Gujarat Tractor Limited .............................................. 19,36.39 — 19,36.39 —

1,76,39,665 10 Mahindra Shubhlabh Services Limited ...................................... (b) 19,21.52 — 19,21.52 —5,76,00,060 2 Tech Mahindra Limited (formerly known as Mahindra-British

Telecom Limited) ......................................................................... 205,45.15 — 205,45.15 —74,46,658 10 Automartindia Limited ................................................................. (b) 14,03.46 — 14,03.46 —

1,24,50,000 10 Mahindra Logisoft Business Solutions Limited .......................... (c)(1)(2) 11,33.00 — 6,83.00 —1,00,00,000 10 Mahindra Ashtech Limited .......................................................... 10,00.00 — 10,00.00 —

42,22,250 US $ .001 Bristlecone Limited ..................................................................... 19,26.19 — 19,26.19 —35,70,000 ZAR 1 Mahindra & Mahindra South Africa (Proprietary) Limited .......... (b) 2,49.20 — 2,49.20 —70,50,000 10 Mahindra Engineering Design & Development Company

Limited ......................................................................................... (c) (3) 7,05.01 — 5,55.01 —5,20,000 US $ 1 Mahindra Overseas Investment Company (Mauritius) Limited . (c) (4) 2,26.32 — 4.36 —

31,25,739 10 Mahindra SAR Transmission Private Limited ............................. 14,62.85 — 14,62.85 —82,21,926 10 Mahindra Automotive Steels Limited ......................................... (c) (5) 80,01.01 — — —

2,62,65,000 10 Mahindra Renault Private Limited .............................................. (c) (6) 26,26.50 — — —5,03,75,600 10 Mahindra International Limited ................................................... (c)(7)(8) 52,34.11 — — —

14,65,310 GBP £ 0.10 Stokes Group Limited ................................................................. (c)(9)(10) 29,09.77 — — —45,03,011 10 Plexion Technologies (India) Private Limited .............................. (c) (11) 37,27.85 — — —18,75,000 100 (ii) 7.25% Cumulative Redeemable Preference Shares :

Mahindra Intertrade Limited ....................................................... 18,75.00 — 18,75.00 —11,00,000 100 (iii) 8.50% Cumulative Redeemable Preference Shares :

Mahindra Ashtech Limited .......................................................... (c) (12) 11,00.00 — 10,00.00 —55,00,000 100 (iv) 13.10% Non-Cumulative Redeemable Preference Shares :

Mahindra Gesco Developers Limited ......................................... 55,00.00 — 55,00.00 —70,00,000 US $ .001 (v) Series’A’ Preference Shares: Bristlecone Limited ..................... 31,71.84 — 31,71.84 —69,20,000 US $ .001 (vi) Series’B’ Preference Shares: Bristlecone Limited ..................... (c) (13) 15,12.40 — — —

851,27.78 — 778,74.01 —

(b) In Other Companies :(i) Equity Shares :

312 100 Montreal Engineering International Limited ................................ 0.11 — 0.11 —8,55,646 10 Machinery Manufacturers Corporation Limited ......................... (b) 94.25 — 94.25 —1,00,000 10 Judricks (India) Private Limited .................................................. 10.00 — 10.00 —

35,000 10 Mahindra & Mahindra Contech Limited ..................................... 3.50 — 3.50 —75,000 10 NTTF Industries Limited ............................................................. 15.00 — 15.00 —

— 10 Ford Credit Kotak Mahindra Limited ......................................... (c) (14) — — 6,00.00 —1 10 Jayem Automotives Limited ....................................................... — — — —

7,49,997 10 Officemartindia.com Limited ....................................................... 22.52 — 22.52 —50,000 10 Indian NGOs.com Private Limited .............................................. 6.19 — 6.19 —20,000 10 Sixth Sense Studios Private Limited .......................................... 2.00 — 2.00 —

2,85,000 10 Utility Engineers (India) Limited .................................................. 28.50 — 28.50 —Others .......................................................................................... (a) — — — —

2,296 100 (ii) 4% Tax-free Cumulative Preference Shares:Machinery Manufacturers Corporation Limited ......................... (b) 2.25 — 2.25 —

1,78,000 100 (iii) 11% Redeemable Preference Shares:Sixth Sense Studios Private Limited .......................................... 1,78.00 — 1,78.00 —

3,62.32 — 9,62.32 —

75

MAHINDRA & MAHINDRA LIMITED

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

Note 2006 2005

Face Value Long Term Current Long Term CurrentPer Unit Rupees Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs lakhs

Quoted :(a) In Subsidiary Companies :

(i) Equity Shares :1,25,66,126 10 Mahindra Gesco Developers Limited ......................................... (b) 67,21.29 — 67,21.29 —5,82,41,532 10 Mahindra & Mahindra Financial Services Limited

(transferred from Unquoted during the year) ............................. (b)(c)(16) 150,90.95 — — —

218,12.24 — 67,21.29 —

(b) In Non-Subsidiary Companies :(i) Equity Shares :

13,91,860 10 + Fairfield Atlas Limited ................................................................. 1,39.18 — 1,39.18 —— 10 Industrial Development Bank of India ........................................ (c) (15) — — — 3,49.18

1,39.18 — 1,39.18 3,49.18Debentures / Bonds (Non-trade & fully paid-up) :Unquoted :(a) In Subsidiary Companies :

25,00,000 100 0% Mahindra Holdings & Finance Limited .......................................... 25,00.00 — 25,00.00 —4 1,00,00,000 11.19% Mahindra & Mahindra Financial Services Limited ................. 4,00.00 — 4,00.00 —

200 10,00,000 7.50% Mahindra & Mahindra Financial Services Limited ................... (d) (1) — 20,22.28 — —— 1,00,00,000 8.80% Mahindra & Mahindra Financial Services Limited ................... (d) (2) — — — 15,52.46

(b) In Other Companies :13 100 0.50% The East India Clinic Limited ................................................... 0.01 — 0.01 —

13,21,500 100 9.00% Jayem Automotives Limited ..................................................... (d) (3) 13,21.50 — 13,68.00 —

42,21.51 20,22.28 42,68.01 15,52.46

Quoted :(a) In Subsidiary Companies :

20 1,00,00,000 6.90% Mahindra & Mahindra Financial Services Limited ................... (d) (4) — 19,95.08 — 20,31.67(b) In Other Companies :

7,75,000 100 6.75% Tax Free US-64 Bonds ............................................................ (d) (5) — 8,09.36 — 4,72.7718 10,00,000 7.00% Power Finance Corporation Limited (2011) Series XXII .......... — 1,80.00 — 1,80.00

— 29,84.44 — 26,84.44

42,21.51 50,06.72 42,68.01 42,36.90

Less: Excess of cost over fair value of current investmentsof Debentures/Bonds ........................................................................... — (1,20.01) — (61.19)

42,21.51 48,86.71 42,68.01 41,75.71

Other Investments :Government Securities :Unquoted :

— 29,000 § 6 Years National Savings Certificates ........................................................... (e) (1) 0.29 — 3.27 —

0.29 — 3.27 —

Quoted :— — § Treasury Bills .................................................................................................. (e) (2) — — — 68,99.44—1,93,00,000 § Government of India Securities ..................................................................... (e) (3) — 2,01.56 — —

— 2,01.56 — 68,99.44

0.29 2,01.56 3.27 68,99.44

Less: Excess of cost over fair value of current investmentsof Government Securities .................................................................... — (9.73) — —

0.29 1,91.83 3.27 68,99.44

+ Trade Investments

§ Total face value

76

MAHINDRA & MAHINDRA LIMITED

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

Note 2006 2005

Face Value Long Term Current Long Term CurrentPer Unit Rupees Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs lakhs

Units :Unquoted :

— 10 ABN AMRO Mutual Fund - Cash Fund Institutional Daily Dividend .................. (f) (1) — — — 5,00.001,50,29,793 10 ABN AMRO Mutual Fund - Cash Fund Institutional Plus Daily Dividend ......... (f) (2) — 15,02.99 — —

50,41,868 10 ABN AMRO Mutual Fund - Flexi Debt Regular Daily Dividend ......................... (f) (3) — 5,04.19 — —50,24,694 10 ABN AMRO Mutual Fund - Fixed Term Plan Series 2 Quarterly Plan A

Dividend ............................................................................................................... (f) (4) — 5,02.47 — —1,58,04,867 10 Birla Mutual Fund - Cash Fund Institutional Premium Daily Dividend .............. (f) (6) — 15,83.57 — —

50,00,000 10 Birla Mutual Fund - Fixed Maturity Plan Quarterly Series 2 Dividend Payout .. (f) (7) — 5,00.00 — —1,00,00,000 10 Chola Mutual Fund - Fixed Maturity Plan Series 2 (Qtrly Plan -I)-Dividend ..... (f) (10) — 10,00.00 — —1,00,00,000 10 Chola Mutual Fund - Fixed Maturity Plan Series 3 (Qtrly Plan -I)-Dividend ..... (f) (11) — 10,00.00 — —1,07,39,965 10 Deutsche Mutual Fund - Insta Cash Plus Institutional Plan Daily Dividend ...... (f) (13) — 10,76.09 — —

40,00,000 10 Deutsche Mutual Fund - Fixed Term Series 9 Growth Option .......................... (f) (15) — 4,00.00 — —50,00,000 10 Deutsche Mutual Fund - Money Plus Dividend Option ..................................... (f) (16) — 5,00.00 — —

50,204 1,000 DSP Merrill Lynch Mutual Fund - Fixed Term Plan Series IB Dividend ............ (f) (19) — 5,02.04 — —70,705 1,000 DSP Merrill Lynch Mutual Fund - Fixed Term Plan Series IC Dividend ............ (f) (20) — 7,07.05 — —

50,00,000 10 Franklin Templeton Fixed Tenure Fund Series V 13 Months Plan Growth ....... (f) (23) — 5,00.00 — —— 1,000 Franklin Templeton India Treasury Management Institutional Daily Dividend .... (f) (26) — — — 20,00.54

93,03,447 10 HDFC Mutual Fund - Cash Management Fund Savings Plan Daily Dividend .. (f) (29) — 9,89.55 — 22,00.4850,00,000 10 HDFC Mutual Fund - Multiple Yield Fund - Plan 2005 Growth ........................ (f) (30) — 5,00.00 — —

9,39,022 10 HDFC Mutual Fund - Multiple Yield Fund - Growth .......................................... (f) (31) — 1,03.86 — —2,35,03,021 10 HDFC Mutual Fund - Cash Management Fund Call Plan Daily Dividend ......... (f) (32) — 24,50.57 — —1,00,00,000 10 HDFC Mutual Fund - FMP 3M March 2006(1) Institutional Plan Dividend ....... (f) (33) — 10,00.00 — —1,00,00,000 10 HDFC Mutual Fund - FMP 13M March 2006(1) Institutional Plan Growth ....... (f) (34) — 10,00.00 — —1,38,08,825 10 HSBC Mutual Fund - Cash Fund Institutional Plus Daily Dividend ................... (f) (35) — 13,81.66 — 6,25.61

— 10 HSBC Mutual Fund - Floating Rate Fund Short Term Institutional OptionDaily Dividend ...................................................................................................... (f) (36) — — — 5,05.03

50,29,510 10 HSBC Mutual Fund - Fixed Term Series -7-Dividend ........................................ (f) (37) — 5,02.95 — —50,00,000 10 HSBC Mutual Fund - Fixed Term Series -8-Dividend ........................................ (f) (38) — 5,00.00 — —

— 10 JM Financial Mutual Fund - Floater Fund Short Term Plan Dividend Option ... (f) (39) — — — 5,02.9250,00,000 10 JM Financial Mutual Fund - Fixed Maturity Fund - Series II Qtrly Plan QSA

Dividend ............................................................................................................... (f) (40) — 5,00.00 — —1,92,06,376 10 Kotak Mahindra Mutual Fund - Liquid Institutional Premium Plan Daily

Dividend ............................................................................................................... (f) (42) — 23,48.57 — 8,00.00— 10 Kotak Mahindra Mutual Fund - Floater Short Term Weekly Dividend ............... (f) (43) — — — 5,03.39

50,00,000 10 Kotak Mahindra Mutual Fund - Fixed Maturity Plan Series XVIII –Dividend ..... (f) (44) — 5,00.00 — —50,00,000 10 Kotak Mahindra Mutual Fund - Fixed Maturity Plan Series 19 Dividend .......... (f) (45) — 5,00.00 — —

1,00,00,000 10 Kotak Mahindra Mutual Fund - Fixed Maturity Plan Series 23 Dividend .......... (f) (46) — 10,00.00 — —— 10 Kotak Mahindra Mutual Fund - Fixed Maturity Plan Growth ............................. (f) (49) — — — 5,00.00— 10 Principal Mutual Fund - MIP Dividend Payout Monthly ..................................... (f) (51) — — — 1,00.00

80,39,444 10 Principal Mutual Fund - Cash Management Fund Liquid Option InstitutionalPremium Plan Daily Dividend .............................................................................. (f) (52) — 8,04.00 — 15,07.23

1,00,63,874 10 Principal Mutual Fund - Fixed Maturity Plan 91 Days Dividend Payout ........... (f) (53) — 10,06.39 — —50,49,182 10 Principal Mutual Fund - Fixed Maturity Plan 91 Days Series I .......................... (f) (54) — 5,04.92 — —50,00,000 10 Principal Mutual Fund - Fixed Maturity Plan 91 Days Series III ........................ (f) (55) — 5,00.00 — —

— 10 Prudential ICICI Mutual Fund - Liquid Plan Institutional Plus Daily Dividend ... (f) (58) — — — 11,00.18— 10 Prudential ICICI Mutual Fund – Fixed Maturity Plan Yearly Growth .................. (f) (59) — — — 5,00.00

1,42,67,715 10 Prudential ICICI Mutual Fund – Super Institutional Daily Dividend .................... (f) (60) — 14,26.77 — —50,98,384 10 Prudential ICICI Mutual Fund – Blended Plan B Institutional Dividend ............. (f) (61) — 5,11.50 — —

1,01,34,800 10 Prudential ICICI Mutual Fund – FMP Yearly Series XXV Dividend .................... (f) (62) — 10,13.48 — —50,00,000 10 Prudential ICICI Mutual Fund – FMP Monthly Plan Dividend XXVII .................. (f) (63) — 5,00.00 — —50,00,000 10 Reliance Fixed Maturity Fund Quarterly Plan III - Series II Dividend Option .... (f) (69) — 5,00.00 — —

1,35,96,207 10 SBI Mutual Fund – Magnum Institutional Income Savings Dividend ................. (f) (74) — 13,64.04 — 1,29.181,00,00,000 10 SBI Mutual Fund – Magnum Debt Fund Series 13 Months Growth Option ..... — 10,00.00 — 10,00.00

50,00,000 10 Standard Chartered Mutual Fund - Grindlays Fixed Maturity 19th PlanDividend ............................................................................................................... (f) (75) — 5,00.00 — —

50,00,000 10 Standard Chartered Mutual Fund - Grindlays Fixed Maturity 21st PlanDividend ............................................................................................................... (f) (76) — 5,00.00 — —

— 10 Standard Chartered Mutual Fund – Grindlays Cash Fund SuperInstitutional Plan Daily Dividend .......................................................................... (f) (77) — — — 11,00.53

— 10 Standard Chartered Mutual Fund – Grindlays Short Term InstitutionalPlan Monthly Dividend ......................................................................................... (f) (78) — — — 0.01

— 10 Standard Chartered Mutual Fund – Grindlays Fixed Maturity Annual PlanGrowth .................................................................................................................. (f) (79) — — — 5,00.00

13,00,206 10 Standard Chartered Mutual Fund – Liquidity Manager Daily Dividend ............. (f) (80) — 1,30.03 — —

77

MAHINDRA & MAHINDRA LIMITED

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

Note 2006 2005

Face Value Long Term Current Long Term CurrentPer Unit Rupees Rupees Rupees Rupees

Number Rupees lakhs lakhs lakhs lakhs50,00,000 10 Standard Chartered Mutual Fund – Fixed Maturity 3rd Plan Dividend ....... (f) (81) — 5,00.00 — —50,00,000 10 Standard Chartered Mutual Fund – Fixed Maturity 2nd Plan Dividend ...... (f) (82) — 5,00.00 — —

80,048 1,000 Standard Chartered Mutual Fund – Liquidity Manager Plus Daily Dividend (f) (83) — 8,00.48 — —81,46,618 10 Sundaram Money Fund Super Institutional Daily Dividend .......................... (f) (88) — 8,22.43 — —50,00,000 10 Sundaram Fixed Term Plan Series 1 Feb 06 (100 days) Dividend Plan ..... (f) (89) — 5,00.00 — —51,23,151 10 Tata Fixed Horizon Fund Series 3 Scheme A – Dividend ........................... (f) (91) — 5,12.32 — —

1,57,380 1,000 Tata Liquidity Management Fund - Daily Dividend ...................................... (f) (92) — 15,77.07 — —50,00,000 10 Tata Fixed Horizon Fund Series 5 Scheme A – Dividend ........................... (f) (93) — 5,00.00 — —

— 1,000 Tata Mutual Fund - Liquid Super High Investment Fund Daily Dividend .... (f) (94) — — — 8,00.30— 10 Tata Mutual Fund - Monthly Income Fund Dividend .................................... (f) (95) — — — 1,00.15— 10 Tata Mutual Fund - Floating Rate Short Term Institutional Plan Daily

Dividend ......................................................................................................... (f) (96) — — — 6,03.75— 10 Tata Mutual Fund - Gilt Securities Fund Bonus ........................................... (f) (97) — — — 2,50.00

50,00,000 10 UTI Mutual Fund - Fixed Maturity Plan QFMP 106/11 Dividend Plan ........ (f) (101) — 5,00.00 — —50,05,250 10 UTI Mutual Fund - Fixed Maturity Plan QFMP Growth Plan ....................... (f) (102) — 5,00.53 — —

1,04,46,381 10 UTI Mutual Fund - Money Market Fund Daily Dividend Option .................. (f) (104) — 18,20.49 — —— 10 UTI Mutual Fund - Fixed Maturity Plan QFMP Dividend Plan ..................... (f) (107) — — — 8,00.11

— 423,50.01 — 166,29.41

Others :Commercial PaperUnquoted :

20,00,00,000 § Export Import Bank of India .......................................................................... (g) (4) — 19,47.00 — —

— 19,47.00 — —

Certificate of DepositUnquoted :

5,00,00,000 § State Bank of Travancore .............................................................................. (h) (1) — 4,94.37 — —10,00,00,000 § ICICI Bank Limited ......................................................................................... (h) (2) — 9,83.87 — 9,57.08

5,00,00,000 § ABN AMRO Bank .......................................................................................... (h) (3) — 4,89.91 — —15,00,00,000 § State Bank of Mysore .................................................................................... (h) (4) — 14,70.27 — —15,00,00,000 § Allahabad Bank .............................................................................................. (h) (5) — 14,70.09 — —10,00,00,000 § Kotak Mahindra Bank Limited ....................................................................... (h) (6) — 9,61.46 — —

— 58,69.97 — 9,57.08

1,116,63.32 552,45.52 899,68.08 290,10.82

Total......... 1,669,08.84 1,189,78.90

Cost (net of amounts written off) of Unquoted Investments ....................... 1,419,01.16 1,022,46.56Cost of Quoted Investments ......................................................................... 251,37.42 167,93.53

1,670,38.58 1,190,40.09Less : Excess of cost over fair value of Current Investments (Net) ............ (1,29.74) (61.19)

1,669,08.84 1,189,78.90

Market Value of Quoted Investments ........................................................... 2,030,84.89 260,92.69

Notes : 2006 2005Face Value

Per Unit Long Term Long TermNumber Rupees Rupees Rupees

(a) Shares (unquoted) in other companies comprise :21 100 * The United Spices Importers Limited (Equity “B” Shares) .............. 1 174 16,667 * Engineering & Metal Works, Tehran .................................................. 1 1

(Rials)

Total.......... 2 2

* Written off to Re.1

(b) Equity investments in these companies carry certain restrictions on transfer of sharesin terms of funds raised by these companies from financial institutions/ banks.

§ Total Face Value

78

MAHINDRA & MAHINDRA LIMITED

(c) The following are the movements in Shares during the year :

Equity Shares Preference Shares

Acquired Sold Acquired/(Redeemed/Sold)

Nos. Nos. Nos.(1) Mahindra Logisoft Business Solutions Limited 4,80,000 — —(2) Mahindra Logisoft Business Solutions Limited 45,00,000* — —(3) Mahindra Engineering Design & Development Company Limited 15,00,000* — —(4) Mahindra Overseas Investment Company (Mauritius) Limited 5,10,000 — —(5) Mahindra Automotive Steels Limited 82,21,926 — —(6) Mahindra Renault Private Limited 2,62,65,000 — —(7) Mahindra International Limited 19,75,600 — —(8) Mahindra International Limited 4,84,00,000# — —(9) Stokes Group Limited 8,37,320 — —

(10) Stokes Group Limited 6,27,990* — —(11) Plexion Technologies (India) Private Limited 45,03,011 — —(12) Mahindra Ashtech Limited — — 1,00,000*(13) Bristlecone Limited — — 69,20,000(14) Ford Credit Kotak Mahindra Limited — 60,00,000 —(15) Industrial Development Bank of India — 4,28,160 —(16) Mahindra & Mahindra Financial Services Limited — 99,91,450 —(17) Mahindra Ugine Steel Company Limited — — 11,00,000(18) Mahindra Ugine Steel Company Limited — — (11,00,000)

* Subscribed to on a rights basis# Consideration other than Cash

(d) The following are the movements in Debentures / Bonds during the year :

Acquired Sold MaturedNos. Rs. lakhs Nos. Nos.

(1) Mahindra & Mahindra Financial Services Limited 7.50% 200 20,22.28 — —(2) Mahindra & Mahindra Financial Services Limited 8.80% — — 15 —(3) Jayem Automotives Limited 9.00% — — — 46,500(4) Mahindra & Mahindra Financial Services Limited 6.90% 20 19,95.08 20 —(5) UTI Bonds 6.75% 3,25,000 3,36.59 — —(6) Indian Oil Corporation 7.15% 100 10,02.92 100 —(7) Housing Development Finance Corporation Limited 0.00% 100 9,90.17 — 100(8) Infrastructure Development Finance Company Limited 0.00% 150 13,24.65 150 —(9) ICICI Securities Limited. 6.00% 300 15,00.00 — 300

(e) Government Securities :

(1) Of face value Rs. 0.02 lakhsRs. 0.02 lakhsRs. 0.02 lakhsRs. 0.02 lakhsRs. 0.02 lakhs (2005 : Rs. Nil) were purchased and of face value Rs. 3.00 lakhsRs. 3.00 lakhsRs. 3.00 lakhsRs. 3.00 lakhsRs. 3.00 lakhs matured during the year. Facevalue of Rs. 0.29 lakhs (2005 : Rs.3.27 lakhs) were lodged as security deposit.

(2) Treasury Bills of the face value of Rs. 17000.00 lakhs (2005 : Rs.40427.00 lakhs) were purchased and those of the face valueof Rs. 24000.00 lakhs (2005 : Rs. 38119.00 lakhs) were sold / matured during the year.

(3) Government of India Securities of the face value Rs. 193 lakhs (2005 : Rs. Nil ) were purchased and of the face value of Rs. Nil(2005 : Rs. 3500.00 lakhs) were sold during the year.

(f) The following are the movements in Units during the year :

Acquired Sold

Nos. Rs. lakhs Nos.

(1) ABN AMRO Mutual Fund - Cash Fund Institutional Daily Dividend ................ 8,04,58,018 80,45.75 8,54,58,018

(2) ABN AMRO Mutual Fund - Cash Fund Institutional Plus Daily Dividend ........ 2,00,48,511 20,04.87 50,18,718

(3) ABN AMRO Mutual Fund - Flexi Debt Regular Daily Dividend ........................ 50,41,868 5,04.19 —

(4) ABN AMRO Mutual Fund - Fixed Term Plan Series 2 Quarterly Plan A Dividend .... 50,24,694 5,02.47 —

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

79

MAHINDRA & MAHINDRA LIMITED

(5) ABN AMRO Mutual Fund - Long Term Floating Rate Fund InstitutionalWeekly Dividend ............................................................................................... 1,01,67,369 10,16.74 1,01,67,369

(6) Birla Mutual Fund - Cash Fund Institutional Premium Daily Dividend ............ 16,36,74,094 163,99.33 14,78,69,227

(7) Birla Mutual Fund - Fixed Maturity Plan Quarterly Series 2 DividendPayout ............................................................................................................... 50,00,000 5,00.00 —

(8) Birla Mutual Fund - Cash Plus Institutional Daily Dividend ............................. 92,97,795 10,04.41 92,97,795

(9) Birla Mutual Fund - Floating Short Term Weekly Dividend ............................. 58,83,240 6,10.50 58,83,240

(10) Chola Mutual Fund - Fixed Maturity Plan Series 2 (Qtrly Plan -I)-Dividend ... 1,00,00,000 10,00.00 —

(11) Chola Mutual Fund - Fixed Maturity Plan Series 3 (Qtrly Plan -I)-Dividend ... 1,00,00,000 10,00.00 —

(12) Chola Mutual Fund - Liquid Institutional Dividend .......................................... 6,22,73,669 62,38.04 6,22,73,669

(13) Deutsche Mutual Fund - Insta Cash Plus Institutional Plan Daily Dividend ... 14,36,26,701 143,90.68 13,28,86,736

(14) Deutsche Mutual Fund - Fixed Term Series 7 Dividend Option ..................... 1,03,69,800 10,36.98 1,03,69,800

(15) Deutsche Mutual Fund - Fixed Term Series 9 Growth Option ....................... 40,00,000 4,00.00 —

(16) Deutsche Mutual Fund - Money Plus Dividend Option ................................... 50,00,000 5,00.00 —

(17) Deutsche Mutual Fund - Floating Rate Regular Plan Growth ........................ 1,49,02,449 16,08.50 1,49,02,449

(18) Deutsche Mutual Fund - Floating Rate Regular Plan Weekly Dividend ......... 49,29,883 5,06.39 49,29,883

(19) DSP Merrill Lynch Mutual Fund- Fixed Term Plan Series IB Dividend ........... 50,204 5,02.04 —

(20) DSP Merrill Lynch Mutual Fund- Fixed Term Plan Series IC Dividend ........... 70,705 7,07.05 —

(21) DSP Merrill Lynch Mutual Fund- Floating Institutional Plan Daily Dividend .... 20,396 2,03.96 20,396

(22) DSP Merrill Lynch Mutual Fund- Liquidity Institutional Daily Dividend ........... 1,00,286 10,03.06 1,00,286

(23) Franklin Templeton Fixed Tenure Fund Series V 13 Months Plan Growth ..... 50,00,000 5,00.00 —

(24) Franklin Templeton Monthly Income Plan A Monthly Dividend Payout .......... 16,42,124 2,00.00 16,42,124

(25) Franklin Templeton Short Term Income Plan Weekly Dividend ...................... 47,345 5,16.26 47,345

(26) Franklin Templeton India Treasury Management Institutional Daily Dividend . 14,75,457 147,55.22 16,75,504

(27) Franklin Templeton Floating Rate Income Fund Short Term Plan .................. 1,00,08,102 10,03.33 1,00,08,102

(28) Franklin Templeton India Treasury Management Super InstitutionalDaily Dividend ................................................................................................... 18,00,500 180,07.32 18,00,500

(29) HDFC Mutual Fund - Cash Management Fund Savings Plan Daily Dividend 38,42,73,239 408,72.84 39,56,58,079

(30) HDFC Mutual Fund - Multiple Yield Fund-Plan 2005 Growth ........................ 50,00,000 5,00.00 —

(31) HDFC Mutual Fund - Multiple Yield Fund- Growth ......................................... 27,12,355 3,00.00 17,73,333

(32) HDFC Mutual Fund - Cash Management Fund Call Plan Daily Dividend ...... 4,54,74,979 47,41.49 2,19,71,958

(33) HDFC Mutual Fund - FMP 3M March 2006(1) Institutional Plan Dividend ..... 1,00,00,000 10,00.00 —

(34) HDFC Mutual Fund - FMP 13M March 2006(1) Institutional Plan Growth ..... 1,00,00,000 10,00.00 —

(35) HSBC Mutual Fund - Cash Fund Institutional Plus Daily Dividend ................ 17,76,04,869 177,70.43 17,00,48,653

(36) HSBC Mutual Fund – Floating Rate Fund Short Term Institutional OptionDaily Dividend ................................................................................................... 1,64,98,910 16,52.07 2,15,42,586

(37) HSBC Mutual Fund – Fixed Term Series -7-Dividend .................................... 50,29,510 5,02.95 —

(38) HSBC Mutual Fund – Fixed Term Series -8-Dividend .................................... 50,00,000 5,00.00 —

(39) JM Financial Mutual Fund - Floater Fund Short Term Plan Dividend Option . 51,11,431 5,14.41 1,01,12,873

(40) JM Financial Mutual Fund - Fixed Maturity Fund -Series II Qtrly PlanQSA Dividend ................................................................................................... 50,00,000 5,00.00 —

(41) JM Financial Mutual Fund - Liquidity Fund Super Institutional Daily Dividend 50,02,950 5,01.12 50,02,950

(42) Kotak Mahindra Mutual Fund – Liquid Institutional Premium Plan DailyDividend ............................................................................................................ 30,95,61,741 378,53.51 29,68,97,673

(43) Kotak Mahindra Mutual Fund – Floater Short Term Weekly Dividend ............ 1,86,91,900 18,70.95 2,37,22,766

(44) Kotak Mahindra Mutual Fund – Fixed Maturity Plan Series XVIII –Dividend .. 50,00,000 5,00.00 —

(45) Kotak Mahindra Mutual Fund – Fixed Maturity Plan Series 19 Dividend ....... 50,00,000 5,00.00 —

(46) Kotak Mahindra Mutual Fund – Fixed Maturity Plan Series 23 Dividend ....... 1,00,00,000 10,00.00 —

(47) Kotak Mahindra Mutual Fund – Flexi Debt Scheme Dividend ........................ 49,78,196 5,00.00 49,78,196

(48) Kotak Mahindra Mutual Fund – Fixed Maturity Plan Series XII Dividend ....... 50,00,000 5,00.00 50,00,000

(49) Kotak Mahindra Mutual Fund – Fixed Maturity Plan Growth .......................... — — 50,00,000

(50) Kotak Mahindra Mutual Fund – Short Term Monthly Dividend ....................... 49,98,683 5,03.30 49,98,683

Acquired Sold

Nos. Rs. lakhs Nos.

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

80

MAHINDRA & MAHINDRA LIMITED

(51) Principal Mutual Fund – MIP Dividend Payout Monthly .................................. — — 9,19,726

(52) Principal Mutual Fund – Cash Management Fund Liquid Option InstitutionalPremium Plan Daily Dividend ........................................................................... 16,19,52,764 161,96.40 16,89,84,745

(53) Principal Mutual Fund – Fixed Maturity Plan 91 Days Dividend Payout ........ 1,00,63,874 10,06.39 —

(54) Principal Mutual Fund – Fixed Maturity Plan 91 Days Series I ...................... 50,49,182 5,04.92 —

(55) Principal Mutual Fund – Fixed Maturity Plan 91 Days Series III ..................... 50,00,000 5,00.00 —

(56) Principal Mutual Fund – FMP Institutional Option - Weekly Dividend ............ 1,39,67,096 13,97.07 1,39,67,096

(57) Principal Mutual Fund – SMP Institutional Option - Daily Dividend ............... 1,38,44,414 13,84.54 1,38,44,414

(58) Prudential ICICI Mutual Fund – Liquid Plan Institutional Plus Daily Dividend 15,36,54,357 182,10.35 16,29,37,371

(59) Prudential ICICI Mutual Fund – Fixed Maturity Plan Yearly Growth ............... — — 50,00,000

(60) Prudential ICICI Mutual Fund – Super Institutional Daily Dividend ................. 18,29,40,949 182,94.09 16,86,73,234

(61) Prudential ICICI Mutual Fund – Blended Plan B Institutional Dividend .......... 50,98,384 5,11.50 —

(62) Prudential ICICI Mutual Fund – FMP Yearly Series XXV Dividend .................. 101,34,800 10,13.48 —

(63) Prudential ICICI Mutual Fund – FMP Monthly Plan Dividend XXVII ................ 50,00,000 5,00.00 —

(64) Prudential ICICI Mutual Fund – Blended Plan B Dividend .............................. 50,93,662 5,09.39 50,93,662

(65) Prudential ICICI Mutual Fund – Floating Rate Plan C Daily Dividend ............ 51,22,335 5,12.30 51,22,335

(66) Prudential ICICI Mutual Fund - Institutional Short Term PlanCumulative Options .......................................................................................... 39,39,862 5,00.00 39,39,862

(67) Prudential ICICI Mutual Fund – Floating Rate Plan D Daily Dividend ............ 2,01,86,203 20,18.62 2,01,86,203

(68) Prudential ICICI Mutual Fund – Institutional Short Term Plan DR Fortnightly 47,45,241 5,18.83 47,45,241

(69) Reliance Fixed Maturity Fund Quarterly Plan III -Series II Dividend Option ... 50,00,000 5,00.00 —

(70) Reliance Fixed Maturity Fund Monthly Plan X Series II Dividend Option ....... 50,00,000 5,00.00 50,00,000

(71) Reliance Fixed Maturity Fund Quarterly Plan II -Series II Dividend Option .... 50,00,000 5,00.00 50,00,000

(72) Reliance Mutual Fund -Liquid Cash Plan Daily Dividend ................................ 1,35,55,904 15,10.28 1,35,55,904

(73) Reliance Mutual Fund -Liquidity Daily Dividend .............................................. 1,00,66,232 10,06.90 1,00,66,232

(74) SBI Mutual Fund – Magnum Institutional Income Savings Dividend .............. 27,23,46,603 273,23.17 26,00,38,031

(75) Standard Chartered Mutual Fund -Grindlays Fixed Maturity 19th PlanDividend ............................................................................................................ 50,00,000 5,00.00 —

(76) Standard Chartered Mutual Fund – Grindlays Fixed Maturity 21st PlanDividend ............................................................................................................ 50,00,000 5,00.00 —

(77) Standard Chartered Mutual Fund – Grindlays Cash Fund Super InstitutionalPlan Daily Dividend .......................................................................................... 31,44,21,947 314,42.19 32,54,27,264

(78) Standard Chartered Mutual Fund – Grindlays Short Term Institutional PlanMonthly Dividend .............................................................................................. 1,00,31,477 10,07.44 1,00,31,527

(79) Standard Chartered Mutual Fund – Grindlays Fixed Maturity Annual PlanGrowth .............................................................................................................. — — 50,00,000

(80) Standard Chartered Mutual Fund – Liquidity Manager Daily Dividend .......... 12,50,00,692 125,01.20 12,37,00,486

(81) Standard Chartered Mutual Fund – Fixed Maturity 3rd Plan Dividend .......... 50,00,000 5,00.00 —

(82) Standard Chartered Mutual Fund – Fixed Maturity 2nd Plan Dividend .......... 50,00,000 5,00.00 —

(83) Standard Chartered Mutual Fund – Liquidity Manager Plus Daily Dividend .. 80,048 8,00.48 —

(84) Standard Chartered Mutual Fund – Short Term Plan C Monthly Dividend .... 1,01,50,954 10,16.50 1,01,50,954

(85) Standard Chartered Mutual Fund – Fixed Maturity 11th Plan Dividend ......... 1,00,00,000 10,00.00 1,00,00,000

(86) Standard Chartered Mutual Fund – Grindlays Fixed Maturity 18th PlanDividend ............................................................................................................ 50,00,000 5,00.00 50,00,000

(87) Standard Chartered Mutual Fund – Floating Rate ST Super InstitutionalPlan C Dividend ................................................................................................ 1,00,71,754 10,07.18 1,00,71,754

(88) Sundaram Money Fund Super Institutional Daily Dividend ............................. 2,83,06,783 28,57.65 2,01,60,165

(89) Sundaram Fixed Term Plan Series 1 Feb 06 (100 days) Dividend Plan. ....... 50,00,000 5,00.00 —

(90) Sundaram Money Fund Institutional Daily Dividend ........................................ 79,93,136 8,06.93 79,93,136

(91) Tata Fixed Horizon Fund Series 3 Scheme A –Dividend ................................ 51,23,151 5,12.32 —

(92) Tata Liquidity Management Fund - Daily Dividend .......................................... 2,07,267 20,76.94 49,887

(93) Tata Fixed Horizon Fund Series 5 Scheme A – Dividend ............................... 50,00,000 5,00.00 —

(94) Tata Mutual Fund - Liquid Super High Investment Fund Daily Dividend ....... 17,04,974 190,02.01 17,76,781

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

Acquired Sold

Nos. Rs. lakhs Nos.

81

MAHINDRA & MAHINDRA LIMITED

(95) Tata Mutual Fund - Monthly Income Fund Dividend ....................................... — — 8,72,490(96) Tata Mutual Fund - Floating Rate Short Term Institutional Plan Daily Dividend 81,33,352 8,14.18 1,41,64,503

(97) Tata Mutual Fund - Gilt Securities Fund Bonus .............................................. — — 23,72,806

(98) Tata Mutual Fund - Dynamic Bond Option B Dividend .................................. 48,56,538 5,00.00 48,56,538

(99) Tata Mutual Fund - Floater Fund Daily Dividend ............................................. 50,88,697 5,08.87 50,88,697

(100) Tata Mutual Fund - Short Term Bond Fund Dividend ..................................... 46,69,660 5,06.38 46,69,660

(101) UTI Mutual Fund - Fixed Maturity Plan QFMP 106/11 Dividend Plan ............ 50,00,000 5,00.00 —

(102) UTI Mutual Fund - Fixed Maturity Plan QFMP Growth Plan ........................... 50,05,250 5,00.53 —

(103) UTI Mutual Fund - Fixed Maturity Plan QFMP 1105/11 Dividend Option ...... 50,00,000 5,00.00 50,00,000

(104) UTI Mutual Fund - Money Market Fund Daily Dividend Option ...................... 2,13,57,014 37,21.89 1,09,10,633

(105) UTI Mutual Fund - Liquid Cash Plan Institutional Daily Income Option ......... 14,87,466 151,07.83 14,87,466

(106) UTI Mutual Fund - Floating Rate Fund Short Term Plan Dividend Option ..... 2,40,52,627 24,24.27 2,40,52,627

(107) UTI Mutual Fund - Fixed Maturity Plan QFMP Dividend Plan 50,00,000 5,00.00 1,30,01,073

(g) The following are the movements in Commercial Paper during the year :

Acquired Sold Matured

Face Value Total Value Total Value Face ValueRs. (in lakhs) Rs. (in lakhs) Rs. (in lakhs) Rs. (in lakhs)

(1) Rabo India Finance Limited ....................................... 30,00.00 29,76.79 — 30,00.00

(2) GE Capital Services Limited ...................................... 10,00.00 9,97.24 — 10,00.00

(3) Housing Development Finance Corporation Limited . 30,00.00 29,82.16 15,00.00 15,00.00

(4) Export Import Bank of India ....................................... 20,00.00 19,47.00 — —

(5) Power Finance Corporation Limited .......................... 10,00.00 9,94.27 — 10,00.00

(h) The following are the movements in Certificate of Deposits during the year :

Acquired Sold Matured

Face Value Total Value Total Value Face ValueRs. (in lakhs) Rs. (in lakhs) Rs. (in lakhs) Rs. (in lakhs)

(1) State Bank of Travancore .......................................... 5,00.00 4,94.37 — —

(2) ICICI Bank Limited ..................................................... 10,00.00 9,83.87 10,00.00 —

(3) ABN AMRO Bank ....................................................... 5,00.00 4,89.91 — —

(4) State Bank of Mysore ................................................ 15,00.00 14,70.27 — —

(5) Allahabad Bank .......................................................... 40,00.00 39,56.08 — 25,00.00

(6) Kotak Mahindra Bank Limited ................................... 20,00.00 19,53.58 10,00.00 —

(7) UTI Bank ..................................................................... 10,00.00 9,92.42 10,00.00 —

(8) Yes Bank ..................................................................... 15,00.00 14,79.21 15,00.00 —

Acquired Sold

Nos. Rs. lakhs Nos.

SCHEDULE V (Contd.)Investments (At Cost, unless otherwise specified) :

82

MAHINDRA & MAHINDRA LIMITED

SCHEDULE VI 2006 2005Rupees Rupees Rupees

Current Assets, Loans and Advances : lakhs lakhs lakhs

(A) Current Assets :Interest accrued on investments ...................................................................... 3,00.02 2,20.01Stores and Spares (at cost or net realisable value whichever is lower) ............ 18,78.79 15,08.79Tools ................................................................................................................. 18,09.26 15,32.10Stock in Trade and Work-in-Progress (at cost or net realisable valuewhichever is lower) :

(i) Finished Products produced and purchased for sale ......................... 427,95.22 333,46.82(ii) Contracts and Work-in Progress ........................................................ 47,31.69 47,29.92(iii) Manufactured Components ................................................................ 49,89.18 41,19.17(iv) Raw Materials and Bought-out Components ..................................... 308,27.38 295,37.39(v) Property Development Activity - Work-in-Progress [including

completed flats and premises Rs.726.14 lakhs (2005 : Rs.944.88lakhs)] [Note 11(b)] .............................................................................. 8,42.85 12,08.77

841,86.32 729,42.07Plant and Machinery and other assets held for sale (at cost or netrealisable value whichever is lower) .................................................................. 14.10 14.10Sundry Debtors (Note 6) :

Unsecured unless otherwise stated :Outstanding over six months : Considered good ............................. 61,38.45 58,52.82

: Considered doubtful ......................... 35,67.16 36,21.66

97,05.61 94,74.48

Other Debts : Considered good ............................. 576,58.44 45,275.31: Considered doubtful ......................... 5,95.73 2,25.84

582,54.17 455,01.15

679,59.78 549,75.63Less : Provision for Doubtful Debts .................................................... 41,62.89 38,22.80

637,96.89 511,52.83Cash and Bank Balances :

Cash, cheques and stamps on hand ......................................................... 182,59.56 162,34.17Balances with Scheduled Banks :(i) On Current Account ........................................................................... 72,00.32 30,87.59(ii) On Fixed Deposit Account` ................................................................. 471,71.02 425,85.63(iii) On Margin Account ............................................................................ 5.42 5.42

543,76.76 456,78.64Balances with Non-Scheduled Banks (Note 7) :(i) On Current Account ........................................................................... 3,78.70 4,85.04(ii) On Fixed Deposit Account ................................................................. 15.58 —

3,94.28 4,85.04(B) Loans and Advances (Note 8) :

(Unsecured, considered good unless otherwise stated) :Advances and Loans to subsidiaries :

Considered good ........................................................................................ 124,14.75 61,92.88Considered doubtful ................................................................................... 7,27.01 10,95.23

131,41.76 72,88.11Less: Provision for doubtful Advances and Loans ...................................... 1,61.66 1,61.66

129,80.10 71,26.45Bills of exchange, considered doubtful ............................................................ 1,55.04 1,55.04Less: Provision for doubtful bills ....................................................................... 1,55.04 1,55.04

— —Advances recoverable in cash or in kind or for value to be received :

Considered good ........................................................................................ 274,02.18 216,88.43Considered doubtful ................................................................................... 53,03.99 52,38.05

327,06.17 269,26.48Less : Provision for Doubtful Advances ...................................................... 46,35.27 45,48.96

280,70.90 223,77.52Payments towards Income tax and Surtax [Note 21(d)] .................................. 100,10.15 106,53.11Balances - Customs, Port Trust, Excise, etc. .................................................. 62.75 31.47

Total..... 2,761,39.88 2,299,56.30

83

MAHINDRA & MAHINDRA LIMITED

SCHEDULE VII 2006 2005Rupees Rupees Rupees

Current Liabilities and Provisions : lakhs lakhs lakhs

(A) Current Liabilities * :

Acceptances ................................................................................................. 132,57.00 139,65.88

Sundry Creditors :

(i) Total outstanding dues of small scale industrial undertakings [Note 9] 57,81.15 65,24.84

(ii) Total outstanding dues of creditors other than small scale industrialundertakings [including Rs. 4630.45 lakhs (2005 : Rs. 4800.54 lakhs)being advance payments for which value has still to be given] ........... 1,288,88.24 1,029,98.61

(iii) Dues to Subsidiaries .............................................................................. 23,98.58 7,52.17

1,370,67.97 1,102,75.62

Dividend payable .......................................................................................... 2,75.99 2,29.04

Balances on Directors’ Current Accounts .................................................... 2,15.86 2,41.30

Interest accrued but not due on loans ......................................................... 12,67.23 12,88.43

(B) Provisions :

Proposed Dividends - See Directors’ Report ............................................... 243,97.41 150,81.50

Provision for Tax on Proposed Dividend ....................................................... 34,21.74 21,15.18

Provision for diminution in value of long term investments .......................... 5,73.43 5,73.43

Provision for premium payable on redemption of convertible bonds ........... 10,07.52 76,54.50

Provision for Contingencies [Note 10 (b) & (c)] ............................................. 78.45 33.99

Provision for diminution in value of investments and other assets [Note 27] 77,52.70 90,85.49

Provision for leave encashable at retirement/cessation ................................ 56,72.44 48,86.63

Provision for Taxation .................................................................................... 31,08.17 37,31.84

Provision : Others [Note 10 (a) & (c)] ............................................................ 83,02.49 68,08.07

Total..... 2,063,98.40 1,759,70.90

* There are no amounts due and outstanding to be credited to the Investor Education and Protection Fund.

SCHEDULE VIII 2006 2005Rupees Rupees

Miscellaneous Expenditure : lakhs lakhs(to the extent not written off or adjusted) :

(a) Finance Charges ........................................................................................... 2,19.38 3,30.65

(b) Separation and Other Costs ......................................................................... 15,86.08 21,06.92

Total..... 18,05.46 24,37.57

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SCHEDULE IX 2006 2005Rupees Rupees

Income from Operations and Other Income : lakhs lakhs

Income from services rendered .................................................................. 152,39.32 70,24.38

Property Development Activity-Property ..................................................... 7,03.58 13,48.93

Dividends on Investments in subsidiaries-Gross ......................................... 36,44.41 69,83.20

Dividends on other Investments-Gross [Note 12(a)] ................................... 12,66.38 4,82.10

Rent received .............................................................................................. 3,39.68 5,25.25

Miscellaneous Income ................................................................................. 99,67.00 73,83.46

Profit on sale of Fixed Assets sold/scrapped/written off (Net) [Note 16] .... 17,89.78 —

Profit on sale of Investments (Net) [Note 12(d)] .......................................... 8,27.00 84.00

Total ........ 337,77.15 238,31.32

SCHEDULE X 2006 2005Rupees Rupees Rupees

Raw Materials, Finished and Semi-Finished Products : lakhs lakhs lakhs

(A) Decrease/(Increase) in Stock of Finished Goods,Work-in-Progress and Manufactured Components :

Opening Stock :

(i) Finished Products produced and purchased for sale .................. 333,46.82 185,78.64

(ii) Contracts and Work-in-Progress .................................................. 47,29.92 33,32.88

(iii) Manufactured Components .......................................................... 41,19.17 28,78.96

421,95.91 247,90.48Less: Closing Stock :

(i) Finished Products produced and purchased for sale .................. 427,95.22 333,46.82

(ii) Contracts and Work-in-Progress .................................................. 47,31.69 47,29.92

(iii) Manufactured Components .......................................................... 49,89.18 41,19.17

525,16.09 421,95.91

Decrease/(Increase) in Stock ............................................................... (103,20.18) (174,05.43)

(B) Consumption of Raw Materials and Bought-out Components :

Opening Stock ..................................................................................... 295,37.39 201,31.42

Add :Purchases [including outside processing chargesRs. 24147.45 lakhs (2005 : Rs. 21658.25 lakhs)] ..................... 5,601,39.57 4,673,15.72

5,896,76.96 4,874,47.14

Less : Closing Stock ............................................................................ 308,27.38 295,37.39

5,588,49.58 4,579,09.75

(C) Purchases of Finished Products for sale ........................................ 228,47.17 197,59.34

Total .......... 5,713,76.57 4,602,63.66

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SCHEDULE XI 2006 2005Rupees Rupees

Personnel : lakhs lakhs

Salaries, Wages, Bonus, etc ................................................................................ 446,85.32 377,01.13

Contribution to Provident and other funds .......................................................... 31,95.12 27,50.14

Gratuity .............................................................................................................. 16,38.34 13,40.75

Welfare .............................................................................................................. 56,59.61 46,33.15

Total .......... 551,78.39 464,25.17

SCHEDULE XII 2006 2005Rupees Rupees

Interest, Commitment and Finance Charges : lakhs lakhs

On Term Loans and Debentures .......................................................................... 24,95.65 27,76.94

On Others (Net) .................................................................................................... 1,99.96 2,47.19

26,95.61 30,24.13

Less: Interest Income:

Interest on Government Securities, Debentures and Bonds - Gross[Note 12(b)] ................................................................................................. 4,37.69 5,04.30

Interest - Others - Gross [Note 12(c)] ........................................................ 40,98.08 30,77.39

Total .......... (18,40.16) (5,57.56)

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SCHEDULE XIII 2006 2005Rupees Rupees Rupees

Other Expenses : lakhs lakhs lakhs

Stores consumed [Note 13] ........................................................................ 54,09.31 46,42.50

Tools consumed .......................................................................................... 14,14.63 13,43.98

Power and Fuel [Note 13] ........................................................................... 57,46.36 52,64.03

Rent including lease rentals ........................................................................ 18,26.69 13,03.65

Rates and Taxes ......................................................................................... 24,67.71 18,75.55

Insurance ..................................................................................................... 9,41.21 8,12.07

Repairs and Maintenance [Note 14]:

Buildings .............................................................................................. 17,86.07 14,21.95

Machinery ............................................................................................ 54,43.72 48,01.34

Others .................................................................................................. 16,10.86 12,34.76

88,40.65 74,58.05

Advertisement ............................................................................................. 54,86.82 57,61.15

Commission on sales/contracts (Net) ......................................................... 57,04.36 52,44.61

Discount allowed ......................................................................................... 1,87.05 2,61.92

Freight outward ........................................................................................... 260,64.43 168,04.10

Sales Promotion Expenses ......................................................................... 83,89.06 89,00.28

Miscellaneous Expenses [Note 15] ............................................................. 294,06.41 228,02.53

Amortisation of expenses [Note 1(E)(a)] ...................................................... 27.99 15.37

Directors’ fees ............................................................................................. 9.80 10.30

Donations and contributions ....................................................................... 5,48.56 4,25.43

Loss on Fixed Assets sold/scrapped/written off (Net) [Note 16] ................ - 1,57.41

Excess of cost over fair value of Current Investments (Net) ....................... 68.55 (79.07)

Provision for doubtful debts/advances (Net) [Note 27 & 28] ...................... 81.11 11,32.65

Provision for diminution in value of Long term investments (Net)[Note 27 & 29] ............................................................................................ (22,17.50) (6,57.46)

Total ........... 1,004,03.20 834,79.05

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SCHEDULE XIV

Notes on Accounts for the year ended 31st March, 2006

1. Significant Accounting Policies :

(A) Fixed Assets :

(a) (i) All Fixed Assets are carried at cost less depreciation except as stated in (ii) below. Cost includes financing cost relating toborrowed funds attributable to the construction or acquisition of fixed assets upto the date the asset is ready for use. In case ofborrowed funds and liabilities in foreign currencies for the acquisition of fixed assets from a country outside India, the exchangedifferences are adjusted to the cost of such asset.

When an asset is scrapped or otherwise disposed off, the cost and related depreciation are removed from the books of accountand resultant profit (including capital profit) or loss, if any, is reflected in the Profit and Loss Account.

(ii) Land and Buildings, had been revalued as at 31st October, 1984 at depreciated replacement values on the basis of a valuationmade by a firm of Chartered Surveyors & Valuers. The indices, if any, used are not stated in the valuation.

(b) (i) Leasehold land is amortised over the period of the lease.

(ii) Depreciation on assets is calculated on Straight Line Method at the rates and in the manner prescribed in Schedule XIV to theCompanies Act, 1956, except for :

(1) certain items of Plant & Machinery individually costing more than Rs. 5,000 - over their useful lives (2 years,3 years, 5 yearsor 7 years, as the case may be) as determined by the Company.

(2) Cars and Vehicles - at 15% of cost.

(iii) Depreciation charge for each year is after deducting the amount representing the depreciation on the increase due to revaluationof Land and Buildings, transferred from the Revaluation Reserve.

(B) Intangible Assets :

All Intangible Assets are initially measured at cost and amortised so as to reflect the pattern in which the asset’s economic benefits areconsumed.

(a) Technical Knowhow :

The expenditure incurred is amortised over the estimated period of benefit, not exceeding six years commencing with the year ofpurchase of the technology.

(b) Development Expenditure :

The expenditure incurred on technical services and other project/product related expenses are amortised over the estimated periodof benefit, not exceeding five years.

(c) Software Expenditure :

The expenditure incurred is amortised over three financial years equally commencing from the year in which the expenditure isincurred.

(C) Investments :

All long term investments are carried at cost less provision, if any, for decline other than temporary, in value of such investments. Currentinvestments are valued at the lower of cost and fair value, determined by category of investment.

(D) Inventories :

Inventories are stated at cost or net realisable value, whichever is lower. Cost is arrived at on a weighted average method and includes,where appropriate, manufacturing overheads and excise duty. Long term contracts in progress are valued at cost.

(E) Miscellaneous Expenditure (to the extent not written off or adjusted) :

Expenditure carried forward under this head is being amortised as follows :

(a) Finance charges :

The expenditure incurred in raising long term borrowings is amortised over the period of the borrowings. On early buyback,conversion or repayment of borrowings, any unamortised expenditure is fully written off in that year.

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(b) Separation and Other Costs :

Special Payments/Pensions under Voluntary Retirement Schemes.

The liability inclusive of retirement benefits such as gratuity and leave encashment is amortised over a period of five years from themonth in which the liability is incurred.

(F) Foreign Exchange Transactions :

All foreign currency monetary items are translated at the relevant rates of exchange prevailing at the year end. In respect of forwardexchange contracts the premium or discount arising at the inception of such a contract is amortised as expense or income over the life ofthe contract.

In case of monetary items (other than those for acquisition of fixed assets from a country outside India) the exchange differences arerecognised in the Profit and Loss Account.

In the case of monetary items incurred for the acquisition of fixed assets and technical know-how from a country outside India, theexchange differences are adjusted to the cost of such assets.

(G) Revenue Recognition :

Sales of products and services are recognised when the products are shipped or services rendered. In respect of sale of property (concerningproperty development activity), the Company accounts for the income on the percentage to completion basis. [Refer paragraph (H) below].

Dividend from investments are recognised in the Profit and Loss Account when the right to receive payment is established.

(H) Property Development Activity :

The Company accounts for income on the percentage to completion basis which necessarily involves technical estimates of the percentageof completion, and costs to completion of the activity, on the basis of which profits/losses are accounted. Such estimates, made by theCompany and certified to the auditors, have been relied upon by them, as these are of a technical nature.

(I) Government Grants :

The Company is entitled to various incentives from a State Government, such as grants by way of refund of octroi duty paid by theCompany for its manufacturing unit located in a developing region. In view of the uncertainty in respect to the collection of these grants,such grants are accounted for as and when the disbursements are received.

(J) Retirement Benefits :

Retirement Benefits in respect of gratuity and leave encashable at retirement/cessation are provided for based on valuations, as at theBalance Sheet date, made by independent actuaries.

(K) Redemption Premium :

Premium payable on redemption of Bonds / Debentures is fully provided and charged to Securities Premium Account in the year of issue.

(L) Product Warranty :

In respect of warranties given by the Company on sale of certain products, the estimated costs of these warranties are accrued at the timeof sale. The estimates for accounting of warranties are reviewed and revisions are made as required.

(M) Leases :

The Company’s significant leasing arrangements are in respect of operating leases for premises (residential, office, stores, godowns,computer hardware etc.). The leasing arrangements, which are not non-cancellable, range between eleven months and three yearsgenerally, and are usually renewable by mutual consent on agreed terms. The aggregate lease rentals payable are charged as rentincluding lease rentals.

(N) Taxes on Income :

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised, subject toconsideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate inone period and are capable of reversal in one or more subsequent periods. Deferred tax assets arising on account of unabsorbeddepreciation or carry forward of tax losses are recognised only to the extent that there is virtual certainty supported by convincing evidencethat sufficient future tax income will be available against which such deferred tax assets can be realised.

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2. Share Capital :

(a) Issued and Subscribed Capital include :

(i) 1,66,809 Ordinary Shares allotted as fully paid-up pursuant to a contract without payment having been received in cash.

(ii) 17,06,07,504 (2005: 5,45,98,605) Ordinary Shares allotted as fully paid-up by way of Bonus Shares by capitalisation of SecuritiesPremium Account and Reserves.

(iii) 12,56,562 Ordinary Shares issued consequent to the Scheme of Amalgamation with the Union Bank of India Limited. Of these,13,737 Ordinary Shares were issued on conversion of 41,211 8% Bonds.

(iv) 12,98,202 Ordinary Shares issued consequent to the Scheme of Amalgamation with International Tractor Company of India Limitedwithout payment having been received in cash.

(v) 1,88,166 Ordinary Shares issued consequent to the Scheme of Amalgamation with Mahindra Spicer Limited without payment havingbeen received in cash.

(vi) 9,73,200 Ordinary Shares issued consequent to the Scheme of Amalgamation with Mahindra Nissan Allwyn Limited without paymenthaving been received in cash.

3. Reserves and Surplus :2006 2005

Rupees Rupeeslakhs lakhs

(a) Movements during the year :

(i) Securities Premium Account :

Additions, arising out of exercise of options ............................................. 2,03.95 2,04.70

Premium on conversion of Debentures and Bonds .................................. 278,51.83 —

Reversal of premium on redemption of Zero Coupon ConvertibleBonds pursuant to conversion ................................................................... 66,67.07 —

347,22.85 2,04.70

Applied, in accordance with Section 78 of the Companies Act, 1956,towards :

Writing-off of share and debenture issue expenses .................................. 2,27.73 69.57

Premium on redemption/buyback of debentures and Zero CouponConvertible Bonds ...................................................................................... 20.09 81,98.08

2,47.82 82,67.65

(ii) Revaluation Reserve :

Adjusted against depreciation for the year [Note 1 (A)(b) (iii)] ................... 43.28 54.22

Adjusted in respect of revalued Land and Buildings sold/demolished ............ 54.78 2.08

98.06 56.30

(b) During the year, the Institute of Chartered Accountants of India has issued a Guidance Note on Accounting for Employee Share-basedPayments which requires that shares allotted to a trust but not transferred to the employees be reduced from the Share Capital andReserves. Accordingly the Company has reduced the Share Capital by Rs. 375.09 lakhs (2005: Rs. 436.07 lakhs), Securities Premium byRs. 1837.93 lakhs (2005: Rs. 2136.73 lakhs) for the 37,50,884 shares (2005: 43,60,672 shares) held by the trust pending transfer to theeligible employees. The amount receivable from the ESOP Trust, net of the above monies which is treated as advance received from it, isincluded under current liabilities.

The Share Capital of the Company has also been reduced and the General Reserve increased by Rs. 375.09 lakhs (2005: Rs. Nil) for thebonus shares issued by the Company in September 2005 to the trust but not yet transferred by the trust to the employees.

The Company has also given effect to the above in the calculation of its Basic and Diluted earnings per share for the current andprevious year.

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4. Loans :

(a) Debentures are redeemable at par as follows –

(i) Rs. 4000 lakhs on 27th April, 2006. (pursuant to exercise of call option)

(ii) Rs. 3500 lakhs on 3rd May, 2006. (pursuant to exercise of call option)

(iii) Rs. 1000 lakhs on 28th August, 2006. (pursuant to exercise of call option)

(iv) Rs. 500 lakhs on 16th July, 2008.

(v) Rs. 50 lakhs on 22nd May, 2011.

(vi) Also refer Note 4 (c) below

(b) All Debentures of Rs. 9050.67 lakhs and certain Foreign Currency Loans from Banks of Rs. 9240.48 lakhs are secured by a pari-passucharge on immovable properties of the Company both present and future, subject to certain exclusions and are also secured by pari-passu charge on the movable properties of the Company including movable machinery, machinery spares, tools and accessories, bothpresent and future.

(c) Debentures of the face value of Rs. 110 each and Zero Interest Bonds of the face value of Rs. 90 each were both compulsorily andautomatically fully converted into two equity shares of Rs.10 each at a premium of Rs. 45 per share and Rs. 35 per share respectively on1st April, 1991, 1st October, 1991 and 18th July, 1992. The balance amount of Rs. 0.67 lakhs will be converted, into appropriate numberof equity shares, on receipt of the balance amount due on allotment.

(d) The following amounts are repayable by 31st March, 2007:

(i) Debentures / Bonds ........................................................................ : Rs. 8500.00 lakhs (2005 : Rs. 1500.00 lakhs)

(ii) Foreign currency loans from Banks ................................................ : Rs. 5715.12 lakhs (2005 : Rs. 5818.08 lakhs)

(iii) Fixed Deposit holders ..................................................................... : Rs. 516.10 lakhs (2005 : Rs. 1887.95 lakhs)

(iv) Rupee Loans :-

(a) from others .............................................................................. : Rs. Nil (2005 : Rs. 1.09 lakhs )

(b) from financial institutions ......................................................... : Rs. 204.16 lakhs (2005 : Rs. Nil)

The Company had issued during the year ended 31st March, 2005, Zero Coupon Foreign Currency Convertible Bonds (Bonds) aggregatingto US $ 100 million, at par. Out of these upto 31st March, 2006, Bonds aggregating to US $ 64.73 million have been converted into equityshares / GDRs. Subsequent to the year end, Bonds aggregating to US $ 22.37 million have been converted into equity shares / GDRs.

Premium payable on redemption of Bonds had been fully provided in the previous year by debiting the same to Securities PremiumAccount (SPA). In view of the above, premium aggregating to Rs. 6667.07 lakhs no longer payable on bonds converted into equity shares/ GDRs has been credited back to SPA during the year.

The proceeds of the Bonds (net of conversion into equity shares/GDRs) have been utilised towards expansion of manufacturing facilitiesand overseas acquisitions.

5. (a) Land includes leaseholds at professional valuation/cost Rs. 5536.30 lakhs (2005 : Rs. 1299.96 lakhs).

(b) Land includes a sum of Rs. 129.98 lakhs (2005 : Rs. 782.27 lakhs) for which the conveyance is pending receipt of approval from theappropriate authorities.

(c) The Company has filed the necessary return under Section 6 of the Urban Land (Ceiling and Regulation) Act, 1976, in respect of vacantland held by it and has also applied to the Government of Maharashtra under Section 20 of the said Act requesting for exemption of thesaid vacant land from the ceiling restrictions of the Act.

(d) Buildings include leasehold at professional valuation/cost Rs. Nil (2005 : Rs. 27.04 lakhs).

(e) Buildings include Rs. 0.04 lakhs (2005 : Rs. 0.04 lakhs) being the value of shares in co-operative housing societies.

(f) Additions to Plant and Machinery include Rs. 16.86 lakhs (credit) (Net) [2005 : Rs. 8.15 lakhs (credit) (Net)] on account of foreignexchange fluctuation.

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(g) (i) The depreciation charge for the year excludes :

(a) An amount of Rs. 43.28 lakhs (2005 : Rs. 54.22 lakhs), representing depreciation on the increase due to revaluation of Landand Buildings transferred from the Revaluation Reserve.

(b) An amount of Rs. 3.10 lakhs (2005 : Rs. 63.28 lakhs), representing depreciation on assets used for development work. Thisexpenditure is transferred to Development Expenditure and is appropriately amortised.

(ii) The Revaluation Reserve is also adjusted for an amount of Rs. 54.78 lakhs (2005 : Rs. 2.08 lakhs) in respect of revalued Land andBuildings sold/demolished during the year.

(iii) The net credit to the Profit and Loss Account consequent to the above adjustments to the Revaluation Reserve is Rs. 98.06 lakhs(2005 : Rs. 56.30 lakhs).

6. Sundry Debtors others include Rs. 5432.65 lakhs (2005 : Rs. 2618.31 lakhs), which, in accordance with the terms of the contracts, were notdue for payment as at 31st March, 2006.

7. Cash and Bank Balances include balances lying with non-scheduled banks :

a) In Current AccountRupees lakhs

Bank Tejarat, Bank of Australia Bank of China The MunicipalTehran Co-op. Bank Ltd

Balance as at 31st March, 2006 0.06 2,54.26 7.84 1,16.54

Balance as at 31st March, 2005 0.06 3,16.88 3.63 1,64.47

Maximum balance during the year 0.06 5,24.51 19.41 2,35.94

Maximum balance during the previous year 0.06 4,95.63 5.62 2,43.22

b) In Deposit Account

Rupees lakhs

Bank of Australia

Balance as at 31st March, 2006 15.58

Balance as at 31st March, 2005 —

Maximum balance during the year 15.58

Maximum balance during the previous year —

8. Loans and Advances include :

(i) Fixed/Call deposits with/loans to limited companies Rs. 7551.96 lakhs (2005 : Rs. 4208.26 lakhs) including Rs. 2876.26 lakhs (2005 :Rs. 2611.26 lakhs) with/to subsidiaries.

(ii) Amounts paid towards joint development of property Rs. 154.05 lakhs (2005 : Rs. 154.05 lakhs).

(iii) Amount due from Directors of the Company Rs. Nil (2005 : Rs. 82.26 lakhs), maximum amount due during the yearRs. 83.43 lakhs (2005: Rs. 128.06 lakhs)

(iv) Share Application money pending allotment Rs. 8469.66 lakhs (2005 : Rs. 4186.06 lakhs) to subsidiaries.

9. The identification of suppliers as Small Scale Industrial undertaking (SSIs) has been done on the basis of the information to the extent providedby the suppliers to the Company. On this basis, the disclosure of total outstanding dues of SSIs and the names of SSIs shown in Schedule XVIIhas been made.

10. a) Provision – Others Rs. 8302.49 lakhs (2005 : Rs. 6808.07 lakhs) includes provision for warranty Rs. 6321.48 lakhs (2005:Rs. 4702.40 lakhs). This relates to warranty provision made in respect of sale of certain products, the estimated costs of which is accruedat the time of sale. The products are generally covered under a free warranty period ranging from 1 year to 3 years.

b) Provision for Contingencies Rs. 78.45 lakhs (2005 : Rs. 33.99 lakhs) is in respect of labour demands under negotiations at certainlocations of the Company. The ultimate settlement is contingent on the conclusion of negotiations.

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c) The movement in above provisions is as follows :

Warranty ContingencyRupees lakhs Rupees lakhs

Provisions 2006 2005 2006 2005

Balance as at 1st April, 47,02.40 33,83.24 33.99 3,42.00

Add : Provision made during the year 44,20.09 37,41.07 78.45 33.99

Less : Utilisation during the year 28,01.01 24,21.91 33.99 3,42.00

Balance as at 31st March, 63,21.48 47,02.40 78.45 33.99

11. (a) Sales include :

(i) Export benefits Rs. 3135.78 lakhs (2005 : Rs. 171.24 lakhs)

(ii) Cost of items given for sales promotion/as donations Rs. 18.35 lakhs (2005 : Rs. 13.04 lakhs).

(b) Stock-in-Trade, Property Development Activity, includes completed premises Rs. 407.03 lakhs (2005 : Rs. 625.76 lakhs), which, pendingsale, have been given out on leave and licence basis for which fresh agreement is under negotiation.

12. (a) Dividends on other investments Rs. 1266.38 lakhs (2005 : Rs. 482.10 lakhs) is in respect of current investments.

(b) Interest on Government Securities, Debentures and Bonds includes tax deducted at source Rs. 88.59 lakhs (2005 : Rs. 82.12 lakhs) andcomprise Rs. 158.53 lakhs (2005 : Rs. 118.32 lakhs) and Rs. 279.16 lakhs (2005 : Rs. 385.98 lakhs) in respect of long term and currentinvestments respectively.

(c) Interest received - others includes tax deducted at source Rs. 474.80 lakhs (2005 : Rs. 286.86 lakhs).

(d) Profit on sale of investments (net) includes profit on disposal of current investments (net) Rs. 569.96 lakhs (2005 : Rs. 119.02 lakhs), andprofit on disposal of long term investments (net) Rs. 257.04 lakhs (2005 : Rs. 35.02 lakhs [Loss]).

13. Stores consumed includes consumption for power and fuel (amount not ascertained).

14. Repairs and Maintenance includes machinery spares consumed Rs. 1905.59 lakhs (2005 : Rs. 1429.53 lakhs) but does not include itemsincluded under Consumption of Raw Materials and Bought-out Components and amounts charged to salaries and wages (amounts notascertained).

15. Miscellaneous Expenses include :

(a) Amounts paid/payable to Auditors (net of service tax where applicable):

Statutory Auditors Cost AuditorsRupees lakhs Rupees lakhs

(i) Audit Fees .................................................................................................. 65.00 1.8050.00 1.80

(ii) Company Law matters ............................................................................... 0.20 —0.20 —

(iii) Other Services ............................................................................................ 22.56* —48.74 —

(iv) Reimbursement of expenses :As auditor ................................................................................................... 1.34 0.22

1.33 0.24

89.10 2.021,00.27 2.04

* Net of service tax of Rs. 8.41 lakhs pertaining to an earlier year.

The above amounts exclude Rs. Nil (2005 : Rs. 22.00 lakhs) paid to the Statutory Auditors which is being adjusted against SecuritiesPremium Account being Bond issue expenses.

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(b) An amount of Rs. 101.22 lakhs (2005 : Rs. 110.55 lakhs) payable as commission to non-wholetime Directors - Note 17 andSchedule XV.

(c) The cost of property sold including movement in work-in-progress in respect of property development activity are as under:

2006 2005Rupees lakhs Rupees lakhs

Opening balance as on 1st April ........................................................................ 5,76.55 17,78.17

Add: Construction Cost .................................................................................... 57.95 0.17

6,34.50 17,78.34

Less: Flats Capitalised ....................................................................................... — 2,81.77

Less: Cost of Property Development Activity – Work – in – Progressas at 31st March ................................................................................................ 1,68.66 5,76.55

1,68.66 8,58.32

4,65.84 9,20.02

16. Profit/Loss on fixed assets sold/scrapped/written off (net) includes an aggregate capital profit of Rs. 2356.64 lakhs(2005 : Rs. 83.46 lakhs).

17. Managerial remuneration for Directors included in the Profit and Loss Account is Rs. 688.79 lakhs (2005 : Rs. 694.29 lakhs) including Directors’fees of Rs. 9.80 lakhs (2005 : Rs. 10.30 lakhs), perquisites Rs. 193.03 lakhs (2005 : Rs. 191.88 lakhs) and commission Rs. 341.97 lakhs(2005 : Rs. 347.28 lakhs) (See Schedule XV) and excluding charge for gratuity and provision for leave encashable on separation as separateactuarial valuation figures are not available. The above perquisites include amortisation of Employees Stock Options amounting to Rs. 16.30lakhs (2005 : Rs. 30.85 lakhs)

18. The Company had allotted 55,24,219 ordinary (equity) shares in the year ended 31st March, 2002, to the Mahindra & Mahindra Employees’Stock Option Trust set up by the Company. The trust holds these shares for the benefit of the employees and issues them to the eligibleemployees as per the recommendation of the Compensation Committee.

The equity settled options vest one year from the date of the grant and are exercisable on specified dates in 3 tranches within a period of 5years from the date of vesting. The number of options exercisable in each tranche is between the minimum of 100 and a maximum of 1/3rd ofthe options vested, except in case of the last date of exercise, where the employee can exercise all the options vested but not exercised till thatdate.

The compensation costs of stock options granted to employees are accounted by the Company using the intrinsic value method.

Summary of Stock Options No. of stock options Weighted averageexercise price (Rs.)

Options outstanding on 1st April, 2005 8,75,647 103.90

Options granted during the year 8,00,628 450.04

Additional options pursuant to bonus issue 16,02,869 134.77

Options forfeited/lapsed during the year 42,260 261.39

Options exercised during the year 11,86,684 32.09

Options outstanding on 31st March, 2006 20,50,200 196.16

Options vested but not exercised on 31st March, 2006 5,31,718 99.49

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MAHINDRA & MAHINDRA LIMITED

Average Share price on the date of exercise of the option are as under

Date of exercise Average share price (Rs.)

31st May, 2005 507.30

6th December, 2005* 470.65

* After adjustment in number of shares and share prices pursuant to the issue of bonus shares in September 2005.

Information in respect of options outstanding as at 31st March, 2006.

Range of exercise price Number of options Weighted averageremaining life

Rs. 29.50 - Rs. 61.50 3,55,408 2.27 yrs

Rs. 215.00 - Rs. 227.00 16,60,680 5.10 yrs

Rs. 361.00 34,112 5.57 yrs

The fair value of options granted during the year on 14th June, 2005 & 26th October, 2005 is Rs. 83.13 and Rs. 83.86 per share respectively.

The fair value has been calculated using the Black Scholes Options Pricing Model and the significant assumptions made in this regard are asfollows :

Grant dated Grant dated14th June, 2005 26th October, 2005

Risk free interest rate 6.27% 6.42%

Expected life 2.5 years 2.5 years

Expected volatility 36.84% 36.93%

Expected dividend yield 3.84% 3.84%

Exercise price Rs. 227.00 Rs. 361.00

Stock Price Rs. 274.80 Rs. 361.40

In respect of Options granted under the Employee Stock Options plan, in accordance with guidelines issued by SEBI, the accounting value ofthe options is accounted as deferred employee compensation, which is amortised on a straight line basis over the period between the date ofgrant of options and eligible dates for conversion into equity shares. Consequently, salaries, wages, bonus, etc. includes Rs. 151.62 lakhs(2005 : Rs 107.11 lakhs) being the amortisation of deferred employee compensation, after adjusting for reversals on account of options lapsed.

Had the Company adopted fair value method in respect of options granted on or after 1st April, 2005, the employee compensation cost wouldhave been higher by Rs. 265.86 lakhs, Profit after tax lower by Rs. 265.86 lakhs and the basic and diluted earning per share would have beenlower by Re. 0.12 & Re. 0.11 respectively.

The above disclosures have been made consequent to the issue of Guidance Note on Accounting for Employee Share-based Payments issuedby the Institute of Chartered Accountants of India in the year 2005 and applicable for the periods on or after 1st April, 2005.

19. The estimated amount of contracts remaining to be executed on capital account and not provided for as at 31st March, 2006 isRs. 22616.53 lakhs (2005 : Rs. 9042.71 lakhs).

20. The Commissioner of Central Excise (Adjudication), Navi Mumbai, passed an order on 30th March, 2005, which was received by the Companyon 4th April, 2005, confirming the demand made on the Company for payment of differential excise duty (including penalty) of Rs. 30411.00lakhs in connection with the classification of Company’s Commander range of vehicles, during the years 1991-1996. Whilst the Company hadclassified the Commander range of vehicles as 10-seater attracting a lower rate of excise duty, the Commissioner of Central Excise (Adjudication),Navi Mumbai, has held that these vehicles could not be classified as 10-seaters and as such attracted a higher rate of excise duty. In earlierproceedings, the Collector of Central Excise, Mumbai as also the Collector Central Excise (Appeals), Mumbai had upheld the classification ofthese vehicles as 10-seaters. Similarly, certain statutory/expert bodies have also confirmed the concerned vehicles to be 10-seater vehicles.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has also by its order dated 19th July, 2005 upheld this classification. Thedepartment’s Statutory Appeal against this order has been admitted by the Supreme Court.

The Company has been legally advised that the order dated 30th March, 2005 passed by the Commissioner is unsustainable in law and hasfiled an appeal against this order, along with stay application, before the CESTAT. The Company is confident that it would succeed in the case

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and the Company’s stand that the Commander Vehicles are 10-seater vehicles would be upheld. As such, the Company does not expect anyliability on this account.

21. Contingent Liability :

(a) Guarantees given by the Company :

Amount of guarantees Outstanding amountsagainst the guarantees

2006 2005 2006 2005

Rupees lakhs Rupees lakhs Rupees lakhs Rupees lakhs

For employees .................................. 1,05.00 1,05.00 0.35 0.35

For other companies ........................ 52,70.00 59,00.00 27,17.00 47,83.96

(b) Claims against the Company not acknowledged as debts comprise of :

(i) Excise Duty, Sales Tax and Service Tax claims disputed by the Company relating to issues of applicability and classificationaggregating to Rs. 13356.24 lakhs (Net of Tax : Rs. 9915.99 lakhs) [2005 : Rs. 4088.58 lakhs (Net of tax : Rs. 3290.71 lakhs)].

(ii) Other Matters (excluding claims where amounts are not ascertainable) : Rs. 545.32 lakhs (Net of Tax : Rs. 367.76 lakhs))))) [2005 : Rs.353.30 lakhs (Net of Tax : Rs. 230.53 lakhs)]

(iii) Claims on capital account : Rs. 118.20 lakhs (2005 : Rs. 118.20 lakhs)

(c) Uncalled liability on equity shares partly paid Rs. 1050.00 lakhs (2005 : Rs. 1050.00 lakhs).

(d) Taxation matters :

(i) Demands against the Company not acknowledged as debts and not provided for, relating to issues of deductibility and taxability inrespect of which the Company is in appeal and exclusive of the effect of similar matters in respect of assessments remaining to becompleted :

- Income tax : Rs. 11317.07 lakhs (2005 : Rs. 10039.99 lakhs).

(ii) Items in respect of which the Company has succeeded in appeal, but the Income tax Department is pursuing/likely to pursue inappeal/reference and exclusive of the effect of similar matters in respect of assessments remaining to be completed :

- Income tax matters : Rs. 4962.35 lakhs (2005 : Rs. 4723.00 lakhs)

- Surtax matters : Rs. 12.80 lakhs (2005 : Rs. 12.80 lakhs)

(e) Bills discounted not matured Rs. 8696.91 lakhs (2005 : Rs. 12239.72 lakhs).

22. Research and Development expenditure debited to the Profit and Loss Account, including certain expenditure based on allocations made bythe Company, aggregate Rs. 11535.83 lakhs (2005 : Rs. 9229.04 lakhs) [excluding depreciation Rs. 2427.53 lakhs (2005 : Rs. 1829.39lakhs)].

23. The net difference in foreign exchange credited to the Profit and Loss Account is Rs. 171.23 lakhs (2005 : Rs. 309.92 lakhs). The debit onaccount of exchange differences in respect of forward exchange contracts, to be recognised in the Profit and Loss Account or capitalised insubsequent accounting periods is Rs. 40.90 lakhs (2005 : Rs. 46.18 lakhs).

24. Exceptional items of Rs. 21001.18 lakhs (2005 : Rs. 1355.16 lakhs) comprise of :

(a) Profit on sale of certain long term investments Rs. 16757.83 lakhs (2005 : Rs. 582.12 lakhs)

(b) A profit of Rs. 4840.00 lakhs arising out of the transfer of the right to carry on LCV business alongwith the congeries of rights therein andintellectual property rights to its subsidiary Mahindra International Limited for a consideration of Rs. 4840.00 lakhs.

(c) Amortisation of l iabil ity and other retirement benefits made under Voluntary Retirement Schemes aggregating toRs. 596.65 lakhs (2005 : Rs. 526.05 lakhs)

(d) Benefit of Rs. Nil (2005 : Rs. 2125.13 lakhs) arising out of early repayment of Sales tax Loan.

(e) Provision for diminution in value of certain assets substantially retired from active use Rs. Nil (2005: Rs. 826.04 lakhs)

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25. The components of Deferred tax liability and assets as at 31st March, 2006 are as under :

2006 2005Rupees lakhs Rupees lakhs

Deferred tax liability:

(i) On fiscal allowances on fixed assets ................................................................. 187,44.00 223,64.00

(ii) Others ................................................................................................................. 2,95.00 5,14.00

190,39.00 228,78.00Deferred tax assets:

(i) Provision for leave encashable at retirement/cessation ..................................... 18,16.00 16,41.00

(ii) Provision for Doubtful debts /Advances ............................................................ 17,96.00 18,02.00

(iii) Others ................................................................................................................. 7,52.00 4,60.00

43,64.00 39,03.00

Net Deferred tax liability ............................................................................................. 146,75.00 189,75.00

26. Earnings per Share :2006 2005

Amount used as the numerator – Balance of profit for 2005-2006 (Rupees lakhs) ....................... 857,10.49 512,67.15

(Gain)/Loss on difference in exchange on bonds (Rupees lakhs) ................................................... 1,18.93 (6,47.62)

Amount used as the numerator for diluted earnings per share (Rupees lakhs) ............................. 858,29.42 506,19.53

Weighted average number of equity shares used in computing basic earnings per share ............ 22,51,11,765 22,24,99,782

Effect of potential ordinary (equity) shares on conversion of bonds/debentures ............................ 2,06,32,529 2,18,34,008

Weighted average number of equity shares used in computing diluted earnings per share .......... 24,57,44,294 24,43,33,790

Basic Earnings per share (Rs.) (Face value of Rs. 10 per share) .................................................... 38.07 23.04

Diluted Earnings per share (Rs.) ....................................................................................................... 34.93 20.72

In the computation of earnings per share for the periods above, the Company has considered the bonus shares issued by it in September 2005and given effect to the Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants ofIndia.

27. Credit to “Provision for diminution in value of Investments and Other assets” pursuant to the Schemes of Arrangement approved by the Hon’bleHigh Court consists of :

2006 2005Rupees lakhs Rupees lakhs

Provision for diminution in value of investments # ........................................................................... 65,18.56 74,38.13

Provision for diminution in value of other assets # .......................................................................... 12,34.14 16,47.36

Total ........................ 77,52.70 90,85.49

# Of the above, Provision for diminution in value of investments of Rs. 2217.50 lakhs (2005 : Rs. 647.00 lakhs) and Provision for diminution invalue of other assets Rs. 345.29 lakhs (2005 : Rs. 630.85 lakhs) have been written back during the year.

# Of the above, Provision for diminution in value of investments of Rs. 1230.00 lakhs (2005 : Rs. 2000.00 lakhs) and Provision for diminution inthe value of other assets Rs. Nil (2005 : Rs. 131.49 lakhs) has been set up during the year.

During the year Rs. 67.93 lakhs (2005 : Rs. 362.86 lakhs) has been regrouped from Provision for diminution in value of other assets to Provisionfor diminution in value of investments

28. Provision for doubtful debts and advances include :2006 2005

Rupees lakhs Rupees lakhs

Provision for doubtful debts & advances/diminution in value of other assets made during the year (Net) 81.11 12,64.14

Less: Transfer from Investment Fluctuation Reserve ....................................................................... — 1,31.49

Total ........................ 81.11 11,32.65

29. Provision for diminution in the value of long term investments include :2006 2005

Rupees lakhs Rupees lakhs

Provision for diminution in value of investments, made during the year (Net) ................................ (9,87.50) 13,42.54

Less: Transfer from Investment Fluctuation Reserve ....................................................................... 12,30.00 20,00.00

Total ........................ (22,17.50) (6,57.46)

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30. Donations and Contributions include contributions to:(a) All India Congress Committee : Rs. Nil (2005 : Rs. 75.00 lakhs)(b) Bhartiya Janata Party : Rs. Nil (2005 : Rs. 75.00 lakhs)(c) Shiv Sena : Rs. Nil (2005 : Rs. 20.00 lakhs)(d) Telugu Desam Party : Rs. Nil (2005 : Rs. 10.00 lakhs)

31. The outstanding derivative instruments as on 31st March, 2006 :The Company has taken forward contracts to hedge exposures arising out of trade payables in foreign currency. Such outstanding forwardcontracts have been booked for fixing of exchange rates between Cross currencies like Euro/JPY and the USD. The amounts hedged andoutstanding are JPY 2500 lakhs and Euro 35 lakhs.The Exports receivables of the Company have been hedged in part by forward contracts (US $ 305 lakhs) and partly (US $ 120 lakhs) by aderivative structure in the form of “Range Forward”.The Company has outstanding borrowings of JPY 56864 lakhs and US $ 100 lakhs under the External Commercial Borrowing facility. TheseForeign Currency Loans have been completely hedged using a currency swap structure converting the liability into a full fledged Rupee liability.The Company has made an issue of US $ 1000 lakhs in the form of Foreign Currency Convertible Bonds in May, 2004. Out of the said issue,Bonds of value US $ 647.30 lakhs have been converted into equity as at 31st March, 2006. The balance outstanding of US $ 352.70 lakhs hasnot been hedged.The Foreign Currency Exposures not hedged by a derivative instrument or otherwise as on 31st March, 2006 are – Receivables of EURO 4.94lakhs, GBP 1.87 lakhs, AUD 12.87 lakhs, CHF 0.14 lakhs, SEK 1.42 lakhs and Payables of USD 135.80 lakhs, AUD 0.14 lakhs, DKK 0.43 lakhsand SGD 0.15 lakhs.The above disclosure has been made consequent to an announcement by the Institute of Chartered Accountants of India in December 2005,which is applicable to financial periods ending on or before 31st March, 2006. Therefore, the corresponding figures for the previous year havenot been disclosed.

32. Related Party Transactions :

(a) Related parties where control exist :

(i) Subsidiaries :

Sl. No. Name of the Company Sl. No. Name of the Company

1. Mahindra Intertrade Limited 29. Mahindra Engineering & Chemical Products Limited2. Mahindra Holdings & Finance Limited 30. Mahindra Steel Service Centre Limited3. Mahindra Acres Consulting Engineers Limited 31. Mahindra Gesco Developers Limited4. Mahindra Holidays & Resorts India Limited 32. Mahindra Infrastructure Developers Limited5. Mahindra & Mahindra Financial Services Limited 33. Mahindra Ashtech Limited6. Tech Mahindra Limited 34. NBS International Limited7. Bristlecone (Singapore) Pte. Limited 35. Mahindra World City Developers Limited.8. Tech Mahindra GmbH 36. Tech Mahindra (Singapore) Pte. Limited9. Mahindra Logisoft Business Solutions Limited 37. Tech Mahindra (Americas) Incorporated

10. Mahindra SAR Transmission Private Limited 38. Bristlecone India Limited11. Bristlecone UK Limited 39. Automartindia Limited12. Mahindra Shubhlabh Services Limited 40. Mahindra USA Incorporated13. Bristlecone Limited 41. Mahindra Gujarat Tractor Limited14. Bristlecone Incorporated 42. Mahindra Insurance Brokers Limited15. Mahindra Holidays and Resorts USA Incorporated 43. Bristlecone GmbH16. Mahindra Middleeast Electrical Steel Service Centre (FZC) 44. Mahindra & Mahindra South Africa (Pty) Limited.17. Mahindra Engineering Design & Development Company Limited 45. Mahindra Renault Private Limited (w.e.f. 5th August, 2005).18. Mahindra (China) Tractor Company Limited (w.e.f. 13th May, 2005) 46. Mahindra Europe s.r.l. (w.e.f. 31st May, 2005)19. Mahindra Automotive Steels Limited (w.e.f. 27th May, 2005) 47. Mahindra Ugine Steel Company Limited (w.e.f. 21st June, 2005)20. Mahindra-BT Investment Company (Mauritius) Limited 48. Mahindra Overseas Investment Company (Mauritius) Ltd

(w.e.f. 9th May, 2005)21. Tech Mahindra (R & D Services) Limited 49. Mahindra World City (Jaipur) Limited (w.e.f. 26th August, 2005)

(w.e.f. 28th November, 2005)22. Tech Mahindra (R & D Services) Incorporated 50. Tech Mahindra (R & D Services) Pte Limited

(w.e.f. 28th November, 2005) (w.e.f. 28th November, 2005)23. Mahindra World City (Maharashtra) Limited (formerly known as

Mahindra Realty Limited) (w.e.f. 21st September, 2005) 51. Mahindra International Limited (w.e.f. 1st November, 2005)24. Stokes Group Limited (w.e.f. 3rd January, 2006) 52. Tech Mahindra (Thailand) Limited (w.e.f. 21st February, 2006)25. Stokes Forgings Dudley Limited (w.e.f. 3rd January, 2006) 53. Jensand Limited (w.e.f. 3rd January, 2006)26. Plexion Technologies (India) Private Limited 54. Stokes Forgings Limited (w.e.f. 3rd January, 2006)

(w.e.f. 15th February, 2006)27. Plexion Technologies (UK) Limited (w.e.f. 15th February, 2006) 55. Plexion Technologies GmbH (w.e.f. 15th February, 2006)28. Tech Mahindra Foundation (w.e.f. 22nd February, 2006) 56. Plexion Technologies Incorporated (w.e.f. 15th February, 2006)

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(b) Other parties with whom transactions have taken place during the year.

(i) Associates :

Sl No Name of the Company Sl. No Name of the Company

1. Siroplast Limited 4. Owens Cornings (India) Limited

2. Mahindra Ugine Steel Company Limited. (upto 20th June, 2005) 5. Mahindra Water Utilities Limited

3. Mahindra Construction Company Limited

(ii) Joint Ventures

Sl No Name of the Company

1. Mahindra Sona Limited

(iii) Key Management Personnel :

Vice Chairman and Managing Director .................. Mr. Anand Mahindra

Executive Directors ................................................. Mr. B.N. Doshi

Mr. A.K. Nanda

Mr. A.E. Durante (upto 25th September, 2005)

(c) The related party transactions are as under :Rupees lakhs

Sl. No. Nature of Transactions Subsidiaries Associate Joint Ventures Key ManagementCompanies Personnel

1. Purchases :

Goods ........................................................... 253,28.62 5,65.70 45,86.66 —(88,30.15) (11,44.21) (49,52.51) (—)

Fixed Assets ................................................. 41,36.55 25.69 — —(39.19) (—) (—) (—)

Services ........................................................ 68,08.12 — — —(18,08.23) (8,07.27) (—) (—)

2. Sales :

Goods ........................................................... 439,55.89 — 0.39 —(233,42.28) (7.40) (—) (—)

Fixed Assets ................................................. 29,28.89 — — —(0.11) (—) (—) (—)

Services ........................................................ 13,13.24 — 0.15 —(2,12.60) (—) (—) (—)

3. Investments :Purchase ...................................................... 244,52.14 — — —

(143,01.09) (—) (—) (—)

Sales/Redemption ........................................ 16,61.76 — — —(42,64.69) (—) (—) (—)

4. Share Application Money (Net) ............................. 42,83.60 — — —(41,86.06) (—) (—) (—)

5. Deputation of Personnel :

From Related Parties ................................... 68.70 — — —(21.77) (—) (—) (—)

To Related Parties ........................................ 3,86.27 2.66 — —(1,32.84) (16.74) (—) (—)

6. Write Back of Provision for doubtful debts andadvances .............................................................. — — — —

(0.73) (—) (—) (—)

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(c) The related party transactions are as under : (Contd.)Rupees lakhs

Sl. No. Nature of Transactions Subsidiaries Associate Joint Ventures Key ManagementCompanies Personnel

7. Provision for diminution in value of other assets . — — — —(1,31.49) (—) (—) (—)

8. Provision for diminution in value of other assetswritten back .......................................................... 3,00.29 45.00 — —

(5,32.32) (98.53) (—) (—)

9. Finance :

Inter Corporate Deposits given .................... 6,90.00 — — —(30,45.00) (—) (8,61.22) (—)

Inter Corporate Deposits refunded byparties ........................................................... 9,75.00 45.00 — —

(41,71.50) (5,00.00) (12,02.77) (—)

Interest received ........................................... 5,35.39 31.63 — 1.17(6,18.22) (48.20) (12.89) (—)

Dividend received ......................................... 36,44.41 — — —(69,83.20) (—) (—) (—)

Dividend distributed ..................................... 3.25 — — —(—) (—) (—) (—)

Security Deposits Accepted ........................ 1,81.43 — — —(—) (—) (—) (—)

Security Deposits Placed ............................. — — — —(1,46.01) (—) (—) (—)

10. Guarantees & Collaterals given ............................ 8,70.00 — — —(—) (—) (—) (—)

11. Other Transactions :

Other Income ............................................... 2,47.11 1.20 4.32 —(3,15.22) (8.31) (2.60) (—)

Other Expenses ............................................ 5,01.51 — — —(16,52.32) (1.37) (11.67) (—)

Reimbursements received from parties ....... 47,20.41 1,32.31 2.68 —(37,64.37) (2,08.59) (16.74) (—)

Reimbursements made to parties ................ 11,63.74 0.43 — —(1,67.17) (23.86) (0.38) (—)

Advance given by group company .............. 2,35.00 — — —(—) (—) (—) (—)

Advance refunded by group company ........ 6,50.00 2,00.00 — —(—) (—) (—) (—)

12. Outstandings :

Payable ......................................................... 23,98.58 — 8,37.20 2,15.86(7,52.17) (1,22.35) (10,56.76) (2,41.30)

Receivable .................................................... 187,16.45 2,39.61 3.25 —(141,75.57) (2,72.39) (—) (82.26)

Inter Corporate Deposits given .................... 18,33.76 4,59.42 — —(21,18.76) (5,04.42) (—) (—)

Guarantees & Collaterals given .................... 27,17.00 — — —(—) (47,83.96) (—) (—)

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(c) The related party transactions are as under : (Contd.)Rupees lakhs

Sl. No. Nature of Transactions Subsidiaries Associate Joint Ventures Key ManagementCompanies Personnel

13. Managerial Remuneration ....................................... — — — 5,61.47(—) (—) (—) (5,42.59)

14. Dividends ................................................................ — — — 33.08(—) (—) (—) (22.47)

15. Provision for diminution in value of other assets ... 5,65.43 6,68.71 — —(9,33.65) (7,13.71) (—) (—)

16. Provision for doubtful debts/advances .................. 1,61.66 8.32 — —(1,61.66) (8.32) (—) (—)

17. Share Application Money ....................................... 84,69.66 — — —(41,86.06) (—) (—) (—)

18. Stock Options ........................................................ — — — 8.38(—) (—) (—) (22.04)

19. Loan Given to Key Management Personnel .......... — — — —(—) (—) (—) (1,25.00)

20. Loan Refunded by Key Management Personnel ... — — — 80.00(—) (—) (—) (45.00)

Previous year’s figures are given in brackets.The previous year figures are suitably regrouped.

The significant related party transactions are as under

Rupees lakhs

Nature of Transactions Subsidiaries Amount Associate Companies Amount Joint Ventures Amount

1. Purchase – Goods Mahindra Intertrade Ltd. 167,26.85 Mahindra Ugine 4,16.07 Mahindra 45,86.66(81,03.37) Steel Company Ltd. (9,25.66) Sona Ltd. (49,52.51)

Mahindra Automotive 36,57.22 Siroplast Ltd. 1,49.63Steels Ltd. (—) (2,18.56)

Mahindra SAR Transmission 31,65.52Pvt. Ltd. (—)

2. Sale – Goods Mahindra USA Inc. 194,00.72 Mahindra Ugine — Mahindra 0.39(163,72.71) Steel Company Ltd. (7.40) Sona Ltd. (—)

Mahindra International Ltd. 44,62.63(—)

Mahindra & Mahindra South 119,56.10Africa (Pty) Ltd. (25,43.72)

NBS International Ltd. —(38,89.29)

3. Investment – Purchase Mahindra 52,33.12International Ltd. (—)

Mahindra Renault 26,25.50Pvt. Ltd. (—)

Mahindra Automotive 80,00.00Steels Ltd. (—)

Stokes Group Ltd. 28,96.55(—)

Plexion Technologies (India) 32,61.61Pvt. Ltd. (—)

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MAHINDRA & MAHINDRA LIMITED

The significant related party transactions are as under (Contd.)Rupees lakhs

Nature of Transactions Subsidiaries Amount Associate Companies Amount Joint Ventures Amount

Bristlecone Ltd. —(50,98.03)

Mahindra & Mahindra —Finanical Services Ltd. (47,05.72)

Mahindra SAR Transmission —Pvt. Ltd. (14,62.85)

4. Investments – Sales Bristlecone Ltd. —(19,26.19)

5. Investments – Redemption Mahindra Ugine 16,61.76Steel Company Ltd. (—)

Mahindra Gesco —Developers Ltd. (23,34.58)

6. Share Application Money(Net) Bristlecone Ltd. —(6,99.22)

Mahindra Automotive 48,50.00Steels Ltd. (—)

Mahindra Overseas Investment 1,32.82Company (Mauritius) Ltd. (34,86.84)

7. Provision for diminution Mahindra Ashtech Ltd. —in value of other Assets (1,31.49)

8. Write Back of Provision Mahindra Logisoft —for Doubtful debt/Advances Business Solutions Ltd. (0.73)

9. Inter Corporate Mahindra Shubhlabh 2,50.00 Jayem —Deposits given Services Ltd. (—) Automotives Ltd. (8,61.22)

Mahindra International Ltd. 1,25.00(—)

Mahindra Engineering 2,40.00Design & Development (—)

Company Ltd.

Plexion Technologies 75.00(India) Pvt. Ltd. (—)

Mahindra Holdings —& Finance Ltd. (27,22.00)

10. Inter Corporate Deposits Mahindra Intertrade Ltd. 1,50.00 Mahindra Construction 45.00 Jayem Auto— —refunded by parties (—) Company Ltd (—) motives Ltd. (12,02.77)

Mahindra Holdings 2,10.00 Mahindra Ugine —& Finance Ltd. (32,38.50) Steel Company Ltd (5,00.00)

Mahindra Shubhlabh Services Ltd. 2,50.00(—)

Mahindra International Ltd. 1,25.00(—)

Mahindra Engineering Design & 2,40.00Development Company Ltd. (—)

Automartindia Ltd. —(5,50.00)

11. Guarantees given Mahindra Overseas Investment 8,70.00 Company (Mauritius) Ltd. (—)

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33. Joint Venture Disclosure

i) Jointly Controlled Entities by the Company :

Name of the Entity Country of Incorporation % Holding

a) Mahindra Sona Limited * ............................................................................ India 29.77 %

b) PSL Erickson Limited* ................................................................................ India 18.06 %

* Shareholding is through a subsidiary, Mahindra Holdings & Finance Limited.

ii) Interests in the Assets, Liabilities, Income and Expenses with respect to Jointly Controlled Entities.

2006 2005Rupees lakhs Rupees lakhs

I ASSETS

1 Fixed Assets ............................................................................................................. 4,78.32 4,20.15

2 Investment ................................................................................................................ 3.38 —

3 Current Assets, Loans and Advances

a Inventories ........................................................................................................ 3,86.71 5,05.53

b Sundry Debtors ................................................................................................ 10,58.97 10,71.82

c Cash and Bank Balances ................................................................................ 1,67.32 33.88

d Loans and Advances ....................................................................................... 1,25.51 1,38.63

4 Deferred Tax – Net ................................................................................................... 23.84 4.16

II LIABILITIES

1 Loan Funds

a Secured Loans ................................................................................................. 3,19.63 2,69.06

b Unsecured Loans ............................................................................................. 50.48 50.48

2 Current Liabilities and Provisions

a Liabilities ........................................................................................................... 6,15.18 8,40.18

b Provisions ......................................................................................................... 2,51.06 2,55.97

III INCOME

1 Sales ......................................................................................................................... 41,39.19 41,30.21

2 Other Income ........................................................................................................... 1,20.68 1,46.31

IV EXPENSES

1 Raw Materials, Finished and Semi Finished Products ............................................ 24,57.74 24,44.79

2 Excise Duties ............................................................................................................ 3,38.88 3,48.40

3 Manufacturing, Selling Expenses, etc ...................................................................... 8,39.14 9,31.63

4 Depreciation ............................................................................................................. 52.23 68.29

5 Provision for Taxation ............................................................................................... 1,94.83 2,22.77

V OTHER MATTERS

1 Contingent Liabilities ................................................................................................ 2,82.09 3,35.66

2 Capital Commitments ............................................................................................... 1.56 42.84

34. Additional information pursuant to the provisions of paragraphs 3(i)(a) and (ii), 4C and 4D of Part II of Schedule VI to the Companies Act, 1956- See Schedule XVI. Previous year’s figures are indicated below the current year’s figures.

35. Additional information pursuant to the provisions of Part IV of Schedule VI to the Companies Act, 1956 - See Schedule XVIII.

36. Previous year’s figures have been regrouped/restated wherever necessary.

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SCHEDULE XV

Computation of Net Profit in accordance with Section 309(5) of the Companies Act, 1956 for the year ended 31st March, 2006

2006 2005Rupees Rupees Rupees

lakhs lakhs lakhs

Profit before Taxation as per Profit and Loss Account .................................................................. 1,099,50.49 714,17.15

Add : Depreciation charged in the Accounts ........................................................................... 192,87.74 177,17.03

: Directors’ Remuneration including Directors’ fees ......................................................... 6,88.79 6,94.29

: Provision for doubtful debts and advances (Net) .......................................................... 81.11 11,32.65

: Net reduction in the fair value of current investments ................................................... 68.55 (79.07)

: Voluntary Retirement Schemes amortisation included in Exceptional Item ................... 5,96.65 5,26.05

: Provision for diminution in value of long term investments (Net) ................................... (22,17.50) (6,57.46)

185,05.34 193,33.49

1,284,55.83 907,50.64

Less : Depreciation under Section 350 of the Companies Act, 1956 ..................................... 171,68.98 173,29.13

: Profit on sale of Investments (Net) ................................................................................. 175,84.83 6,66.12

: Profit on sale, etc. of Fixed Assets (Net) ....................................................................... 17,89.78 (1,57.41)

: Loss on sale of Fixed Assets as per Section 349 (3)(d) of the Companies Act, 1956 (Net) 1,34.40 1,41.95

: Bad Debts and Advances written off / adjusted against provision ............................... 16,43.47 —

: Profit on sale of LCV business together with congeries of rights ................................. 48,40.00 —

431,61.46 179,79.79

Total........ 852,94.37 727,70.85

Commission payable to the wholetime Directors restricted to ...................................... 2,40.75 2,36.73

Commission payable to the non-wholetime Directors restricted to .............................. 1,01.22 1,10.55

104

MAHINDRA & MAHINDRA LIMITED

SCHEDULE XVI

Additional Information pursuant to the prAdditional Information pursuant to the prAdditional Information pursuant to the prAdditional Information pursuant to the prAdditional Information pursuant to the provisions of Paragraph 3(i) (a) and (ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.ovisions of Paragraph 3(i) (a) and (ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.ovisions of Paragraph 3(i) (a) and (ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.ovisions of Paragraph 3(i) (a) and (ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.ovisions of Paragraph 3(i) (a) and (ii), 4C and 4D, of Part II of Schedule VI to the Companies Act, 1956.

(A) P(A) P(A) P(A) P(A) PARARARARARTICULARS IN RESPECT OF GOODS MANUFTICULARS IN RESPECT OF GOODS MANUFTICULARS IN RESPECT OF GOODS MANUFTICULARS IN RESPECT OF GOODS MANUFTICULARS IN RESPECT OF GOODS MANUFACTURED :ACTURED :ACTURED :ACTURED :ACTURED :

Sl. Class of Goods Unit of Licensed Installed ActualNo. Measurement Capacity per Capacity per Production

annum [Note (i)] annum [Note (i)] [Notes (ii) & (iii)(a)]

1. a. On Road Automobiles having four ormore wheels such as light, medium andheavy commercial vehicles, jeep typevehicles and passenger cars coveredunder sub heading (5) of Heading (7) ofFirst Schedule [Note (iv) below] .............. Nos. 2,21,000 1,56,000 1,25,896

2,21,000 1,50,000 1,24,795b. Three Wheelers ....................................... Nos. 80,000 36,000 22,317

64,000 30,000 23,2302. a. Agricultural Tractors [Note (vi) below] ..... Nos. 1,69,000 1,35,500 83,708

2,12,000 1,35,500 64,453b. Tractor Skids ........................................... These are 3,367

manufactured 2,662against spare capacity

under 2(a)3. Manufactured and Purchased Parts and

Accessories for sale [Notes (iii)(a) and (b)below] ............................................................. Nos. These are 2,10,141

manufactured 1,73,910against spare

capacity under1 and 2 above

4. Internal Combustion Piston Engines .............. Nos. 1,10,000 1,02,000 92,2651,10,000 75,000 76,124

5. Petrol/Diesel Engines 15 HP to 80 HP [Note (i)(c) below] ..................................................... Nos. — — 438

— — 2796. Industrial Petrol Engines ................................. Nos. 500 500 —

500 500 —7. Agricultural Implements .................................. Nos. 2,38,000 — —

2,38,000 — —8. Parts and accessories of motor vehicles ....... Nos. 5,00,000 1,25,000 1,05,378

5,00,000 1,25,000 1,01,9719. Internal Combustion Engine ........................... Nos. 50,000 33,600 27,278

50,000 33,600 89110. D.G. Sets ....................................................... Nos. Assembly at 1,085

3rd Party Locations —11. Export benefits ................................................

* Used for Captive Consumption

Notes :

(i) (a) The installed capacity has been certified by Presidents, which the auditors have relied on without verification as this is a technical matter.

(b) The licensed capacities include / represent, as the case may be, registrations granted and Industrial Entrepreneur Memorandum filed with,and duly acknowledged by, the Government pursuant to the schemes of de-licensing. [Also see note (vi) below].

(c) Within the overall licensed capacity in item 1 above, the Company is permitted to manufacture for outside sale 10000 petrol / dieselengines and 4000 tonnes grey iron castings. The information given against item 5 is in respect of such petrol/diesel engines transferred tothe Marketing Unit for sale.

(d) Bullet proof work and fabrication on base vehicles has been carried out at third party facilities. 172172172172172 (2005 : 39) Vehicles were produced andsold using such third party facilities and are included in item (A) 1(a).

(e) The installed capacity mentioned against item (A) 1(a) above includes 1800018000180001800018000 (2005 : Nil) for production of vehicles for a third party.

(ii) Actual Production includes production for captive consumption.

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MAHINDRA & MAHINDRA LIMITED

Opening Stock Closing Stock Sales

Quantity Value Quantity Value Quantity Value

RupeesRupeesRupeesRupeesRupees RupeesRupeesRupeesRupeesRupees RupeesRupeesRupeesRupeesRupeeslakhslakhslakhslakhslakhs lakhslakhslakhslakhslakhs lakhs lakhs lakhs lakhs lakhs

5,186 178,39.25 5,869 204,48.53 1,24,997 5,646,23.422,735 88,14.54 5,186 178,39.25 1,22,071 4,914,39.381,302 16,17.66 1,157 15,59.94 22,419 318,57.481,027 12,21.10 1,302 16,17.66 22,953 336,13.163,720 85,54.95 5,846 132,67.43 81,556 2,415,02.002,015 46,04.45 3,720 85,54.95 62,727 1,794,40.75

63 2,79.97 120 5,80.12 3,306 137,58.4444 1,78.72 63 2,79.97 2,643 115,69.93

— 45,38.94 — 62,81.18 — 522,19.39— 35,15.68 — 45,38.94 — 370,87.38

335 2,93.60 379 3,74.11 281 2,48.86163 1,09.76 335 2,93.60 2,844 22,43.65

28 9.47 — — — —25 7.44 28 9.47 — —— — — — — —— — — — — —— — — — — —— — — — — —

290 9.81 6 0.52 2,354 3,38.21281 9.98 290 9.81 2,343 3,20.09179 —* 66 —* — —

— — 179 — — —— — 1 1.29 1,084 16,75.31— — — — — —

31,35.761,71.24

Total .... 9,093,58.877,558,85.58

(iii) (a) The actual production disclosed against manufactured components / sub-assemblies / steel blanks is the number of such componentstransferred during the year to the Marketing Unit / Spare Parts Stores for sale or sold otherwise.

(b) The Opening and Closing Stocks and Sales of goods shown under item 3 above consist of manufactured and purchased parts. Thebifurcation of stocks / sales into manufactured and bought-out parts is not practicable.

(iv) Production figures include “jeep type vehicles” at a stage without body, and light commercial vehicles at cowl & chassis stage. Closing stocksinclude 14 (2005 : 106) vehicles valued at Rs. 31.27 lakhs (2005 : Rs. 228.59 lakhs) on which body-building work was in progress as at theyear end.

(v) With regard to clause 3(ii) of Part II of Schedule VI to the Companies Act,1956, the Company is of the view that, in respect of the propertydevelopment activity, the Company is not a ‘manufacturing’, a ‘trading’ or a ‘service’ company falling under sub-clause (a), (b) and (c) thereof,but it is an ‘other’ company falling under sub-clause (e) thereof.

(vi) Licensed capacity in respect of Agricultural Tractor includes a Letter of Intent from the Government of India for expansion of the manufacturingcapacity from 25,000 to 60,000 tractors at Mumbai subject to fulfillment of conditions mentioned therein; an Industrial License will be issued onfulfillment of the conditions mentioned in the Letter of Intent.

SCHEDULE XVI (Contd.)

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MAHINDRA & MAHINDRA LIMITED

SCHEDULE XVI (Contd.)

(B) PARTICULARS IN RESPECT OF GOODS TRADED :

Purchases Opening Stock Closing Stock Sales

Sl. Unit ofNo. Class of Goods Measurement Quantity Value Quantity Value Quantity Value Quantity Value

RupeesRupeesRupeesRupeesRupees RupeesRupeesRupeesRupeesRupees RupeesRupeesRupeesRupeesRupees RupeesRupeesRupeesRupeesRupeeslakhslakhslakhslakhslakhs lakhslakhslakhslakhslakhs lakhslakhslakhslakhslakhs lakhslakhslakhslakhslakhs

1. Tractors ................................................. Nos. 194 5,38.13 15 48.67 41 1,25.54 167 6,83.7335 2,10.86 — — 15 48.67 20 1,07.10

2. Agricultural Implements ........................ Nos. 3,847 6,44.39 1,003 1,54.51 1,006 1,56.56 3,759 6,99.972,219 5,02.99 955 1,16.97 1,003 1,54.51 2,172 5,46.29

3. Light Commercial Vehicles .................... Nos. 175 5,86.75 — — — — 175 6,20.60— — — — — — — —

4. Bought—out Spares for Resale[Note (iii)(b) to item “A”] ........................ 210,74.92 — — —

190,07.50 — — —

5. Others ................................................... 2.98 — — 2.9837.99 — — 39.20

Total .... 228,47.17 2,03.18 2,82.10 20,07.28197,59.34 1,16.97 2,03.18 6,92.59

Note (v) to item (A).

(C) PARTICULARS OF RAW MATERIALS AND COMPONENTS CONSUMED :

Sl. Unit of ValueNo. Description Measurement Quantity Rupees lakhs

1. Steel Items (Sheets, Tubes, etc.) ............................................................................ Nos. 1,83,0501,29,803

Sq.Feet — 204,74.8811 164,01.56

Metric Tonnes 52,82547,887

2. Aluminium Sections and Other Aluminium Items .................................................... Metric Tonnes 512 5,47.03934 8,78.43

3. Other Metals (Steel Shots, Lead, Tin, etc.) ............................................................. Metric Tonnes 69 22.16119 36.89

4. Paints ....................................................................................................................... Nos. 86,21228,215

Kgs. 17,25,723 54,44.7518,98,709 52,04.20

Litres 25,32,94725,71,675

5. Steel Scrap .............................................................................................................. Metric Tonnes 5,413 8,18.566,884 9,23.47

6. Pig Iron ..................................................................................................................... Metric Tonnes 2,094 3,17.212,337 4,17.48

}

}

107

MAHINDRA & MAHINDRA LIMITED

}SCHEDULE XVI (Contd.)

(C) PARTICULARS OF RAW MATERIALS AND COMPONENTS CONSUMED (Contd.) :

Sl. Unit of ValueNo. Description Measurement Quantity Rupees lakhs

7. Miscellaneous Foundry Materials ............................................................................. Nos. 13,37,92114,61,695

Metric Tonnes 7,733 5,27.168,728 5,10.60

Litres 2,20,96574,849

8. Other Materials (Direct Stores, patterns, Oils, etc.) ................................................ Not practicable *43,42.66to give *25,94.71quantitative details

9. Tyres and Tubes ....................................................................................................... Nos. *20,82,052 *264,99.71*19,75,254 *208,68.31

10. CKD Components for Light Commercial Vehicles .................................................. Nos. 1,909 3,73.9468 1,16.40

11. Components other than Tyres and Tubes (including processing charges) ............. *4,750,56.96*3,899,53.37

12. Material handling and transportation charges, etc. incurred on the above items .. 244,24.56not separately allocable ........................................................................................... 199,99.93

Total .... 5,588,49.584,579,09.75

* Includes items used for other than production, amounts not ascertained.

Notes :

(i) The consumption in value has been ascertained on the basis of opening stock plus purchases less closing stock and includes the adjustmentof excesses and shortages as ascertained on physical count and write—off of obsolete and unserviceable raw materials and components.

(ii) The consumption in value shown against item 11 is a balancing figure based on the total consumption shown in the Profit and Loss Account.

(D) VALUE OF IMPORTS ON C.I.F. BASIS ACCOUNTED FOR DURING THE YEAR :2006 2005

Rupees lakhs Rupees lakhs1. Raw Materials (including CKD Components for Light Commercial Vehicles) . 36,85.66 15,74.762. Components, Spare Parts, etc. ...................................................................... 97,86.94 81,07.143. Capital Goods .................................................................................................. 29,07.16 42,05.814. Items imported for Resale ............................................................................... 9,21.39 2,40.69

Total .... 173,01.15 141,28.40

Notes :(i) Credits, if any, recoverable in respect of short landings, etc. are not considered.(ii) The value of imports shown above includes :

(a) Imports on C&F basis as per suppliers’ invoices Rs. 2269.74 lakhs (2005 : Rs. 1263.98 lakhs).(b) Imports on ‘cost’ basis Rs. 12197.97 lakhs (2005 : Rs. 8209.62 lakhs).

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MAHINDRA & MAHINDRA LIMITED

SCHEDULE XVI (Contd.)

(E) EXPENDITURE IN FOREIGN CURRENCIES (SUBJECT TO DEDUCTION OF TAX WHERE APPLICABLE) :

2006 2005Rupees lakhs Rupees lakhs

1. Professional and Consultancy Fees [including Rs. 19.42 lakhs (2005 :Rs. 9.26 lakhs) capitalised] ..................................................................................... 5,65.41 14,84.99

2. Commission on Exports .......................................................................................... 14,49.00 16,99.403. Royalty ..................................................................................................................... 1.14 12.564. Others ...................................................................................................................... 25,78.97 19,75.85

Total .... 45,94.52 51,72.80

Notes :(1) Fee for use of technology, development expenditure and software expenditure [refer to Note 1 (B)] :

(a) written off during the year Rs.15.36 lakhs (2005 : Rs. 40.88 lakhs); and(b) amount remitted during the year Rs. 428.43 lakhs (2005 : Rs. 56.29 lakhs) net of tax deducted at source Rs. 11.12 lakhs (2005 : Rs.

4.92 lakhs) are not included in the above figures.

(F) REMITTANCE IN FOREIGN CURRENCY ON ACCOUNT OF DIVIDENDS TO NON-RESIDENT SHAREHOLDERS :

Number of Amount remitted Dividend relating to

Shareholders Equity shares

Rupees lakhs

2006 : 2 2,43,393 31.64 Year ended 31st March, 2005

2005 : 3 62,19,849 5,59.79 Year ended 31st March, 2004

(G) EARNINGS IN FOREIGN EXCHANGE :

2006 2005Rupees lakhs Rupees lakhs

1. Export of goods on F.O.B. basis ............................................................................. 465,10.26 312,42.46

2. Interest ..................................................................................................................... 11,15.75 6,81.96

3. Others (freight, etc.) ................................................................................................. 31,81.71 19,81.69

Total .... 508,07.72 339,06.11

Notes :F.O.B. value of exports includes local sales which qualify for export benefits and for which payment is receivable in foreign currency and local / exportsales under rupee credit which qualify for export benefits.

(H) VALUE OF IMPORTED AND INDIGENOUS CONSUMPTION :*Raw Materials and Components

Rupees lakhs %1. Imported .................................................................................................................. 103,98.47 1.86

110,48.84 2.412. Indigenously obtained .............................................................................................. 5,484,51.11 98.14

4,468,55.91 97.59

Total .... 5,588,49.58 100.004,579,09.75 100.00

* Includes items used for other than production, amount not ascertained.

Notes :(1) Items purchased through canalising agencies have been considered as imported.(2) See Note (i) to item (C).(3) In giving the above information the Company has taken the view that spares and components as referred to in paragraph 4 (D)(c) of Part II of

Schedule VI covers only such items as go directly into production.

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MAHINDRA & MAHINDRA LIMITED

1 A. R. INDUSTRIES PVT LTD2 A.J.AUTO PVT.LTD.3 A.R.CORPORATION4 A-1 PRODUCTS5 AAKASH ENGINEERS6 ABHIJAT ENGINEERS7 ACCURATE ENGG CO.PVT LTD8 ACCURATE SPRINGS9 ACEY ENGG PVT LTD

10 ACRO11 AEROCOM AUTOMOTIVES PVT.LTD.12 AGROFAB MACHINERIES INDIA PVT. LTD.13 AHUJA ENGG WORKS14 AJANTA AGENCIES.15 AJIT ENGINEERING CO16 AKAR INDUSTRY17 ALF ENGINEERING CO18 ALFA TOOLS PVT LTD19 ALLIED SPARES AND AUTO20 ALMATS PRINT PACK PVT LTD21 ALPUMP PVT LTD22 AMAR AUTO AGENCY23 AMARDEEP ENGINEERS24 AMEYA ENGINEERING WORKS25 AMIT ENGINEERS26 AMUL INDUSTRIES LTD27 ANANDJI HARIDAS AND CO.PVT.LTD.28 ANDREW ENGINEERING CORPOR29 ANILUX COATED PRODUCTS PVT. LTD30 ARCHIT INDUSTRIES31 ARISTO PRECI MACHINES P LTD32 ARMATECH ASSOCIATES33 ASHA ENGG WORK34 ASHRA FILTRATION SOLUTIONS PVT LTD35 ASIA AUTOMOTIVE LTD36 ATAI AUTO ANCILLARIES37 ATIT ENGINEERING COMPANY38 ATOP PRODUCTS PRIVATE LIMITED39 AUTO GEMS (INDIA)40 AUTO MECH41 AUTO SHELL FOUNDRY42 AUTO TURN INDUSTRIES43 AUTOCOMP CORPORATION44 AUTOFORMS45 AUTOMOTION OF INDIA.46 AUTOMOTIVE ENGG WORKS47 AUTOMOTIVE INDUSTRIES48 AUTOSILENCERS INDIA49 AUXI AUTO50 AVADHUT INDUSTRIES51 AVCON CONTROLS PVT LTD52 AVDEL INDIA LTD.53 AVESTA ENTERPRISES PVT LTD.54 AWON AUTO ANCILLARIES PVT.LTD.55 BADAL ENTERPRISES56 BAJAJ SPRING UDYOG

57 BALA INDUSTRIES58 BEHZAD ENGINEERING PVT. LTD.59 BEMCO INDIA60 BENTEX ENGINEERING PRIVATE LIMITED61 BHAGYASHREE ENG P LTD62 BHAGYASHREE INDUSTRIES63 BHAGYASHRI HOME APPL P LTD64 BHARANI WIRING SYSTEMS65 BHARAT KUMAR & CO66 BHPL AUTO ENGINEERS PVT. LTD67 BHUKHANWALA DIAMOND TOOLS LTD68 BHUSHAN ENGINEERING WORKS69 BILL INDUSTRIES70 BLOW RUBBER INDUSTRIES71 BOBSON ENGINEERS AND

CONTRACTORS72 BOLTMASTER INDIA PVT. LTD.73 BOMBAY COMMERCIAL SYNDICATE74 BOMBAY TRPT ELECT COMPONENT

PVT LTD75 BRAHANS RUBBER PVT. LTD.76 C M SMITH AND SONS LIMITED77 C P FOUNDRY WORKS78 CAMATA ENTERPRISES79 CARLINE PRESSINGS PVT. LTD.80 CASPRO METAL INDUSTRIES PVT LTD81 CAST METAL INDUSTRIES P.LTD82 CASTALL INDUSTRIES83 CASTWEL AUTOPARTS PVT. LTD84 CASTWEL ENGINEERING SERVICES85 CASTWEL METAL INDUSTRIES86 CENLUB SYSTEMS87 CENTURY ALLOY INDUSTRIES88 CHAMP ENGINEEING WORKS89 CHANDAN ENTERPRISE.90 CHANDRA ENGINEERS91 CHISTY ENGINEERS PVT LTD92 CHOICE PRECITECH INDIA (P) LTD93 CHOPDA AUTO PARTS94 CHOPRA ENGINEERING COMPANY95 CHOUGULE INDUSTRIES96 CIRCLIPS INDIA (P) LTD.97 CONAL INTERNATIONAL98 CONSUMMATE MATERIALS TESTING &

ENGG99 D C ENGINEERING INDUSTRIE

100 D G CORPORATION101 D.V.S. INDUSTRIES (PVT) LTD.102 DANCAL INDIA PVT LTD103 DELITE PLASTICS104 DELUX ENGINEERING105 DESHPANDE AUTOMECH PVT LTD106 DEVI ENTERPRISES107 DEVKI AUTO INDUSTRIES PVT LTD.108 DHAM FASTENERS109 DIES & TOOLS LTD

110 DIESEL POWER111 DURGESH ENTERPRISE112 EAGLE ENTERPRISES113 EASTMAN CAST & FORGE LIMITED114 EATA PLAST FABRICS115 ECHJAY INDUSTRIES LTD116 EHARA ENGINEERING PVT LTD117 EHARA INDUSTRIES118 ELECTROMAGS AUTOMOTIVE

PRODUCTS119 ELFAB INDUSTRIES120 EMDET ENGINEERS PVT.LTD.121 ENGINETECH SYSTEMS INDIA PVT LTD122 ENPY METALFORM PVT LTD.123 EROS METAL WORK PVT. LTD.124 ESOOFALI ESMAILJI KARACHIWALLA &

CO125 ESWARI ENTERPRISES126 EVER SHINE ENGINEERS127 EXCEL AUTO INDUSTRIES128 FIBRE GLASS AUTO PRODUCTS129 FLEDON ENGINEERING WORKS130 FLEX CHEMIE INDUSTRIES131 FLUID-METAL132 FORMATIC ENGINEERING WORKS133 FORTUNA ENGINEERING (NASIK)

PRIVATE LTD134 FORTUNA INDUSTRIES135 FOSAN COMPANY136 FOURESS ENTERPRISES137 FREE FIELD ENGINEER138 FRIENDS AUTO INDUSTRIES139 FRIENDS ENGG.WORKS140 FRIENDS INDUSTRIAL WORKS141 FRONTLINE ROLLFORM LTD142 FUTURA CONVEYOR SYSTEMS PVT.

LTD.143 G V J ENGINEERING144 GAIN MAX FERROCAST UNIT NO.2145 GAINMAX FERRO CAST PVT. LTD146 GAMMA INDUSTRIES147 GANESH ENGINEERING148 GAUTAM CASTING INDS. PVT LTD149 GAUTAM TECHNOCAST150 GEETA PUMPS PVT LTD151 GENUINE MANUFACTURING CO.152 GLOBE METAL INDUSTRY153 GOLD SEAL - SAARGUMMI INDIA (P)154 GOLD SEAL ENGINEERING PRODUCTS

LTD155 GOLE PRECISION TOOLS PVT LTD156 GUINDY TECHNOCRAFTS157 GUJARAT GEARS INDUSTRIES.158 GUJARAT STEEL INDUSTRIES159 H N ENTERPRISES160 H.S.N. PLASTICS

Sr. No. Name of the SSIs Sr. No. Name of the SSIs Sr. No. Name of the SSIs

SCHEDULE XVII

Following are the names of Small Scale Industrial Undertakings (SSIs) to whom the Company owes and which are outstandingfor more than 30 days as on 31st March, 2006.

110

MAHINDRA & MAHINDRA LIMITED

161 HARKO METAL PVT LTD.162 HIMSONS STEEL PVT. LTD.163 HIND AUTO CRANKS PVT. LTD.164 HINDUSTAN ENGINEERS.165 HINDUSTAN FASTENERS PVT LTD166 HINDUSTAN GEARS167 HINDUSTAN MILTEK INDUSTRIAL

PRODUCT168 HINDUSTAN SPRING MFG. CO.169 HIPRO TOOLS PVT LTD170 HI-TECH FABRICATORS & ENG171 HYDERABAD GENERAL ENGG.WORKS172 HYDERABAD INDUSTRIAL PRODUCT173 HYDERABAD PRESS PRODUCTS174 I M I MACHINS TOOLS LTD.175 IMI MACHINE TOOLS PVT LTD176 IMPERIAL AUTO INDUSTRIES LTD.177 IMPRESSIVE IMPRESSIONS178 INDEX TOOLS.179 INDIAN ENGINEERING CO180 INDIAN PRESS TOOLS MFG181 INDMECH INDUSTRIAL CORPN182 INDU ENGINEERS183 INDUSTRIAL ENGG SYNDICATE184 INDUSTRIAL ENGINEERING WORKS185 INDUSTRIAL ENTERPRENEURS186 INDUSTRIAL ENTERPRISES187 INDUSTRIAL RUBBER PRODUCTS188 INDUSTRIAL SPRINGS MFG.CO.189 INNOVA RUBBERS PVT. LTD.190 INNOVATIVE INDUSTRIES191 INSULATION AND ELECTRICAL

PRODUCTS192 INTERFACE MICROSYSTEMS193 INVENTA ELECTRONICS PVT LTD194 J B INDUSTRIES195 J B TOOLS196 J K ENGINEERING197 J M INDUSTRIES198 JAI JALARAM ENGG COMPANY199 JAY INDUSTRIES200 JAYESS INDUSTRIES201 JAYKAY ENGG ENTERPRISES202 JITESH ENTERPRISES203 JMCO RUBBER PRODUCTS204 JTC ENGINEERING PVT LTD205 K T INDUSTRIES.206 KALA METALS207 KARISHMA ENGG WORKS208 KAY KAY FLUID SEALS LTD209 KINETIC GEARS210 KISHORE ENGINEERING WORKS211 KLIPCO PRIVATE LTD212 KRISHNA INDUSTRIES213 KYM ASSEMBLERS &

MANUFACTURERS

214 LAKSHMI ENGINEERING WORKS215 LAKSHMI PRECISION TOOLS LTD216 LAL ENGINEERING WORKS217 LALIT METAL INDUSTRIES218 LATA PLASTIC WORKS219 M B AUTO INDUSTRIES220 M G INDUSTRIES221 M NAGARAJ INDUSTRIES222 M.D. INDUSTRIES223 MAC STEEL PRIVATE LIMITED224 MACK SPRINGS PVT LTD225 MAGNA INDUSTRIES226 MAHABAL METALS PVT. LTD.227 MAHARASHTRA ENGINEERING228 MAHARASHTRA UDYOG229 MAHESH ENTERPRISES230 MAHNOT ENGINEERING INDUSTRIES231 MALATI FOUNDERS PRIVATE LIMITED232 MALHAR AUTO INDUSTRIES233 MANBAR INDUSTRIES234 MANE INDUSTRIES235 MANGIRISH PLASTIC WORKS236 MAS ALUMINIUM PVT. LTD.237 MAYA POLYPLAST PVT LTD238 MAYURESH ENGINEERING WORKS239 MAYURI ENTERPRISES240 MECHACHEM INDUSTRIES241 MECHOLIGHT COMPONENTS242 MECHPART243 MEENA ELASTOMERS244 MEERA ENGINEERING WORKS245 MEERA INDUSTRIES246 MEGHA PLASTICS247 METAL BRIGHT ENGINEERS248 METAL FORMING & AUTO INDUSTRIES249 METAL GOODS MANUFACTURING CO.250 METAL SHINE INDUSTRIES251 METALAGE INDUSTRIES252 MICRO TURNERS253 MINDA INDUSTRIES LTD254 MINI IRON & STEEL (P) LIMITED255 MITTER ENTERPRISES256 MITTER FASTENERS257 MODEL FASTENERS P LTD258 MONARCH ENGG WORKS259 MOONLIGHT AUTO PVT LTD.260 MOREX INDUSTRIAL CORPORATION261 MRUNAL INDUSTRIES262 MUNGI BROTHERS263 MYSORE AMMONIA PVT LTD264 NANDI FASTENERS265 NARMADA DRILL TUBE COMPANY266 NARMADA ENGINEERING CO. PVT LTD.267 NATIONAL INDUSRTIES268 NATIONAL RUBBER PRODUCTS269 NEEL CONTROLS

270 NEEMA FORGE PRESS P. LTD.271 NEETA INSTRUMENTS272 NEOLITE INDUSTRIES273 NETALKAR ENGG WORKS274 NETALKAR POWER TRANSMISSION.275 NEW ALLENBERRY WORKS276 NEW ERA BEARING INDUSTRIES277 NEW KRISHNA METAL ARTS278 NEW RANDHIR PRESS TOOLS279 NIPA RUBBER PRODUCTS280 OSWAL POLY RUBBERS281 P M ENTERPRISES282 P S ENGINEERING WORKS283 PAI AUTOMOBILES PVT. LTD.284 PAI BROTHERS285 PAI BROTHERS ENGINEERS PV286 PALANPUR ENGINEERING FABR287 PANCHAL ENGINEERS288 PANCHAL ROLL FORMING289 PANETRICAL ENGINEERS PVT. LTD290 PANORAMA AUTOMOTIVE PVT LTD291 PARTH ENGINEERS.292 PAULSON INDUSTRIES293 PERFECT DIES WORKS294 PERFECT ENGINEERING PRODUCTS

PVT LT295 PHIROZE SETHNA P LTD296 PIONEER SURGICALS297 POLAR AUTO & ENGG.IND.PVT.LTD.298 POPULAR FOUNDERS299 POWERFLEX INDUSTRIES300 PRABHA ENGINEERING PVT. LTD.301 PRAGA DIE CASTING & METAL302 PRAMUKH ENGINEERS303 PRANAV INDUSTRIES304 PRAVIN ANCILLARY PRODUCTS PVT

LTD305 PRAVIN AUTO ENGG PVT. LTD.306 PRAVIN WIPERS & ANCILLARIES

PVT.LTD307 PRAYAG ENGINEERING INDUSTRIES308 PRECI-METCUT TOOLINGS PVT. LTD.309 PRECISE INDUSTRIES.310 PRECISION311 PRECISION AUTOWARES (P) LTD312 PRECISION ENGG WORKS313 PRECISION FORGING & STAMPING314 PRECISION INDUSTRIAL CORPN315 PRECISION TOOL CRAFTERS316 PREMIER FILTERS PVT LTD317 PREMIER FREIGHT SYSTEM318 PREMIER SEALS INDIA PVT. LTD319 PRESS COMPONENTS320 PRESS-O-FAB INDUSTRIES321 PRIMA INDUSTRIES322 PRINCE METAL WORKS

Sr. No. Name of the SSIs Sr. No. Name of the SSIs Sr. No. Name of the SSIs

SCHEDULE XVII

Following are the names of Small Scale Industrial Undertakings (SSIs) to whom the Company owes and which are outstandingfor more than 30 days as on 31st March, 2006.

111

MAHINDRA & MAHINDRA LIMITED

323 PROFILE ENGG. CO.324 PROFILOFORMS325 PROGRESSIVE

ENGG.WORKS.(CHINCHANI).326 PROGRESSIVE ENGINEERING WORKS327 PURVI INDUSTRIES328 PUSHKAR ALLOY CASTINGS PVT.LTD.329 Q TECH SYSTEMS330 R ENGINEERING331 R K ENGINEERING WORKS332 R M INDUSTRIES333 R S FASTENERS334 R. K. AGRO INDUSTRIES335 RADHE ENTERPRISE336 RADHEYA MACHINING LIMITED337 RADIX ELECTROSYSTEMS PVT LTD338 RAINA ENGINEERING339 RAINBOW INDUSTRIES340 RAJ PLASTICS341 RAKSHA INDUSTRIES342 RAMKRISHNA IRON WORKS PVT LTD343 RASE ENGINEERING WORKS344 RATHOD INDUSTRIES345 RAVI & CO346 RAVI INDUSTRIES PVT.LTD.347 RELIABLE AUTOTECH PVT LTD.348 RELIABLE TECHNOCRATS P LTD349 RIGHT-TIGHT FASTENERS PVT LTD350 ROHTAS AUTO INDUSTRIES351 ROLON SEALS352 RUKMINI ENTERPRISES353 S & M INDUCTION354 S K P INDUSTRIES,355 S P INDUSTRIES356 S P TECHNOCRATS357 S S ENGINEERING INDUSTRIES.358 S S INDUSTRIES359 S.E.A. CO.360 S.S.ENGINEERING WORKS.361 SAGAR ENGINEERING CO.362 SAIEASH ENGG WORKS PVT LTD363 SAJ TEST PLANT PRIVATE LTD.364 SAKI AUTO PRODUCTS PVT.LTD.365 SAMEER AUTO PVT LTD366 SANDEEP PLASTIC INDUSTRIES367 SANDHYA GRINDING WORKS368 SANE STEEL WORKS369 SANG FASTERNERS PVT LTD370 SANIYA INDUSTRIAL COMP P LTD.371 SANJYOT METAL INDUSTRIES372 SARNA AUTOTEX PVT LTD373 SATISH INDL PLASTICS374 SATPUDA ENGG PVT LTD375 SATYAY INDUSTRY (INDIA)376 SAVITA AUTO INDUSTRIES377 SEACO ENGINEERING WORKS378 SEALEXCEL (INDIA)PVT.LTD.

379 SEAM ENGINEERS380 SEIMITSU CNC TECHNOLOGIES PVT.

LTD.381 SHAH AUTO INDUSTRIES382 SHAH CONCABS PVT. LTD383 SHAH UDYOG384 SHAKTI AUTOMOBILES385 SHAREEN AUTO PVT LTD386 SHEAR BEND MECHANICAL WORKS387 SHEEL METAL INDUSTRIES388 SHEKAR INDUSTRIES389 SHILP ENTERPRISES390 SHIVAM OXYGEN PVT.LTD.391 SHIVAM PAINTS PVT LTD392 SHIVSHAKTI INDUSTRIES393 SHRADDHA INDUSTRIES394 SHREE ENGINEERING WORKS395 SHREE INDUSTRY396 SHREE PLASTIC INDUSTRIES397 SHREE PRODUCTS398 SHREE SAI ENGINEERING399 SHREE SAINATH INDUSTRIES400 SHREEKRIPA ENTERPRISES401 SHRI PADMAVATI INDUSTRIES402 SHRI RADHA POLYMERS403 SHRIJAY UDYOG404 SHROFF TEXTILES LIMITED405 SIDDHI FORGE PVT. LTD.406 SIDDHIVINAYAK FOUNDERS &407 SIP TOOLS408 SIZER INDIA.409 SLIDEWELL410 SOUTHERN AUTO CASTINGS PVT LTD411 SPARK AUTOMECH PVT LTD.412 SPEED CONTROL ENGINEERS413 SPENCER ENTERPRISES414 SPRING INDIA415 SR FIBREGLASS AUTO PVT. LTD416 SREE RAJESWARI ENGG. WORKS417 SRI ARCHANA INDUSTRIES418 SRI BALAJI CASTINGS PVT LTD.419 SRI GURUKRUPA ENTERPRISES420 SRI MANOJ ENGG. ENTP.421 SRIATOS422 SRIKANTH INDUSTRIES423 SRIRAVI ENPTERPRISES424 STANDARD ENGG.PRODUCTS425 STANDARD ENGINEERING INDU426 STANDARD SPRINGS & METAL PRESS

WORK427 STAR AUTO INDUSTRIES PVT. LTD.428 STAR INDUSTRIES429 STERLING INDUSTRIES430 SUDHIR FASTENERS431 SUDTRAC LINKAGES PVT LTD432 SUJAN INDUSTRIES433 SUMATI ENGINEERING CO. PVT. LTD

434 SUMO AUTO-TECH PVT LTD435 SUNITA ELECTRO ENGINEERINGS436 SUNITHA ENTERPRISES437 SUPER COIL SPRING MFG.CO.PVT.LTD.438 SUPREME PRESSFAB PVT LTD439 SUSHIL TRADERS440 SUSIRA INDUSTRIES441 SUVIDH ENGINEERING INDUSTRIES442 SUYOG RUBBER (INDIA) PVT LTD443 SWASTIK METAL WORKS PVT.LTD.444 TAJ AUTO ACCESSORIES445 TAYSONS INDUSTRIES446 TECH SERVICES447 TECHNOCRATS INDIA448 THACKER BROTHERS449 THAKKARSONS AUTO450 THREAD LINES INDIA451 TIDKE PRINTING PRESS452 TIGON PIPE BENDERS PVT. LTD.453 TISA ENTERPRISES454 TOOL CONCEPT455 TOYO METALLURGICAL LTD456 TRIJAMA FILTERALL PVT LTD457 TRIVEDI UDYOG458 TRUSA ENGINEERING PVT LTD.459 TUSHAR AUTO PARTS PVT. LT460 TUSHAR INDUSTRY461 UCAL PRODUCTS P LTD462 UNI AUTO PARTS463 UNIPARTS INDIA LTD.464 UNIQUE MANUFACTURING CORPN.465 UNITECH ENGINEERS PVT.LTD.466 UNITED ENTPERPRISES467 UNITED METACHEM PVT LTD468 UNITED RUBBER INDUSTRIES469 UNITY BUSHES AND TOOLS CO470 UNITY GUAGE & TOOLS CO. PVT. LTD.471 UNITY INDUSTRIES472 UNIVERSAL AUTO & DAIRY PRODUCT473 UNIVERSAL ENGINEERING474 V R INDUSTRIES475 V R V MACHINE TOOLS476 VARUN ALUMINIUM INDUSTRIES LTD.477 VEENA CASTINGS & COMP PVT LTD478 VEERESHA CASTINGS PVT.LTD479 VELTECH FORGING PVT. LTD.480 VERSATILE ENGINEERS481 VERSATILE EQUIPMENTS PVT LTD482 VIBRONICS PVT LTD483 VICO FORGE PRIVATE LIMITED484 VICTORY LUMINAIRES485 VIDARBHA GAS VESSELS PVT. LTD.486 VIDHARBHA AGRO INDUSTRIES

PVT.LTD.487 VIJAY ENGINEERING488 VIJAY ROLLING MILLS489 VIJAY TRADE CENTRE

Sr. No. Name of the SSIs Sr. No. Name of the SSIs Sr. No. Name of the SSIs

SCHEDULE XVII

Following are the names of Small Scale Industrial Undertakings (SSIs) to whom the Company owes and which are outstandingfor more than 30 days as on 31st March, 2006.

112

MAHINDRA & MAHINDRA LIMITED

490 VIJETHA INDUSTRIES491 VIKAS AUTOMATIC FASTENERS PVT

LTD.492 VIKMAN STEEL BALL INDUSTRIES493 VIKRANT AUTO INDUSTRIES494 VIKRANT AUTO SUSPENSIONS495 VINAYA ENTERPRISES496 VIRAJ ENGINEERING CO.497 VIRAL ENGINEERS498 VIRDI BROTHERS.499 VIREN SALES CORPORATION

Sr. No. Name of the SSIs Sr. No. Name of the SSIs Sr. No. Name of the SSIs

SCHEDULE XVII

Following are the names of Small Scale Industrial Undertakings (SSIs) to whom the Company owes and which are outstandingfor more than 30 days as on 31st March, 2006.

500 VISHAL ENGINEERING501 VISHAL INDUSTRIAL PRODUCT502 VISHAL INDUSTRIES503 VI-SON CABLES PVT. LTD.504 VIT-RUKH ENGINEERING505 VIVIBICHU AUTO INDUSTRIES506 VORA INDUSTRIES507 VRC PLASTOMOULD (I ) PRIVATE

LIMITED508 WELLPACK ENTERPRISES509 WELSET ENGINEERS

510 WESTERN AUTO SPARES511 WIMSON ELECTRONICS PRIVATE

LIMITED512 WINDALS AUTO PVT LTD.513 WINDALS PRECISION PVT. LTD.514 WOOD & COMPOSITE WOOD PORD.515 ZOROASTRIAN AUTOMOBILES PVT LTD.

113

MAHINDRA & MAHINDRA LIMITED

SCHEDULE XVIII

ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956.

Balance Sheet Abstract & Company’s General Business Profile :

I. Registration Details :

Registration No. State Code

Balance Sheet Date

Date Month Year

II. Capital Raised during the Year (Amount in Rs. Thousands) :

Public Issue Rights Issue

Bonus Issue Private Placement

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) :

Total Liabilities including Shareholders’ Funds Total Assets

Sources of Funds :

Paid-up Capital Reserves & Surplus

Secured Loans Unsecured Loans

Deferred Tax Liability (Net)

Application of Funds :

Net Fixed Assets

Investments Net Current Assets

Miscellaneous Expenditure Accumulated Losses

IV. Performance of Company (Amount in Rs. Thousands) :

Turnover (Sales & Other Income)★ Total Expenditure ◆

+ - Profit / Loss Before Tax + - Profit / Loss After Tax

(Please tick appropriate box + for Profit - for Loss)Earnings per Share in Rupees ▲

Basic Diluted Dividend Rate %

(Refer Note 26)

4 5 5 8

N I L

1 1 6 0 0 8 9 N I L

6 0 4 6 6 2 7 1 6 0 4 6 6 2 7 1

2 3 3 3 9 9 6 2 6 7 5 4 7 1 3

2 1 6 6 7 6 0 6 6 6 7 0 6 2

1 5 5 4 4 4 5 3

1 6 6 9 0 8 8 4 6 9 7 4 1 4 8

9 7 1 2 7 6 9 0 8 6 1 3 2 6 4 1

1 0 9 9 5 0 4 9 8 5 7 1 0 4 9

Rs. 38.07

N I L

1 1

3 1 0 3 2 0 0 6

!

1 4 6 7 5 0 0

1 8 0 5 4 6 N I L

1 0 0 . 0 0

!

Rs. 34.93

114

MAHINDRA & MAHINDRA LIMITED

V. Generic Names of Three Principal Products / Services of Company (as per monetary terms) :

Item Code No. (ITC Code) 8 7 0 1

Product Description Tractors

Item Code No. (ITC Code) 8 7 0 2

Product Description Motor Vehicles for the transport of more than six persons , excluding the driver

Item Code No. (ITC Code) 8 7 0 3

Product Description Other motor vehicles principally designed for the transport of persons

◆ after considering the provision for contingencies and exceptional items.

★ after considering exceptional items

▲ computed on the basis of the weighted average number of shares outstanding during the year.

Signatures to Schedules I to XVIII

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

115

MAHINDRA & MAHINDRA LIMITED

115 Ceps-3 --- D:\Sales\Joe Rego\Mahindra AR 06\Sec 217.pmdSec 217.pmdSec 217.pmdSec 217.pmdSec 217.pmd --- vk1-6\AMD\1-6/sbs(1-6)/Ravi/3-6\AMD\8-6\AMD\9-6/Ravi/9-6/Ravi/10-6/sbs(15-6)/NSS/19/6/Ravi/20-6\AMD\22-

6

Statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies

For Current Financial Year For Previous Financial Years

Name of the Subsidiary Companies Dealt with in Not dealt Dealt with in Not dealtthe accounts with in the the accounts with in the

of Mahindra & accounts of of Mahindra & accounts ofMahindra Mahindra & Mahindra Mahindra &

Limited for Mahindra Limited for Mahindrathe year Limited for the year Limited for

Equity Extent ended 31st the year ended 31st the year of March, 2006 ended 31st March, 2006 ended 31st

holding March, 2006 March, 2006

Nos. % Rupees lakhs Rupees lakhs Rupees lakhs Rupees lakhsMahindra Engineering & Chemical ProductsLimited ..................................................................... 53,78,235 100.00% — 6,14.55 — 58,86.84Mahindra Intertrade Limited ................................. 2,71,00,006 100.00% 3,81.80 19,19.67 87.98 18,52.16@ Mahindra Middleeast Electrical Steel Service

Centre (FZC) ....................................................... — 90.00% — 90.89 — (2.52)Mahindra Steel Service Centre Limited ............... 37,23,874 61.00% — 2,43.68 48.41 2,70.61Mahindra Holdings & Finance Limited ................ 12,16,00,593 100.00% — 98,22.31 — 76,48.61

Mahindra Acres Consulting Engineers Limited ... — 51.00% — 0.59 — 31.14Mahindra Holidays & Resorts India Limited ....... — 99.99% — 20,83.32 — 12,71.19

• Mahindra Holidays & Resorts USA Incorporated — 99.99% — (2.14) — —NBS International Limited ................................... — 100.00% — 11.92 — 70.89Mahindra Ugine Steel Company Limited ............ — 50.69% — 4,237.13 — 21,64.59

Mahindra Ashtech Limited .................................... 1,00,00,000 100.00% — 44.80 — (27,33.08)Mahindra Gesco Developers Limited .................. 1,25,66,126 55.00% — 87.33 — 9,08.86

Mahindra Infrastructure Developers Limited ....... — 44.00% — 19.18 — (6.64)Mahindra World City Developers Limited(formerly known as Mahindra IndustrialPark Limited ) ..................................................... — 54.38% — 1,16.37 — (10,56.60)Mahindra World City (Jaipur) Limited ................. — 55.00% — (0.13) — —Mahindra World City (Maharastra) Limited(formerly known as Mahindra Realty Limited) .... — 54.84% — (0.21) — —

Mahindra & Mahindra Financial ServicesLimited ..................................................................... 5,82,41,532 #67.72% 10,23.49 59,35.31 10,59.72 110,82.42

Mahindra Insurance Brokers Limited .................. #67.72% — 1,95.24 — 1,19.45Tech Mahindra Limited (formerly known asMahindra-British Telecom Limited) ...................... 5,76,00,060 56.26% 6,91.20 1,15,95.88 — 252,35.14

Tech Mahindra (Americas) Incorporated (formerlyknown as MBT International Incorporated) ........ — 56.26% — 1,99.18 — (9,69.03)Tech Mahindra GmbH (formerly known asMBT GmbH) ........................................................ — 56.26% — 95.95 — (19,38.74)Tech Mahindra Singapore Pte. Limited (formerlyknown as MBT Software Technologies Pte.Limited) ............................................................... — 56.26% — (23.94) — 62.75Tech Mahindra (Thailand) Limited ....................... — 56.25% — (21.98) — —Tech Mahindra (R&D Services) Limited .............. — 56.24% — 5,67.12 — —Tech Mahindra (R&D Services) Incorporated ..... — 56.24% — 68.70 — —Tech Mahindra (R&D Services) Pte. Limited ...... — 56.24% — (0.16) — —Tech Mahindra Foundation ................................. — 56.25% — (0.20) — —

Bristlecone Limited ................................................ 42,22,250 86.54% — (97.70) — (94.46)Bristlecone Incorporated .................................... — 86.54% — (1,68.09) — (6,14.08)Bristlecone India Limited .................................... — 86.54% — 3,85.17 — (3,96.62)Bristlecone (Singapore) Pte. Limited .................. — 86.54% — 9.18 — 15.02Bristlecone GmbH .............................................. — 86.54% — 22.11 — 46.69Bristlecone UK Limited ....................................... — 86.54% — 0.21 — (93.04)

Mahindra Logisoft Business Solutions Limited .. 1,24,50,000 100.00% — 80.61 — (8,29.95)Automartindia Limited ........................................... 74,46,658 75.97% — 67.04 — (11,09.23)Mahindra USA Incorporated .................................. 4,50,00,000 100.00% — 2,75.35 — 15,67.06Mahindra Gujarat Tractor Limited ........................ 91,81,188 60.00% — (91.64) — (15,96.61)

# After considering shares issued by MMFSL to its ESOP Trust but not allotted to its employees.

Number ofShares in the

SubsidiaryCompany heldby Mahindra &

MahindraLimited at thefinancial yearending date

The net aggregate of profits/(losses) of the SubsidiaryCompanies so far as they concern the members of Mahindra

& Mahindra Limited

116 Ceps-3 --- D:\Sales\Joe Rego\Mahindra AR 06\Sec 217.pmdSec 217.pmdSec 217.pmdSec 217.pmdSec 217.pmd --- vk1-6\AMD\1-6/sbs(1-6)/Ravi/3-6\AMD\8-6\AMD\9-6/Ravi/9-6/Ravi/10-6/sbs(15-6)/NSS/19/6/Ravi/20-6\AMD\22-

6

116

MAHINDRA & MAHINDRA LIMITED

Statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies

For Current Financial Year For Previous Financial Years

Name of the Subsidiary Companies Dealt with in Not dealt Dealt with in Not dealtthe accounts with in the the accounts with in the

of Mahindra & accounts of of Mahindra & accounts ofMahindra Mahindra & Mahindra Mahindra &

Limited for Mahindra Limited for Mahindrathe year Limited for the year Limited for

Equity Extent ended 31st the year ended 31st the year of March, 2006 ended 31st March, 2006 ended 31st

holding March, 2006 March, 2006

Nos. % Rupees lakhs Rupees lakhs Rupees lakhs Rupees lakhs

Number ofShares in the

SubsidiaryCompany heldby Mahindra &

MahindraLimited at thefinancial yearending date

The net aggregate of profits/(losses) of the SubsidiaryCompanies so far as they concern the members of Mahindra

& Mahindra Limited

Mahindra Shubhlabh Services Limited ................ 1,76,39,665 72.77% — (2,72.75) — (16,22.95)Mahindra & Mahindra South Africa (Proprietary)Limited ..................................................................... 35,70,000 51.00% — 7,05.42 16.59 1,82.81Mahindra Engineering Design & DevelopmentCompany Limited ................................................... 70,50,000 100.00% — 4,44.47 — (42.76)Mahindra Overseas Investment Company(Mauritius) Limited ................................................. 5,20,000 100.00% — 52.07 — 15.57

Mahindra (China) Tractor Company Limited ....... — 80.00% — (9,34.54) — —Mahindra-BT Investment Company (Mauritius)Limited ................................................................ — 57.00% — 4.37 — —Mahindra Europe s.r.l .......................................... — 80.00% — (45.57) — —

Mahindra SAR Transmission Private Limited ...... 31,25,739 51.00% — 37.27 — 11.86Plexion Technologies (India) Private Limited ...... 45,03,011 100.00% — (15.77) — —

Plexion Technologies (UK) Limited ...................... — 100.00% — 3.38 — —Plexion Technologies GmbH ............................... — 100.00% — 1.14 — —Plexion Technologies Incorporated ..................... — 100.00% — (25.86) — —

Stokes Group Limited ............................................ 14,65,310 99.20% — — — —Stokes Forgings Dudley Limited ......................... — 99.20% — 16.71 — —Jensand Limited ................................................. — 99.20% — 1.13 — —Stokes Forgings Limited ..................................... — 99.20% — (1,58.21) — —

Mahindra Renault Private Limited ........................ 2,62,65,000 51.00% — (5,97.00) — —Mahindra Automotive Steels Limited ................... 82,21,926 100.00% — (11,94.73) — —Mahindra International Limited ............................. 5,03,75,600 51.00% — (16.82) — —

@ a subsidiary of Mahindra Intertrade Limited a subsidiary of Bristlecone Limiteda subsidiary of Mahindra Holdings & Finance Limited a subsidiary of Bristlecone India Limited

• a subsidiary of Mahindra Holidays & Resorts India Limited a subsidiary of Mahindra Overseas Investment Companya subsidiary of Mahindra Gesco Developers Limited (Mauritius) Limiteda subsidiary of Mahindra & Mahindra Financial Services Limited a subsidiary of Plexion Technologies (India) Private Limiteda subsidiary of Tech Mahindra Limited a subsidiary of Stokes Group Limiteda subsidiary of Tech Mahindra (R & D Services) Limited a subsidiary of Jensand Limited

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

117

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

furnished to us, and our opinion in so far as it relates tothe amounts included in respect of these subsidiaries,joint ventures and associates, is based solely on the reportof the other auditors.

4. We report that the consolidated financial statements havebeen prepared by Mahindra & Mahindra Limited’smanagement in accordance with the requirements ofAccounting Standard 21, Consolidated FinancialStatements, Accounting Standard 23, Accounting forInvestments in Associates in Consolidated FinancialStatements and Accounting Standard 27, FinancialReporting of Interests in Joint Ventures, issued by theInstitute of Chartered Accountants of India.

5. Based on our audit and on consideration of the reportsof other auditors on separate financial statements and onthe other financial information of the components, in ouropinion and to the best of our information and accordingto the explanations given to us, the attached consolidatedfinancial statements give a true and fair view in conformitywith the accounting principles generally accepted in India:

a) in the case of the consolidated balance sheet, of thestate of affairs of Mahindra & Mahindra Limited Groupas at 31st March, 2006;

b) in the case of the consolidated profit and lossaccount, of the profit for the year ended on that date;and

c) in the case of the consolidated cash flow statement,of the cash flows for the year ended on that date.

For A. F. Ferguson & Co.Chartered Accountants

R. A. Banga(Partner)

Mumbai, 29th May, 2006 Membership Number: 37915

Report of the Auditors to the Board of Directors of Mahindra & Mahindra Limited

1. We have audited the attached consolidated balance sheetof Mahindra & Mahindra Limited and its subsidiaries (theGroup) as at 31st March, 2006, and also the consolidatedprofit and loss account and the consolidated cash flowstatement for the year ended on that date, annexedthereto. These consolidated financial statements are theresponsibility of Mahindra & Mahindra Limited’smanagement and have been prepared by themanagement on the basis of separate financial statementsand other financial information regarding components.Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit.

2. We conducted our audit in accordance with the auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management,as well as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. We did not audit the financial statements of certainsubsidiaries and joint ventures, whose financial statementsreflect Group’s share of total assets of Rs. 833728.33lakhs as at 31st March, 2006 and Group’s share of totalrevenues of Rs. 386684.64 lakhs for the year ended onthat date and Group’s share of net cash outflow ofRs. 1040.50 lakhs for the year ended on that date andassociates whose financial statements reflect the Group’sshare of profit (net) upto 31st March, 2006 of Rs. 642.22lakhs and the Group’s share of loss (net) of Rs. 251.31lakhs for the year ended on that date as considered inthe consolidated financial statements. These financialstatements and other financial information have beenaudited by other auditors whose reports have been

118

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Consolidated Balance Sheet as at 31st March, 20062006 2005

Schedule Rupees Rupeeslakhs lakhs

I. SOURCES OF FUNDS :

SHAREHOLDERS’ FUNDS :

Capital ........................................................................................ I 233,39.96 111,64.79

Employee Stock Options Outstanding ....................................... 2,13.84 2,11.06

Reserves and Surplus ................................................................ II 3,486,08.79 2,271,21.99

3,721,62.59 2,384,97.84

MINORITY INTEREST ................................................................ 852,50.68 363,41.56

LOAN FUNDS ............................................................................ III 5,271,34.40 3,794,52.43

DEFERRED TAX LIABILITY (Net) ................................................ 115,65.70 135,33.96

DEFERRED INCOME :

Advance towards Club Mahindra members’ facilities ................ 222,09.64 160,30.92

Total ............ 10,183,23.01 6,838,56.71

II. APPLICATION OF FUNDS :

FIXED ASSETS ........................................................................... IV 2,294,82.42 1,895,58.37

CAPITAL WORK-IN-PROGRESS ............................................... 310,71.67 126,65.65

2,605,54.09 2,022,24.02

INVESTMENTS ........................................................................... V 1,180,32.71 595,31.41

NET CURRENT ASSETS :

Current Assets, Loans and Advances ................................ VI 9,731,97.62 6,701,35.81

Less : Current Liabilities and Provisions ............................. VII 3,359,05.31 2,513,65.67

6,372,92.31 4,187,70.14

MISCELLANEOUS EXPENDITURE (TO THE EXTENT NOTWRITTEN OFF OR ADJUSTED) ................................................. VIII 24,43.90 33,31.14

Total ............ 10,183,23.01 6,838,56.71

NOTES ON ACCOUNTS .......................................................... XIV

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

119

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Consolidated Profit and Loss Account for the year ended 31st March, 2006

2006 2005Schedule Rupees Rupees

lakhs lakhsSALES (Note 21) ....................................................................................................... 11,067,29.75 8,706,42.57Less: Excise Duty on Sales (Note 21) ....................................................................... 1,259,95.96 1,069,76.63

Net Sales ................................................................................................................... 9,807,33.79 7,636,65.94Income from Operations & Other Income ................................................................. IX 2,841,07.17 1,928,85.62

12,648,40.96 9,565,51.56EXPENDITURE :Raw Materials, Finished and Semi-finished Products ............................................... X 6,912,15.69 5,425,39.58Personnel .................................................................................................................. XI 1,399,38.47 1,047,07.84Interest, Commitment and Finance Charges (Net) .................................................... XII 219,37.48 136,06.04Depreciation / Amortisation (Notes 6 and 21) ........................................................... 283,30.69 239,09.87Other Expenses ......................................................................................................... XIII 2,352,39.34 1,770,45.69

11,166,61.67 8,618,09.02Less : Cost of Manufactured / Purchased Products capitalised .............................. 61,75.10 32,07.34

11,104,86.57 8,586,01.68Profit before provision for contingencies, exceptional items and taxation ................ 1,543,54.39 979,49.88Less : Provision for contingencies ............................................................................. 4,43.75 33.99Profit before exceptional items and taxation ............................................................. 1,539,10.64 979,15.89Add : Exceptional Items (Note 15) ........................................................................... 263,40.42 15,03.15Profit before taxation ................................................................................................. 1,802,51.06 994,19.04Less : Provision for Tax - Current tax including Fringe Benefit Tax (Note 21) ......... 439,08.86 315,87.06

- Deferred tax (Net) (Notes 14 and 21) .............................. (36,15.04) (13,13.80)Profit for the year before prior year adjustments ...................................................... 1,399,57.24 691,45.78Less : Adjustments pertaining to previous years (Note 16) ...................................... 23.11 1,60.40Balance of profit for 2005-2006 before share of profit / loss of Associatesand Minority Interests ................................................................................................ 1,399,34.13 689,85.38Add : Share of Profit of Associates for the year ...................................................... 4,66.69 34,22.19Balance of profit before Minority Interests ................................................................ 1,404,00.82 724,07.57Minority Share in Profits for 2005-2006 .................................................................... 134,29.16 42,53.79

1,269,71.66 681,53.78Balance of profit for earlier years .............................................................................. 1,137,29.67 774,38.66Add : Transfer from Debenture Redemption Reserve (Net) ................................ 55.25 10,16.27

Transfer from Investment Allowance Reserve .......................................... – 2,45.001,137,84.92 786,99.93

Total of Profit and Loss Account balances shown above ......................................... 2,407,56.58 1,468,53.71Deduct : Statutory Reserve ..................................................................................... 34,86.77 28,41.96

General Reserve (Net) .............................................................................. 146,96.72 120,18.54Dividends Paid .......................................................................................... – (0.23)Income tax on Dividends. ......................................................................... 6,58.08 10,67.09Proposed Dividends on Equity Shares ..................................................... 243,97.41 150,81.50Income tax on Proposed Dividends ......................................................... 34,21.74 21,15.18

Balance for 2005-2006 and earlier years carried to Balance Sheet ........................ 1,940,95.86 1,137,29.67

EARNINGS PER SHARE : (Note 19)(Face value Rs 10/- per share) (Rupees)Basic ......................................................................................................................... 56.40 30.63Diluted ....................................................................................................................... 51.72 27.63NOTES ON ACCOUNTS .......................................................................................... XIV

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

}Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

120

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Consolidated Cash Flow statement for the year ended 31st March, 2006

2006 2006 2005Rupees lakhs Rupees lakhs Rupees lakhs

A. CASH FLOW FROM OPERATING ACTIVITIES :

Net Profit before exceptional items, taxation and adjustments pertaining toprevious years .................................................................................................... 1,539,10.64 979,15.89

Adjustments for :

Depreciation/Amortisation .................................................................................. 283,30.69 239,09.87

Unrealised Profit on Exchange (Net) .................................................................. (6,13.94) (10,19.47)

Investment and Interest Income (Excluding Rs. 365.05 lakhs (2005 :

Rs. 134.33 lakhs) in respect of financial enterprises consolidated) .................. (87,84.73) (56,64.64)

Interest, Commitment and Finance charges (Excluding Rs. 21082.59 lakhs(2005 : Rs. 12516.64 lakhs) in respect of financial enterprises consolidated) .... 73,53.06 61,59.53

Amortisation of Miscellaneous Expenditure ....................................................... 9,51.00 3,28.53

(Profit)/Loss on sale of Investments (Net) .......................................................... (105,60.48) (56,30.51)

(Profit)/Loss on fixed assets sold/scrapped/written off (Net) ............................. (4,03.91) 81.70

Provision for diminution in value of long term investments (Net) ...................... (25.12) (76.40)

Excess of cost over fair value of current investments (Net) .............................. 71.23 (77.52)

163,17.80 180,11.09

Operating Profit before Working Capital changes ............................................. 1,702,28.44 1,159,26.98

Changes in: Stock on hire ............................................................................... 1,24.86 75,97.04

Leased assets ............................................................................. – 1,70.40

Deferred income – advances towards membership fees ........... 61,78.72 39,20.35

Trade and other receivables ........................................................ (570,26.11) (319,92.27)

Loans against Assets * ............................................................... (1,376,57.77) (1,037,17.75)

Inventories ................................................................................... (290,41.17) (436,22.00)

Trade and other payables ........................................................... 433,02.22 500,28.60

(1,741,19.25) (1,176,15.63)

Miscellaneous Expenditure (to the extent not written off or adjusted) incurredduring the year ................................................................................................... (86.38) (17,25.42)

Cash generated from operations ....................................................................... (39,77.19) (34,14.07)

Income taxes paid (net of refunds) .................................................................... (419,10.18) (300,92.70)

NET CASH (USED) / FROM OPERATING ACTIVITIES ...................................... (458,87.37) (335,06.77)

B. CASH FLOW FROM INVESTING ACTIVITIES :

Purchase of fixed assets .................................................................................... (525,29.14) (437,20.14)

Sale of fixed assets ............................................................................................ 17,39.62 19,17.49

Purchase of investments .................................................................................... (5,396,42.80) (3,629,53.15)

Sale of investments ............................................................................................ 4,771,53.68 3,566,47.50

Interest received ................................................................................................. 64,40.11 53,19.33

Dividends received ............................................................................................. 11,24.94 3,67.59

Inter corporate deposits (Net) ............................................................................ (119,12.57) 35,76.66

Purchase consideration paid on acquisition of interest in subsidiaries ............. (248,75.07) (5,69.53)

Sales Proceeds (Net) received on divesture of interest in subsidiaries ............. 543,19.57 84,45.76

Purchase of a Business undertaking ................................................................. – (7,50.00)

NET CASH USED IN INVESTING ACTIVITIES ................................................... (881,81.66) (317,18.49)

* In respect of financial enterprises consolidated

121

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

C. CASH FLOW FROM FINANCING ACTIVITIES :

Proceeds from borrowings ................................................................................. 7,319,53.17 3,702,97.85

Repayments of borrowings [including premium on repayment] ........................ (5,621,82.80) (2,302,61.45)

Dividends paid .................................................................................................... (178,07.81) (128,25.22)

Interest, Commitment and Finance charges paid .............................................. (51,41.93) (46,30.19)

NET CASH (USED IN) / FROM FINANCING ACTIVITIES .................................. 1,468,20.63 1,225,80.99

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (A + B + C) .. 127,51.60 573,55.73

CASH AND CASH EQUIVALENTS (Note (a))

Opening Balance ................................................................................................ 1,013,72.53 440,16.80

Cash & Bank Balance Acquired on Acquisition of Subsidiaries ........................ 38,79.12 –

Closing Balance .................................................................................................. 1,180,03.25 1,013,72.53

See Notes attached.

Consolidated Cash Flow statement (Contd.)

2006 2005Rupees lakhs Rupees lakhs

Notes to the Consolidated Cash Flow Statement for the year ended 31st March, 20062006 2005

Rupees lakhs Rupees lakhs

(a) Cash and cash equivalents include :

Cash, cheques and stamps on hand ....................................................... 226,06.75 176,17.01

Balances with scheduled banks :

On current account ................................................................................... 255,42.34 197,69.22

On fixed deposit account ......................................................................... 675,17.39 625,87.03

On margin account .................................................................................... 6,65.06 47.45

Balances with non-scheduled banks :

On current and fixed deposit account ..................................................... 21,30.43 11,19.56

Group share in cash and bank balances of joint ventures ............................ 2,57.57 97.81

1,187,18.54 1,012,38.08Unrealised (Net) translation (gain)/loss on foreign currency cash and cashequivalents ......................................................................................................... (7,15.29) 1,34.45

1,180,03.25 1,013,72.53

(b) Previous year’s figures have been regrouped / restated wherever necessary.

Per our report attached

For A. F. Ferguson & Co.Chartered Accountants

R. A. BangaPartner

Mumbai, 29th May, 2006

Keshub Mahindra Chairman

Anand G. Mahindra Vice Chairman & Managing Director

Bharat Doshi Executive Director

A. K. Nanda Executive Director & Secretary

Mumbai, 29th May, 2006

Deepak S. Parekh

M. M. Murugappan

N. Vaghul

R. K. Kulkarni DirectorsA. S. Ganguly

A. P. Puri

Thomas Mathew T.

}

122

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE I2006 2005

Share Capital : Rupees Rupeeslakhs lakhs

Authorised :27,50,00,000 (2005 - 17,50,00,000) Ordinary (Equity) Shares of Rs.10 each ........................ 275,00.00 175,00.00

25,00,000 Unclassified shares of Rs.100 each .................................................................. 25,00.00 25,00.00

Total ........................... 300,00.00 200,00.00

Issued and Subscribed :24,09,01,352 (2005 - 11,60,08,599) Ordinary (Equity) Shares of Rs.10 each fully paid up .... 240,90.14 116,00.86

240,90.14 116,00.86Less:Less:Less:Less:Less:

75,01,768 (2005 - 43,60,672) Ordinary (Equity) Shares of Rs.10 each fully paid upissued to ESOP Trust but not allotted to employees ........................................ 7,50.18 4,36.07

Adjusted : Issued and Subscribed Share Capital ....................................................................... 233,39.96 111,64.79

SCHEDULE II2005 Additions Deductions 2006

Reserves and Surplus : Rupees Rupees Rupees Rupeeslakhs lakhs lakhs lakhs

1 Capital Reserve ................................................................... 23,08.56 34.31 – 23,42.8723,26.01 – 17.45 23,08.56

2 Capital Reserve on consolidation ........................................ 40,92.16 48.16 – 41,40.3250,82.88 – 9,90.72 40,92.16

3 Securities Premium Account (Note 4) ................................. 234,77.92 347,37.86 2,55.42 579,60.36315,36.44 2,90.85 83,49.37 234,77.92

Less: Premium on shares issued to ESOP Trust but notallotted to employees .......................................................... 21,36.73 – 2,98.80 18,37.93

24,23.31 – 2,86.58 21,36.73

213,41.19 347,37.86 (43.38) 561,22.43291,13.13 2,90.85 80,62.79 213,41.19

4 Revaluation Reserve ............................................................ 14,31.52 – 98.06 13,33.4614,87.82 – 56.30 14,31.52

5 Investment Allowance Reserve Account ............................. – – – –2,45.00 – 2,45.00 –

6 General Reserve (Note 4) .................................................... 683,19.32 @ 159,26.72 116,00.89 726,45.15552,34.67 @ 141,50.03 10,65.38 683,19.32

Add: Bonus shares issued to ESOP Trust but not allottedto employees ...................................................................... – 3,75.09 – 3,75.09

683,19.32 163,01.81 116,00.89 730,20.24552,34.67 141,50.03 10,65.38 683,19.32

7 Debenture Redemption Reserve ......................................... 17,91.46 – 55.25 17,36.2128,07.73 – 10,16.27 17,91.46

8 Investment Fluctuation Reserve .......................................... 53,59.64 – # 12,30.00 41,29.6474,91.13 – # 21,31.49 53,59.64

9 Special Reserve (As per Section 45 IC of the RBI Act) ...... 85,86.11 34,86.77 – 120,72.8857,44.15 28,41.96 – 85,86.11

10 Foreign Exchange Fluctuation Reserve ............................... 1,62.36 – 5,47.48 (3,85.12)17.71 1,44.65 – 1,62.36

1,133,92.32 546,08.91 134,88.30 * 1,545,12.93

1,095,50.23 174,27.49 135,85.40 1,133,92.32*[including Group Share in Joint Ventures Rs.250.37 lakhs (2004-2005: Rs.211.67 lakhs)]

11 Balance for 2005-2006 and earlier years as per Profit andLoss Account ...................................................................... 1,928,53.76

1,130,28.39Group Share in Joint Ventures ............................................ 12,42.10

7,01.28

Total 3,486,08.79

2,271,21.99

@ includes transfer of Rs.1230.00 lakhs (2004-2005: Rs.2131.49 lakhs) from Investment Fluctuation Reserve per contra pursuantto the Scheme of Arrangement.

# includes transfer of Rs.1230.00 lakhs (2004-2005: Rs.2131.49 lakhs) to General Reserve per contra pursuant to the Scheme ofArrangement (Note 3).

123

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE III

Loan Funds : 2006 2006 2005Rupees Rupees Rupees

lakhs lakhs lakhs(A) Secured: (Note 5)

(1) Debentures/Bonds .......................................................................... 2,690,50.67 1,761,85.73

(2) Foreign Currency Loans from Banks .............................................. 149,99.43 208,74.68

(3) Rupee Loans :

(a) From Financial Institutions ....................................................... 53.83 –

(b) From Banks ............................................................................. 675,44.81 338,00.00

(c) From Others ............................................................................. 105,91.95 174,98.97

781,90.59 512,98.97

(4) Loans and Advances on cash credit account from Banks ............ 416,60.26 273,60.89

4,039,00.95 2,757,20.27

Group Share in Joint Ventures ........................................................ 3,19.67 2,69.08

4,042,20.62 2,759,89.35

(B) Unsecured :

(1) Fixed Deposits ................................................................................ 26,48.99 54,10.78

(2) Short-term Loans :

(a) From Banks ............................................................................. 213,41.10 100,10.91

(b) From Others ............................................................................. 2,17.00 5,03.00

215,58.10 105,13.91

(3) Other Loans:

(a) From Financial Institutions ....................................................... 373,24.12 263,74.39

(b) Zero Coupon Convertible bonds ............................................. 157,41.00 437,40.00

(c) Debentures / Bonds ................................................................ 261,08.30 165,00.00

(d) From Government of Gujarat ................................................... 8,87.63 8,57.94

(e) From Banks ............................................................................. 185,85.91 –

(f) From Others ............................................................................. 9.24 15.57

986,56.20 874,87.90

1,228,63.29 1,034,12.59Group Share in Joint Ventures ........................................................ 50.49 50.49

1,229,13.78 1,034,63.08

Total ........................ 5,271,34.40 3,794,52.43

124

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE IV

Fixed Assets :

Description of Assets Cost/ Additions Deduc- Cost/Pro- Deprecia- Deprecia- Deductions Deprecia- Net NetProfessional and tions fessional tion/Amor- tion / and adjust- tion / Balance Balance

valuation adjust- and valuation tisation Amor- ments Amortisa- as at as atas at 31st ments adjust- as at 31st to 31st tisation of Depre- tion 31st 31st

March, during the ments March, March, for 2005- ciation / to 31st March, March,2005 year during 2006 2005 2006 Amorti- March, 2006 2005

the year sation 2006

Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupeeslakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs lakhs

A : Assets on Lease

Plant and Machinery ................. – 7,63.62 – 7,63.62 – 18.70 – 18.70 7,44.92 –

Vehicles ..................................... 9,54.60 1,08.89 2,23.46 8,40.03 2,24.77 1,88.06 1,01.75 3,11.08 5,28.95 7,29.83

Computers ................................ 11.09 – 9.32 1.77 7.69 1.99 8.39 1.29 0.48 3.40

Sub Total A ............................... 9,65.69 8,72.51 2,32.78 16,05.42 2,32.46 2,08.75 1,10.14 3,31.07 12,74.35 7,33.23

B : Owned Assets

Technical Knowhow .................. 93.53 – – 93.53 44.61 10.57 – 55.18 38.35 48.92

Development Expenditure ......... 23,06.30 10,17.21 5,78.00 27,45.51 5,17.68 5,02.64 – 10,20.32 17,25.19 17,88.62

Software Expenditure ................ 11,09.54 11,25.85 1,80.72 20,54.67 6,33.94 7,35.57 1,78.67 11,90.84 8,63.83 4,75.60

Websites ................................... 3,73.74 – – 3,73.74 3,73.74 – – 3,73.74 – –

Non-Compete Fees ................... – 23.25 – 23.25 – – – – 23.25 –

Time share weeks ..................... 62.28 – – 62.28 18.69 6.23 – 24.92 37.36 43.59

Trademarks ............................... – 32.53 – 32.53 – 2.73 – 2.73 29.80 –

Goodwill + ................................. 66,18.20 151,23.30 – 217,41.50 – – – – 217,41.50 66,18.20

Land .......................................... 69,33.74 56,40.07 54.33 125,19.48 80.87 19.69 – 1,00.56 124,18.92 68,52.87

Land - Leasehold ...................... 19.50 6,04.07 – 6,23.57 3.14 13.17 – 16.31 6,07.26 16.36

Buildings .................................... 648,71.84 136,62.90 4,95.17 780,39.57 127,02.04 44,26.33 1,40.36 169,88.01 610,51.56 521,69.80

Plant and Machinery ................. 2,381,46.26 489,67.66 25,13.44 2,846,00.48 1,303,94.35 416,30.57 20,48.12 1,699,76.80 1,146,23.68 1,077,51.91

Furniture and Fittings ................ 138,73.93 36,57.93 2,82.38 172,49.48 63,90.84 29,41.84 2,14.77 91,17.91 81,31.57 74,83.09

Vehicles, Cycles, etc. ................ 80,44.03 29,23.22 7,95.24 101,72.01 29,53.53 15,35.73 4,73.53 40,15.73 61,56.28 50,90.50

Property - Leasehold ................ 4,57.97 1,38.35 – 5,96.32 1,78.96 18.23 – 1,97.19 3,99.13 2,79.01

Sub Total B ............................... 3,429,10.86 929,16.34 48,99.28 4,309,27.92 1,542,92.39 518,43.30 30,55.45 2,030,80.24 2,278,47.68 1,886,18.47

C: Group Share in Joint Ventures 7,60.85 2,17.15 3.51 9,74.49 5,54.18 61.55 1.63 6,14.10 3,60.39 2,06.67

TOTAL (A+B+C) ....................... 3,446,37.40 940,06.00 51,35.57 4,335,07.83 1,550,79.03 521,13.60 31,67.22 2,040,25.41 2,294,82.42 1,895,58.37

3,108,22.48 389,93.79 51,78.87 3,446,37.40 1,335,59.84 243,61.78 28,42.59 1,550,79.03 1,895,58.37

+ Goodwill arising on consolidation.

Refer Note 6 (b)

125

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE V

Investments (At Cost; unless otherwise specified) :2006 2006 2005 2005

Long Term Current Long Term CurrentRupees Rupees Rupees Rupees

lakhs lakhs lakhs lakhs

Shares (Non-trade and fully paid-up unless otherwise specified) :

Unquoted :

(a) Equity Shares ................................................................ 30,78.42 – 34,31.95 –

(b) Equity Shares - Associates (Note 1(c) & Note 20) ........ 116,70.83 – 39,53.42 –

(c) Preference Shares ......................................................... 3,53.75 – 3,58.75 –

(d) Preference Shares - Associates .................................... 5,63.85 – 11,09.85 –

156,66.85 – 88,53.97 –

Quoted :(a) Equity Shares ................................................................ 3,30.05 0.14 8,68.56 3,75.35(b) Equity Shares - Associates (Note 1(c) & Note 20) ........ 3,94.58 – 60,35.44 –

7,24.63 0.14 69,04.00 3,75.35

163,91.48 0.14 157,57.97 3,75.35

Debentures / Bonds (Non Trade & fully paid-up) :(a) Unquoted ...................................................................... 13,21.51 – 13,45.20 –(b) Quoted .......................................................................... 33.23 9,89.36 – 6,52.77

13,54.74 9,89.36 13,45.20 6,52.77

Other Investments :Government Securities (including Treasury Bills):(a) Unquoted ...................................................................... 1.13 – 4.11 –(b) Quoted .......................................................................... – 4,57.42 – 74,27.13

1.13 4,57.42 4.11 74,27.13

Units :(a) Unquoted ...................................................................... 2,49.98 904,76.03 65.37 330,04.53

2,49.98 904,76.03 65.37 330,04.53

Investment in the Capital of Partnership :(a) Unquoted ...................................................................... 4,21.41 – – –

4,21.41 – – –

Others :(a) Unquoted ...................................................................... 0.03 78,21.58 0.03 9,61.69

0.03 78,21.58 0.03 9,61.69

184,18.77 997,44.53 171,72.68 424,21.47

1,181,63.30 595,94.15Group Share in Investments of Joint Ventures ..................... 3.38 -

Total ............................ 1,181,66.68 595,94.15

Cost (net of amounts written off) of Unquoted Investments .. 1,159,61.90 442,34.90

Cost / Carrying Value of Quoted Investments ..................... 22,04.78 153,59.25

1,181,66.68 595,94.15Less : Excess of cost over fair value of Current Investments (Net) 1,33.97 62.74

1,180,32.71 595,31.41

Market value of Quoted Investments ................................... 62,38.26 311,60.11

126

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE VI

Current Assets, Loans and Advances : 2006 2006 2005Rupees Rupees Rupees

lakhs lakhs lakhs

(A) Current Assets :Interest accrued on investments ....................................................... 2,14.35 1,56.47Stores and Spares (at cost or net realisable value whichever is lower) 44,92.71 15,90.97Tools .................................................................................................. 28,09.04 17,37.80Stock in Trade and Work-in-Progress (at cost or net realisable valuewhichever is lower) :(i) Finished Products produced and purchased for sale ................ 670,32.38 503,30.39(ii) Contracts and Work-in-Progress ............................................... 115,59.44 58,19.59(iii) Manufactured Components ....................................................... 49,91.53 41,20.89(iv) Raw Materials and Bought-out Components ............................ 487,98.32 397,09.19(v) Work-in-Progress – Property Development Activity and Long

Term Contracts .......................................................................... 261,59.15 221,62.93(vi) Food, Beverages, Smokes and Operating Supplies .................. 87.23 61.88

1,586,28.05 1,222,04.87

1,661,44.15 1,256,90.11Group Share in Inventories of Joint Ventures ................................... 3,86.74 5,05.59Plant & Machinery and other assets held for sale ............................ 18.15 28.49(at cost or estimated net realisable value, whichever is lower)

Sundry Debtors:Unsecured unless otherwise stated :

Outstanding over six months : Considered good ............... 128,93.80 94,28.79: Considered doubtful .......... 64,50.92 63,47.72

193,44.72 157,76.51

Other Debts : Considered good ......................................... 1,721,35.00 977,62.09: Considered doubtful ..................................... 6,64.18 2,25.80

1,727,99.18 979,87.89

1,921,43.90 1,137,64.40Less : Unmatured Finance Charges ..................................... 11,83.91 4,15.76Less : Provision for Doubtful Debts ...................................... 71,15.10 65,48.82

1,838,44.89 1,067,99.82Group Share in Debtors of Joint Ventures ........................................ 13,18.85 11,92.18

Cash and Bank Balances :Cash, cheques and stamps on hand ........................................ 226,05.75 176,17.01Balances with Scheduled Banks :(i) On Current Account ........................................................... 255,42.34 197,69.22(ii) On Fixed Deposit Account ................................................. 675,17.39 625,87.03(iii) On Margin Account ............................................................ 6,65.06 47.45

937,24.79 824,03.70Balances with Non-Scheduled Banks :

On Current and Fixed Deposit Account .................................... 21,30.43 11,19.56

1,184,60.97 1,011,40.27Group Share in Cash and Bank Balances of Joint Ventures ............ 2,57.57 97.81Stock on Hire .................................................................................... 84.34 10,00.01Less : Unmatured Finance Charges ................................................. 17.55 7,60.77

66.79 2,39.24Less: Provision for Non Performing Assets and Doubtful Debts ...... 14.40 61.99

52.39 1,77.25

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SCHEDULE VI (Contd.)

2006 2006 2005Rupees Rupees Rupees

(B) Loans and Advances : lakhs lakhs lakhs

(Unsecured, considered good unless otherwise stated) :

Bills of exchange, considered good .................................................. 4,62.93 1,82.63

Bills of exchange, considered doubtful ............................................. 2,13.09 2,13.09

6,76.02 3,95.72

Less: Provision for doubtful debts .................................................... 2,13.09 2,13.09

4,62.93 1,82.63

Advances recoverable in cash or in kind or for value to be received :

Considered good ....................................................................... 859,09.35 538,28.35

Considered doubtful ................................................................... 90,68.03 95,57.03

949,77.38 633,85.38

Less : Provision for Doubtful Advances ..................................... 83,99.33 88,68.02

865,78.05 545,17.36

Loans against assets / Retained Interest in SecuritisedAssets (Secured):

Considered good ....................................................................... 3,984,22.61 2,635,45.31

Considered doubtful ................................................................... 225,73.26 156,60.98

4,209,95.87 2,792,06.29

Less : Provision for Doubtful Advances ..................................... 86,45.04 45,13.23

4,123,50.83 2,746,93.06

Payments towards Income tax and Surtax (net of provisions) ......... 28,46.52 48,68.31

Balances - Customs, Port Trust, Excise, etc .................................... 3,93.04 1,70.07

5,026,31.37 3,344,31.43

Group Share in Loans and Advances of Joint Ventures ................... 82.54 72.86

Total ................... 9,731,97.62 6,701,35.81

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE VII 2006 2006 2005Current Liabilities and Provisions : Rupees Rupees Rupees

lakhs lakhs lakhs

(A) Current Liabilities :

Acceptances .................................................................................... 304,45.81 245,97.64

Sundry Creditors :

(i) Total outstanding dues of small scale industrial undertakings ... 60,36.82 67,50.42

(ii) Total outstanding dues of creditors other than small scaleindustrial undertakings ............................................................... 2,079,48.58 1,444,26.60

2,139,85.40 1,511,77.02

Dividend payable ............................................................................... 2,75.99 2,29.04

Balances on Directors’ Current Accounts ......................................... 2,15.86 2,41.30

Interest accrued but not due on loans ............................................. 94,66.04 72,54.91

Deposits/Advances received against hire purchase/leaseagreements ....................................................................................... 49,05.53 53,01.16

Other current liabilities ....................................................................... 192,56.32 151,58.70

2,785,50.95 2,039,59.77

Group Share in Current Liabilities of Joint Ventures ......................... 7,41.54 9,76.43

(B) Provisions :

Proposed Dividends .......................................................................... 243,97.41 150,81.50

Provision for Tax on Proposed Dividend ........................................... 34,21.74 21,15.18

Provision for diminution in value of long term investments ............... 12,21.03 12,46.15

Provision for diminution in value of investments & other assets ....... 14,11.67 14,56.67

Provision for premium payable on redemption of convertible bonds 10,07.53 76,54.50

Provision for Contingencies (Note 11) ............................................... 4,43.75 33.99

Provision for leave encashable at retirement/cessation .................... 91,41.40 67,80.83

Provision for Estimated Loss/Expenses on Securitisation ................ 47,17.93 39,30.49

Provision : Others .............................................................................. 107,84.97 80,52.56

565,47.43 463,51.87

Group Share in Provisions of Joint Ventures .................................... 65.39 77.60

Total ................... 3,359,05.31 2,513,65.67

SCHEDULE VIII 2006 2005Miscellaneous Expenditure Rupees Rupees(to the extent not written off or adjusted) : lakhs lakhs

(a) Finance Charges ............................................................................... 2,19.38 3,30.65

(b) Separation and other costs .............................................................. 21,76.60 28,73.91

(c) Others ............................................................................................... 47.92 1,26.58

24,43.90 33,31.14

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SCHEDULE IX 2006 2005Income from Operations and Other Income : Rupees Rupees

lakhs lakhsIncome from services rendered ........................................................ 1,715,24.31 1,216,06.04Income from long term contracts ..................................................... 164,64.00 107,83.54Income from Project Management, etc ............................................ 13,50.40 11,98.50Hire Purchase income, Lease income and other rentals .................. 58,67.60 42,98.36Income from Loan, Retained Interest in securitised assets &securitisation ..................................................................................... 568,40.93 371,82.44Commission ...................................................................................... 8,62.16 7,21.36Dividends on other Investments ........................................................ 26,51.61 9,16.48Rent received .................................................................................... 3,52.19 4,13.54Miscellaneous Income ....................................................................... 163,60.60 93,06.53Profit on sale of Investments ............................................................ 105,60.48 56,30.51Profit on sale of Fixed assets ............................................................ 4,03.91 -

2,832,38.19 1,920,57.30Group Share in Joint Ventures .......................................................... 8,68.98 8,28.32

Total ..................... 2,841,07.17 1,928,85.62

SCHEDULE X 2006 2006 2005Raw Materials, Finished and Semi-Finished Products : Rupees Rupees Rupees

lakhs lakhs lakhs

(A) (Increase)/Decrease in Stock of Finished Goods,Work-in-Progress and Manufactured Components :Opening Stock :(i) Finished Products produced and purchased for sale ................ 503,30.39 291,61.81(ii) Contracts and Work-in-Progress ............................................... 58,19.59 35,99.50(iii) Manufactured Components ....................................................... 41,20.89 28,83.11

602,70.87 356,44.42

Add: Stock taken over on acquisition :(i) Finished Products produced and purchased for sale ................ 1,15.00 26.62(ii) Contracts and Work-in-Progress ............................................... 40,62.84 4,96.81

41,77.84 5,23.43Less : Closing Stock :(i) Finished Products produced and purchased for sale ................ 670,32.38 503,30.39(ii) Contracts and Work-in-Progress ............................................... 115,59.44 58,19.59(iii) Manufactured Components ....................................................... 49,91.53 41,20.89

835,83.35 602,70.87

(Increase)/Decrease in Stock ............................................................ (191,34.64) (241,03.02)

(B) Consumption of Raw Materials and Bought-out Components :Opening Stock .................................................................................. 397,09.19 273,39.62Add : Purchases ............................................................................... 6,164,35.80 4,871,85.58

6,561,44.99 5,145,25.20Add: Stock taken over on acquisition ............................................... 43,35.03 38.72Less : Closing Stock ......................................................................... 487,98.32 397,09.19

6,116,81.70 4,748,54.73(C) Purchases of Finished Products for sale ..................................... 962,10.63 897,39.42

6,887,57.69 5,404,91.13Group Share in Joint Ventures ................................................................. 24,58.00 20,48.45

Total ................... 6,912,15.69 5,425,39.58

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SCHEDULE XI 2006 2005Personnel : Rupees Rupees

lakhs lakhs

Salaries, Wages, Bonus, etc ............................................................. 1,191,53.12 887,52.29

Contribution to Provident and other funds ....................................... 77,53.21 62,68.63

Gratuity .............................................................................................. 27,23.21 21,08.04

Welfare .............................................................................................. 98,31.31 70,77.08

1,394,60.85 1,042,06.04Group Share in Joint Ventures .......................................................... 4,77.62 5,01.80

Total ................... 1,399,38.47 1,047,07.84

SCHEDULE XII 2006 2005Interest, Commitment and Finance Charges : Rupees Rupees

lakhs lakhs

On Term Loans and Debentures ....................................................... 236,75.40 150,32.20

On Others (Net) ................................................................................. 39,72.84 27,00.28

Finance charges ................................................................................ 7,53.43 6,76.92

284,01.67 184,09.40

Group Share in Joint Ventures .......................................................... 33.98 2,66.77

Total ................... 284,35.65 186,76.17

Less: Interest Income:

Interest on Government Securities, Debentures and Bonds - Gross 1,99.77 2,14.48

Interest - Others - Gross .................................................................. 62,93.27 48,48.04

64,93.04 50,62.52Group Share in Joint Ventures .......................................................... 5.13 7.61

64,98.17 50,70.13

Total ................... 219,37.48 136,06.04

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE XIII 2006 2006 2005Other Expenses : Rupees Rupees Rupees

lakhs lakhs lakhs

Stores consumed .............................................................................. 92,81.70 48,15.69

Tools consumed ................................................................................ 18,48.23 14,24.79

Power and Fuel ................................................................................. 145,67.37 68,73.21

Rent including lease rentals .............................................................. 57,05.57 44,65.43

Rates and Taxes ............................................................................... 50,83.27 46,83.55

Insurance.. ......................................................................................... 20,70.63 15,90.82

Repairs & Maintenance :

Buildings .................................................................................... 28,02.69 19,87.43

Machinery .................................................................................. 69,37.48 51,70.78

Others ........................................................................................ 30,00.84 19,57.99

127,41.01 91,16.20

Advertisement ................................................................................... 97,65.95 98,67.11

Commission on sales/contracts (Net) ............................................... 108,07.12 85,27.34

Discount allowed ............................................................................... 7,17.46 5,31.75

Freight outward ................................................................................. 300,08.61 190,19.82

Sales Promotion Expenses ............................................................... 109,88.82 99,66.24

Travelling Expenses ........................................................................... 266,19.14 276,68.56

Cost of Projects, Property etc .......................................................... 145,27.12 68,20.55

Miscellaneous Expenses ................................................................... 741,43.78 567,85.97

Amortisation of expenses .................................................................. 1,42.58 1,67.27

Directors’ fees ................................................................................... 9.80 10.30

Donations and contributions ............................................................. 21,78.33 4,84.44

Loss on Fixed Assets sold/scrapped/written off ............................... – 81.70

Provision for diminution in value of Long Term investments ............. (25.12) (76.40)

Excess of cost over fair value of Current Investments (Net) ............. 71.23 (77.52)

Provision for doubtful debts/advances (Net) ..................................... 32,24.91 28,31.24

2,344,77.51 1,755,78.06Group Share in Joint Ventures .......................................................... 7,61.83 14,67.63

Total ................... 2,352,39.34 1,770,45.69

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

SCHEDULE XIV

Notes on the Consolidated Accounts for the year ended 31st March, 2006

1. The Consolidated Financial Statements relate to Mahindra & Mahindra Limited (M&M, the Company) and its subsidiary companies. TheConsolidated Financial Statements have been prepared in accordance with Accounting Standard 21 (AS 21) “Consolidated Financial Statements”,Accounting Standard 23 (AS 23) “Accounting for Investment in Associates in Consolidated Financial Statements” and Accounting Standard 27(AS 27) “Financial Reporting of Interests in Joint Ventures” issued by The Institute of Chartered Accountants of India. The Consolidated FinancialStatements have been prepared on the following basis:

(a) Investments in Subsidiaries :

i) The Financial Statements of the Company and its subsidiary companies have been combined on a line by line basis by addingtogether the book values of like items of assets, liabilities, income and expenses after fully eliminating intra group balances and intragroup transactions resulting in unrealised profits or losses.

ii) The difference between the cost of investment in the subsidiaries over the Company’s portion of equity of the subsidiary is recognisedin the financial statements as Goodwill or Capital Reserve.

iii) The difference between the proceeds from disposal of investment in a subsidiary and the carrying amount of its assets less liabilitiesas of date of disposal is recognised in the Profit and Loss Account as profit or loss on disposal of investment in subsidiary.

iv) Minority Interest in the net assets of consolidated subsidiaries consist of :

a) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made and

b) the minorities’ share of movements in equity since the date the parent subsidiary relationship comes into existence.

v) The Financial Statements of the subsidiaries are drawn upto 31st March, 2006.

The subsidiaries (which along with Mahindra & Mahindra Limited, the parent, constitute the group) considered in the presentation of theseconsolidated financial statements are :

Name of the Subsidiary Company Country of Percentage of Percentage ofIncorporation ownership interest ownership interest

as at 31-03-2006 as at 31-03-2005

Automartindia Limited ...................................................................... India 75.97% 75.97%

Mahindra Gesco Developers Limited .............................................. India 55.00% 55.00%

Mahindra Acres Consulting Engineers Limited ................................ India 51.00% 51.00%

Mahindra Ashtech Limited ............................................................... India 100.00% 100.00%

Tech Mahindra Limited (formerly known as Mahindra-BritishTelecom Limited) .............................................................................. India 56.26% 56.62%

Tech Mahindra GmbH (formerly known as MBT GmbH) ................ Germany 56.26% 56.62%

Tech Mahindra (Americas) Incorporated (formerly known as MBTInternational Incorporated) ............................................................... U.S.A. 56.26% 56.62%

Tech Mahindra Pte. Limited (formerly known as MBT SoftwareTechnologies Pte. Limited) ............................................................... Singapore 56.26% 56.62%

Bristlecone India Limited ................................................................. India 86.54% 80.25%

Bristlecone Singapore Pte. Limited ................................................. Singapore 86.54% 80.25%

Bristlecone GmbH ........................................................................... Germany 86.54% 80.25%

Mahindra Engineering & Chemical Products Limited ...................... India 100.00% 100.00%

Mahindra Gujarat Tractor Limited .................................................... India 60.00% 60.00%

Mahindra Holdings & Finance Limited ............................................. India 100.00% 100.00%

Mahindra Holidays & Resorts India Limited .................................... India 99.99% 99.99%

Mahindra Infrastructure Developers Limited .................................... India 44.00% 44.00%

Mahindra Intertrade Limited ............................................................ India 100.00% 100.00%

Bristlecone UK Limited .................................................................... U.K. 86.54% 80.25%

Mahindra Logisoft Business Solutions Limited ............................... India 100.00% 100.00%

Mahindra & Mahindra Financial Services Limited ............................ India 69.91%* 97.26%

Mahindra Steel Service Centre Limited ........................................... India 61.00% 61.00%

Mahindra Shubhlabh Services Limited ............................................ India 72.77% 72.77%

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Name of the Subsidiary Company Country of Percentage of Percentage ofIncorporation ownership interest ownership interest

as at 31-03-2006 as at 31-03-2005

Mahindra USA Incorporated ................................................................ U.S.A. 100.00% 100.00%

NBS International Limited .................................................................... India 100.00% 100.00%

Bristlecone Limited .............................................................................. Cayman Islands 86.54% 80.25%

Bristlecone Incorporated ..................................................................... U.S.A. 86.54% 80.25%

Mahindra Insurance Brokers Limited ................................................... India 69.91%* 97.26%

Mahindra & Mahindra South Africa (Proprietary) Limited .................... South Africa 51.00% 51.00%

Mahindra Engineering Design & Development Company Limited ...... India 100.00% 100.00%

Mahindra Middleeast Electrical Steel Service Centre (FZC) .................... Sharjah 90.00% 100.00%

Mahindra Overseas Investment Company (Mauritius) Limited .................... Mauritius 100.00% 100.00%

Mahindra Holidays & Resorts USA Incorporated ................................ U.S.A. 99.99% 99.99%

Mahindra World City Developers Limited (formerly knownas Mahindra Industrial Park Limited ) .................................................. India 54.38% 54.38%

Mahindra SAR Transmission Private Limited ....................................... India 51.00% 51.00%

Mahindra-BT Investment Company (Mauritius) Limited(w.e.f. 9th May, 2005) ........................................................................... Mauritius 57.00% —

Tech Mahindra (Thailand) Limited (w.e.f. 21st February, 2006) .................. Thailand 56.25% —

Mahindra (China) Tractor Company Limited (w.e.f. 13th May, 2005) ... China 80.00% —

Mahindra Europe s.r.l. (w.e.f. 30th May, 2005) ..................................... Italy 80.00% —

Mahindra International Limited (w.e.f. 1st November, 2005) .................. India 51.00% —

Mahindra World City (Maharashtra) Limited (formerly knownas Mahindra Realty Limited) (w.e.f. 21st September, 2005) ...................... India 54.84% —Mahindra Renault Private Limited (w.e.f. 5th August, 2005) ................ India 51.00% —

Mahindra Ugine Steel Company Limited (w.e.f. 21st June, 2005) ............... India 50.69% —

Mahindra World City (Jaipur) Limited (w.e.f. 26th August, 2005) ............... India 55.00% —

Tech Mahindra (R & D Services) Limited (w.e.f. 28th November, 2005) ... India 56.24% —

Tech Mahindra (R & D Services) Incorporated (w.e.f. 28th November, 2005) U.S.A. 56.24% —

Tech Mahindra (R & D Services) Pte. Limited (w.e.f. 28th November, 2005) Singapore 56.24% —

Stokes Group Limited (w.e.f. 3rd January, 2006) ................................. U.K. 99.20% —

Stokes Forgings Dudley Limited (w.e.f. 3rd January, 2006) ................. U.K. 99.20% —

Jensand Limited (w.e.f. 3rd January, 2006) ......................................... U.K. 99.20% —

Stokes Forgings Limited (w.e.f. 3rd January, 2006) ............................. U.K. 99.20% —

Plexion Technologies (India) Private Limited (w.e.f. 15th February, 2006) . India 100.00% —

Plexion Technologies (UK) Limited (w.e.f. 15th February, 2006) ................. U.K. 100.00% —

Plexion Technologies GmbH (w.e.f. 15th February, 2006) ................... Germany 100.00% —

Plexion Technologies Incorporated (w.e.f. 15th February, 2006) ................ U.S.A. 100.00% —

*excluding shares issued by Mahindra & Mahindra Financial Services Limited to its ESOP trust but not allotted to its employees; as per theGuidance Note on Accounting for Employee Share-based Payments issued by The Institute of Chartered Accountants of India.

Note: Tech Mahindra Foundation which became a subsidiary of the Company w.e.f. 22nd February, 2006 is not consolidated as a subsidiary asit can apply its income for charitable objects only and cannot pay dividend or transfer funds to its parent.

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

(b) Interests in Joint Ventures

The Group’s interests in jointly controlled entities of the Group are :

Name of the Entity Country of Percentage of Percentage ofIncorporation ownership interest ownership interest

as at 31-03-2006 as at 31-03-2005

a) Mahindra Sona Limited * ......................................................... India 29.77% 29.77%

b) PSL Erickson Limited * ............................................................ India 18.06% 18.06%

c) Mahindra Water Utilities Limited $ .......................................... India 50.00% 50.00%

d) Mahindra Inframan Water Utilities Private Limited $ ............... India 50.00% 50.00%

* Shareholding is through a subsidiary, Mahindra Holdings & Finance Limited

$ Shareholding is through a subsidiary, Mahindra Infrastructure Developers Limited

The financial statements of all the Joint Ventures are drawn upto 31st March, 2006.

(c) Investment in Associates

The Group’s Associates are :

Name of the Entity Country of Percentage of Percentage ofIncorporation ownership interest ownership interest

as at 31-03-2006 as at 31-03-2005

Mahindra Ugine Steel Company Limited(upto 20th June, 2005) ............................................................. India — 49.28%

Owens Corning (India) Limited ........................................................ India 21.50% 21.50%

Mahindra Construction Company Limited ....................................... India 37.49% 49.99%

Officemartindia.com Limited ............................................................ India 50.00% 50.00%

Rathna Bhoomi Enterprises Private Limited .................................... India 22.00% 22.00%

Kota Farm Services Limited ............................................................ India 32.74% 32.74%

Mriyalguda Farm Solution Limited ................................................... India 32.74% 32.74%

Mega One Stop Farm Services Limited .......................................... India 32.74% 32.74%

Mahindra Automotive Steels Limited (Note 20 (a)) ......................... India 47.11% —

Siroplast Limited .............................................................................. India 30.56% 29.25%

The financial statements of all the Associates are drawn upto 31st March, 2006 other than for Owens Corning (India) Limited where it is upto 31st

December, 2005.

2. Accounting Policies:

(A) Fixed Assets:

(a) (i) All Fixed Assets are carried at cost less depreciation except as stated in (ii) below. Cost includes financing cost relating toborrowed funds attributable to the construction or acquisition of fixed assets upto the date the asset is ready for use. In case ofborrowed funds and liabilities in foreign currencies for the acquisition of fixed assets from a country outside India, the exchangedifferences are adjusted to the cost of such asset.

When an asset is scrapped or otherwise disposed off, the cost and related depreciation are removed from the books of accountand resultant profit (including capital profit) or loss, if any, is reflected in the Profit and Loss Account.

(ii) Land and Buildings, of the parent company had been re-valued as at 31st October, 1984 at depreciated replacement values onthe basis of a valuation made by a firm of Chartered Surveyors & Valuers. The indices, if any, used are not stated in the valuation.

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

(b) (i) Leasehold land is amortised over the period of the lease.

(ii) Depreciation on assets is calculated on Straight Line Method (SLM) at the rates and in the manner prescribed in Schedule XIVto the Companies Act, 1956, except :

(a) for the following class of assets where depreciation is calculated at rates, based on useful life of the assets, which are in nocase lower than the rates specified in Schedule XIV to the Companies Act, 1956 :

Building (at sites) : at 25.00 % to 100.00 %

Building (others) : at 2.56 % to 6.67 %

Plant & Machinery : at 14.29 % to 33.33 %

Furniture & Fixture : at 7.69 % to 33.33 %

Vehicles : at 10.00 % to 50.00 %

(b) Fixed Assets of Mahindra Gujarat Tractor Limited is depreciated on Written Down Value Method (WDV). The differencebetween the SLM and WDV basis is however not significant.

(iii) Depreciation charge for each year is after deducting the amount representing the depreciation on the increase due to revaluationof Land and Buildings, transferred from the Revaluation Reserve.

(B) Intangible Assets:

All Intangible Assets are initially measured at cost and amortised so as to reflect the pattern in which the asset’s economic benefits areconsumed:

(a) Technical Knowhow :

The expenditure incurred is amortised over the estimated period of benefit, not exceeding six years commencing with the year ofpurchase of the technology.

(b) Development Expenditure :

The expenditure incurred on technical services and other project related expenses are amortised on the completion of the developmentwork over the estimated period of benefit not exceeding five years.

(c) Software Expenditure :

The expenditure incurred is amortised over three financial years equally commencing from the year in which the expenditure isincurred.

(d) Websites:

The expenditure incurred is amortised over the estimated period of benefit, not exceeding five years.

(e) Time Share Weeks :

Intangible assets representing ‘time share weeks’ are amortised over a period of ten years.

(f) Trademarks :

The expenditure incurred is amortised over the estimated period of benefit, not exceeding ten years.

(g) Non Compete Fees :

Non compete fees are amortised equally over the estimated period of benefit, not exceeding ten years.

(C) Investments :

All long term investments, other than in Associates, are carried at cost less provision, if any, for decline other than temporary, in value ofsuch investments. Current investments are valued at the lower of cost and fair value, determined by category of investment.

(D) Inventories :

Inventories are stated at cost or net realisable value, whichever is lower. Cost is arrived at on a weighted average method and includes,where appropriate, manufacturing overheads and excise duty. Cost of the inventory, includes interest, where appropriate, for long termprojects.

(E) Miscellaneous Expenditure (to the extent not written off or adjusted) :

Expenditure carried forward under this head is amortised as follows :

(a) Finance Charges :

The expenditure incurred in raising long term borrowings is amortised over the period of the borrowings. On early buyback,conversion or repayment of borrowings, any unamortised expenditure is fully written off in that year.

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

(b) Special Payments/Pensions under Voluntary Retirement Schemes :

The liability inclusive of retirement benefits such as gratuity and leave encashment is amortised over a period of five years from themonth in which the liability is incurred.

(c) Preliminary expenses are written off over a period of five years from the date of incurring such expenditure.

(F) Foreign Exchange Transactions :

All foreign currency monetary items are translated at the relevant rates of exchange prevailing at the year end. In respect of forwardexchange contracts the premium or discount arising at the inception of such a contract is amortised as expense or income over the life ofthe contract.

In the case of monetary items (other than those for acquisition of fixed assets from a country outside India) the exchange differences arerecognised in the Profit and Loss Account.

In the case of monetary items incurred for the acquisition of fixed assets from a country outside India, the exchange differences areadjusted to the cost of such assets.

In respect of non-integral foreign operations, the assets and liabilities, both monetary and non-monetary are translated at the closing ratesand income and expenses are translated at exchange rates at the dates of transaction and all the resulting exchange differences areaccumulated in foreign exchange fluctuation reserve until the disposal of the net investment.

(G) Revenue Recognition :

(a) Sales of products and services are recognised when the products are shipped or services rendered. Income from long term contractsand sale of property (concerning property development activity) is, accounted for on percentage to completion basis. [Refer paragraph(H) below].

(b) Dividends from investments are recognised in the Profit and Loss Account when the right to receive payment is established.

(H) Long term contracts and Property Development Activity :

Income on long term contracts and property development activity is accounted on the percentage to completion basis which necessarilyinvolves technical estimates of the percentage of completion of each contract/activity, and costs to completion of the contract/activity, onthe basis of which profits/losses are accounted. Such estimates, made by the management and certified to the auditors, have been reliedupon by them, as these are of a technical nature.

Project management Fees receivable on fixed period contracts is accounted over the tenure of the contract/ agreement. Where themanagement fee is linked to the input costs, revenue is recognised as a proportion of the work completed based on progress claimsubmitted. Where the management fees are linked to the revenue generation from the project, revenue is recognised on the percentage ofcompletion basis.

(I) Income from Lease/Hire Purchase :

Finance earnings on lease transactions are calculated by applying the interest rate implicit in the lease, to the investment in the leasedassets, as reduced by the net present value of the lease instalments falling due.

Income from hire purchase contracts entered prior to 1st April, 2001 is accounted for on equated basis in accordance with the terms of thecontract (except in some cases in which it is accounted for by applying the interest rate implicit in such contracts). For hire purchasetransactions entered on or after 1st April, 2001 the income is accounted for by applying the interest rate implicit in such contracts.

(J) Government Grants :

The Company is entitled to various incentives from a State Government, such as grants by way of refund of octroi duty paid by theCompany for its manufacturing unit located in a developing region. In view of the uncertainty in respect to the collection of these grants,such grants are accounted for as and when the disbursements are received.

(K) Time Share Business :

The activity of selling Timeshare and providing holiday facilities to members for a specified period each year, over a number of years, forwhich membership fee is collected either in full up front, or on a deferred payment basis. Upto 30th September, 2005 out of the totalmembership fee, relevant portion reasonably attributable towards cost required to market Timeshare, which is assessed and revisedperiodically, is recognised as Timeshare income in the year in which the purchaser of Timeshare becomes a member and the balancerepresenting ‘Advance towards members’ facilities’ is being recognised as Timeshare income equally over a period for which holidayfacilities are provided commencing from the year in which the member is entitled to benefits of membership under the scheme.

With effect from 1st October, 2005 in accordance with the new membership rules, admission fee, which is non-refundable, is recognised asincome on admission of a member. Entitlement fee, which entitles the time share member for the timeshare facilities over the membershipusage period, is recognised as income equally over the usage period.

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(L) Retirement Benefits :

Retirement Benefits in respect of gratuity and leave encashable at retirement/cessation are provided for based on valuations, as at theBalance Sheet date, made by independent actuaries.

(M) Product Warranty :

In respect of warranties on sale of certain products, the estimated costs of these warranties are accrued at the time of sale. The estimatesfor accounting of warranties are reviewed and revisions are made as required.

(N) Leases :

The Group’s significant leasing arrangements are in respect of operating leases for premises (residential, office, stores, godowns, etc.). Theleasing arrangements which are not non-cancellable range between 11 months and three years generally, and are usually renewable bymutual consent on agreed terms. The aggregate lease rentals payable are charged as Rent including lease rentals.

(O) Segment Reporting :

The accounting policies adopted for segment reporting are in line with the accounting policies of the Group. Segments are identified havingregard to the dominant source and nature of risks and returns and internal organisation and management structure.

Revenues and expenses have been identified to the segments based on their relationship to the business activity of the segment. Income/ Expenses relating to the enterprise as a whole and not allocable on a reasonable basis to business segments are reflected as unallocatedcorporate income / expenses. Inter-segment transfers are at prices which are generally market led.

(P) Taxes on Income :

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised, subject toconsideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate inone period and are capable of reversal in one or more subsequent periods. Deferred tax assets arising on account of unabsorbeddepreciation or carry forward of tax losses are recognised only to the extent that there is virtual certainty supported by convincing evidencethat sufficient future tax income will be available against which such deferred tax assets can be realised.

(Q) Income from Securitisation and Assignment :

Securitised assets are derecognised as the contractual rights therein are transferred to the special purpose vehicle or buyers as the casemay be. On derecognition, the difference between book value of the securitised asset and consideration received as reduced by theestimated provision for loss/expense and incidental expenses related to the transaction is recognised as gain or loss arising on securitisation.

In case of assignment of receivables the assets are derecognised as all the rights, titles, future receivables & interest thereof are assignedto the purchaser. On derecognising, the difference between book value of the receivables assigned and consideration received as reducedby the estimated provision for loss/expenses & incidental expenses related to the transaction is recognised as gain or loss arising onassignment.

3. In the Consolidated Accounts, the Investment Fluctuation Reserve account is reflected with a corresponding adjustment to ‘General Reserve’.In accordance with the Scheme of Arrangement, the Investment Fluctuation Reserve has been utilised against diminution in value of certaininvestments and other assets in the accounts of the Company. Accordingly, an amount of Rs. 1230.00 lakhs (2005 : Rs. 2131.49 lakhs) wasutilised for provision for investment in subsidiaries and other amounts recoverable from subsidiaries in the standalone accounts of the Company,and not set up in the consolidated accounts, has been transferred from Investment Fluctuation Reserve to General Reserve.

4. During the year, the Institute of Chartered Accountants of India has issued a Guidance Note on Accounting for Employee Share-basedPayments which requires that shares allotted to a trust but not transferred to the employees be reduced from the Share Capital and Reserves.Accordingly, the Company has reduced the Share Capital by Rs. 375.09 lakhs (2005 : Rs. 436.07 lakhs), Securities Premium by Rs. 1837.93lakhs (2005 : Rs. 2136.73 lakhs) for the 37,50,884 shares (2005 : 43,60,672 shares) held by the trust pending transfer to the eligibleemployees. The amount receivable from the ESOP Trust, net of the above moneys which is treated as advance received from it, is includedunder current liabilities.

The Share Capital of the Company has also been reduced and the General Reserve increased by Rs. 375.09 lakhs (2005 : Rs. Nil) for thebonus shares issued by the Company in September 2005 to the trust but not yet transferred by the trust to the employees.

The Company has also given effect to the above in the calculation of its Basic and Diluted earnings per share for the current and previous year.

5. Loans :

(a) Secured borrowings are secured by a pari-passu charge on immovable properties of the entities both present and future, subject tocertain exclusions and are also secured by pari-passu charge on the movable properties of the Entities including movable Machinery,Machinery Spares, Tools and Accessories, both present and future, subject to certain exclusions.

(b) Loans and Advances from Banks are secured by a first charge on whole of the current assets namely inventories, certain book debts,outstanding monies, receivables, claims, etc. both present and future.

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6. (a) The depreciation charge for the year excludes :

(i) An amount of Rs. 43.28 lakhs (2005 : Rs. 54.22 lakhs), representing depreciation on the increase due to revaluation of Land andBuildings transferred from the Revaluation Reserve.

(ii) An amount of Rs. 3.10 lakhs (2005 : Rs. 63.28 lakhs), representing depreciation on assets used for development work. Thisexpenditure is transferred to Development Expenditure and is appropriately amortised.

(b) Additions to assets include assets taken over due to acquisition of subsidiaries :

Rupees Lakhs

Description of Assets Cost / Professional Depreciation /Valuation Amortisation

Land .................................................................................................................................... 10,20.16 —

Land-Leasehold .................................................................................................................. 61.64 4.51

Building ............................................................................................................................... 66,30.06 18,59.69

Plant & Machinery .............................................................................................................. 291,55.38 200,74.99

Plant & Machinery-Lease ................................................................................................... 7,63.62 14.03

Furniture & Fittings ............................................................................................................. 17,42.42 13,42.19

Vehicles, Cycles, etc. ......................................................................................................... 3,90.19 2,39.20

Software Expenditure ......................................................................................................... 2,68.66 2,01.92

Total .................................................................................................................................... 400,32.13 237,36.53

(c) The depreciation charge for the year includes an amount of Rs. 0.50 lakhs (2005 : Rs. 24.52 lakhs) representing lease terminal adjustmentfor the year.

7. (a) During the year ended 31st March, 2006, Mahindra & Mahindra Financial Services Limited has without recourse securitised/assigned loanreceivables of Rs. 22644.00 lakhs (2005 : Rs. 22490.00 lakhs) contracts amounting to Rs. 55630.58 lakhs (2005 : Rs. 45277.68 lakhs)(including future interest receivable) for a consideration of Rs. 51468.22 lakhs (2005 : Rs. 42429.84 lakhs). As the income booked inrespect of securitisation/assignment of receivables include certain amount towards cost of future servicing of the securitised/assignedpool, a matching amount has been provided for. The income booked on securitisation/assignment of receivables during the year isRs. 5718.00 lakhs (2005 : Rs. 3252.67 lakhs) and provision for estimated loss/expenses is Rs. 2082.66 lakhs (2005 : Rs. 1256.02 lakhs).

(b) During the year ended 31st March, 2006, Mahindra Holidays & Resorts India Limited has with recourse securitised receivables ofRs. 2369.32 lakhs (2005 : Rs. 3189.16 lakhs).

8. The Company had issued during the year ended 31st March, 2005, Zero Coupon Foreign Currency Convertible Bonds (Bonds) aggregating toUS $ 100 million, at par. Out of these upto 31st March, 2006, Bonds aggregating to US $ 64.73 million have been converted into equity shares/ GDRs. Subsequent to the year end, Bonds aggregating to US $ 22.37 million have been converted into equity shares / GDRs.

Premium payable on redemption of Bonds had been fully provided in the previous year by debiting the same to Securities Premium Account(SPA). In view of the above, premium aggregating to Rs. 6667.07 lakhs no longer payable on bonds converted into equity shares / GDRs hasbeen credited back to SPA during the year.

The proceeds of the Bonds (net of conversion into equity shares/GDRs) have been utilised towards expansion of manufacturing facilities andoverseas acquisitions.

9. The Commissioner of Central Excise (Adjudication), Navi Mumbai, passed an order on 30th March, 2005, which was received by the Companyon 4th April, 2005, confirming the demand made on the Company for payment of differential excise duty (including penalty) of Rs. 30411 lakhsin connection with the classification of Company’s Commander range of vehicles, during the years 1991-1996. Whilst the Company hadclassified the Commander range of vehicles as 10-seater attracting a lower rate of excise duty, the Commissioner of Central Excise (Adjudication),Navi Mumbai, has held that these vehicles could not be classified as 10-seaters and as such attracted a higher rate of excise duty. In earlierproceedings, the Collector of Central Excise, Mumbai as also the Collector Central Excise (Appeals), Mumbai had upheld the classification ofthese vehicles as 10-seaters. Similarly, certain statutory/expert bodies have also confirmed the concerned vehicles to be 10-seater vehicles.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has also by its order dated 19th July, 2005 upheld this classification. Thedepartment’s statutory Appeal against this order has been admitted by the Supreme Court.

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

The Company has been legally advised that the order dated 30th March, 2005 passed by the Commissioner is unsustainable in law and has filedan appeal against this order, along with stay application, before the CESTAT. The Company is confident that it would succeed in the case andthe Company’s stand that the Commander Vehicles are 10-seater vehicles would be upheld. As such, the Company does not expect anyliability on this account.

10. Contingent Liability:

(a) Guarantees given :

Amount of guarantees

2006 2005Rupees lakhs Rupees lakhs

For employees ............................................................................................................................... 10.40 11.92

For other companies ..................................................................................................................... 2,00.00 62,05.59

For others ...................................................................................................................................... 14,98.68 3,42.36

(b) Claims against the Company not acknowledged as debts comprise of :

(i) Excise Duty, Sales tax and Service tax claims disputed by the Company relating to issues of applicability and classification aggregatingto Rs. 14242.00 lakhs (Net of Tax : Rs. 10503.60 lakhs) (2005 : Rs. 5490.78 lakhs (Net of tax : Rs. 4283.40 lakhs)).

(ii) Other Matters (excluding claims where amounts are not ascertainable) : Rs. 12686.77 lakhs (Net of Tax : Rs. 8422.40 lakhs)(2005 : Rs. 1175.79 lakhs (Net of Tax : Rs. 759.78 lakhs))

(iii) On capital account : Rs. 118.20 lakhs (2005 : Rs. 118.20 lakhs)

(iv) Group Share in Joint Ventures Rs. 0.88 lakhs (2005 : Rs. 1.27 lakhs)

(c) Taxation matters :

(i) Demands not acknowledged as debts and not provided for, relating to issues of deductibility and taxability in respect of which thematters are in appeal and exclusive of the effect of similar matters in respect of assessments remaining to be completed :

- Income tax : Rs. 15126.09 lakhs (2005 : Rs. 12903.93 lakhs)

- Group Share in Joint Ventures : Rs. 0.88 lakhs (2005 : Rs. 335.65 lakhs)

(ii) Items which have succeeded in appeal, but the Income tax Department is pursuing/likely to pursue in appeal/reference and exclusiveof the effect of similar matters in respect of assessments remaining to be completed:

- Income tax matters : Rs. 5186.54 lakhs (2005 : Rs. 4723.00 lakhs)

- Surtax matters : Rs. 12.80 lakhs (2005 : Rs. 12.80 lakhs)

(d) Bills discounted not matured Rs. 1491.64 lakhs (2005 : Rs. 4158.70 lakhs).

(e) In respect of contracts for design, manufacture, supply, erection and commissioning of plant and equipment placed by various customers,the committed dates of completion had expired and, hence, strictly in terms of the relative contracts, the liability for liquidated damages/penalties, the amount of which is estimated at a ceiling of Rs. 946.71 lakhs (2005 : Rs. 769.53 lakhs) - Net of tax Rs. 628.05 lakhs(2005 : Rs. 487.94 lakhs). However, it is expected to have the liquidated damages/penalties waived, as in the past.

(f) During the year, vide Share Purchase Agreement dated 15th November, 2005, Tech Mahindra Limited (formerly known as Mahindra -BritishTelecom Limited) has acquired Tech Mahindra (R&D services) Limited (TMRDL) for a initial consideration of Rs. 17550.60 lakhs (includingstamp duty). As a result, TMRDL and its two wholly owned subsidiaries have become subsidiaries / step subsidiaries of the Company witheffect from the date of acquisition i.e. 28th November, 2005.

The terms of purchase also provide for payment of contingent consideration to all the selling shareholders, payable over three years andcalculated based on achievement of specific targets. The contingent consideration is payable in cash and cannot exceed Rs. 6407.80lakhs. The consideration so payable would be accounted in the books of account in the year of achieving the milestones under theAgreement. Accordingly Rs. 328.29 lakhs has been accounted for as at the year end, as additional cost of acquisition.

11. (a) Provision - Others Rs. 10784.97 lakhs (2005 : Rs. 8052.56 lakhs) includes :

(i) Provision for warranty Rs. 6321.48 lakhs (2005 : Rs. 4702.40 lakhs). This relates to warranty provision made in respect of sale ofcertain products, the estimated costs of which is accrued at the time of sale. The products are generally covered under a freewarranty period ranging from 1 year to 3 years.

(ii) Provision for Contingencies Rs. 443.75 lakhs (2005 : Rs. 33.99 lakhs) is in respect of labour demands under negotiations at certainlocations of the Company. The ultimate settlement is contingent on the conclusion of negotiations.

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(b) The movement in above provisions is as follows :

Rupees lakhs

Warranty Contingency

Provisions 2006 2005 2006 2005

Balance as at 1st April, ....................................................................................... 47,02.40 33,83.24 33.99 3,42.00

Add : Provision made during the year ............................................................... 44,20.09 37,41.07 4,43.75 33.99

Less : Utilisation during the year ........................................................................ 28,01.01 24,21.91 33.99 3,42.00

Balance as at 31st March, ............................................................................... 63,21.48 47,02.40 4,43.75 33.99

12. The estimated amount of contracts remaining to be executed on capital account and not provided for as at 31st March, 2006 is Rs. 60977.14lakhs (2005 : Rs. 10326.80 lakhs).

Group Share in Joint Ventures: Rs. 1.56 lakhs (2005 : Rs. 55.40 lakhs).

13. Research and Development expenditure debited to the Profit and Loss Account, including certain expenditure based on allocations madeaggregate Rs. 11584.72 lakhs (2005 : Rs. 9246.68 lakhs).

Group Share in Joint Ventures: Rs. 4.52 lakhs (2005 : Rs. 0.76 lakhs)

14. The components of Deferred tax liability and assets as at 31st March, 2006 are as under:2006 2005

Rupees lakhs Rupees lakhsDeferred tax liability :

(i) On fiscal allowances on fixed assets ....................................................................................... 212,05.76 253,08.39

(ii) Others ....................................................................................................................................... 21,29.52 5,46.00

Group Share in Joint Ventures ................................................................................................. 53.81 32.59

233,89.09 258,86.98

Deferred tax assets :

(i) Provision for leave encashable at retirement/cessation ........................................................... 20,21.81 17,23.43

(ii) Provision for Doubtful debts/Advances .................................................................................... 66,90.27 53,86.28

(iii) Unabsorbed depreciation carried forward # ............................................................................ 2,75.27 11,46.87

(iv) Others ....................................................................................................................................... 27,57.59 40,60.20

Group Share in Joint Ventures ................................................................................................. 78.45 36.24

118,23.39 123,53.02

Net Deferred tax liability ................................................................................................................... 115,65.70 135,33.96

# (considered, as there are compensatory timing differences the reversal of which, will result in sufficient future taxable income against whichthis can be realised).

15. Exceptional items of Rs. 26340.42 lakhs (credit) [2005 : Rs. 1503.15 lakhs (credit)], comprise of the following :

2006 2005Rupees lakhs Rupees lakhs

1. Profit on divesture of Long Term Investments .............................................................................. 275,79.06 9,30.15

2. Amortisation of liability and other retirement benefits made under Voluntary Retirement Schemes .. (8,34.07) (7,26.10)

3. Premium on redemption of preference shares ............................................................................. (4,04.57) —

4. Provision for diminution in value of certain assets substantially retired from active use ............. — (8,26.03)

5. Benefit arising out of early repayment of sales tax loan ............................................................... — 21,25.13

Total ............ 263,40.42 15,03.15

Figures in brackets signify charge to Profit and Loss Account

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

16. Adjustments pertaining to previous years, net of current and deferred tax, comprise of the following :

2006 2005Rupees lakhs Rupees lakhs

1. Excess / short provision of Income Tax in respect of previous years. .................................... 20.59 1,60.212. Other Adjustment ..................................................................................................................... 2.52 –3. Group share in Joint Ventures .................................................................................................. – 0.19

Total ............. 23.11 1,60.40

17. Work-in-progress – Property Development Activity and Long Term Contracts and Advances recoverable in cash or kind or for value to bereceived includes Group’s share of Rs. 4762.18 lakhs on account of certain projects, the commencement of which has been delayed pendingresolution of certain matter including receipt of approvals and outcome of court cases.

18. Related Party Transactions :

(a) Names of related parties where transactions have taken place during the year :

Subsidiaries :

Sl. No. Name of the Company Sl. No. Name of the Company

1. Tech Mahindra Foundation 2. Mahindra Automotive Steels Limited (Note 20 (a))

Associates :

Sl. No. Name of the Company Sl. No. Name of the Company

1. Mahindra Ugine Steel Company Limited 5. Kota Farm Services Limited(upto 20thJune, 2005)

2. Owens Corning (India) Limited 6. Mriyalguda Farm Solution Limited

3. Rathna Bhoomi Enterprises Private Limited 7. Mega One Stop Farm Services Limited

4. Siroplast Limited 8. Mahindra Construction Company Limited

Joint Ventures :

Sl. No. Name of the Company Sl. No. Name of the Company

1. Mahindra Sona Limited 3. Mahindra Inframan Water Utilities Private Limited

2. Mahindra Water Utilities Limited

Key Management Personnel :

Vice Chairman and Managing Director ........................................... Mr. Anand MahindraExecutive Directors .......................................................................... Mr. B.N. Doshi

Mr. A.K. NandaMr. A.E. Durante(upto 25th September, 2005)

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(b) The related party transactions are as under:Rupees lakhs

Sl. Nature of Transactions Subsidiary Associate Joint KeyNo. Companies* Companies Ventures Management

Personnel

1. PurchasesGoods .......................................................................................... 36,57.22 29,18.14 46,51.49 –

(–) (96,86.54) (49,52.51) (–)

Fixed Assets ................................................................................ – 25.69 – –(–) (–) (–) (–)

Services ....................................................................................... – – – –(–) (8,07.27) (–) (–)

2. SalesGoods .......................................................................................... – 42,92.30 0.39 –

(–) (88,42.73) (–) (–)

Fixed Assets ................................................................................ 16,28.89 – – –(–) (–) (–) (–)

Services ....................................................................................... 39.80 3.56 90.45 –(–) (3,62.73) (37.08) (–)

3. InvestmentsPurchase ...................................................................................... 80,00.00 – – –

(–) (–) (2.00) (–)

4. Share Application Money paid .................................................... 48,50.00 – – –(–) (–) (–) (–)

5. Deputation of PersonnelFrom Related Parties ................................................................... – 2.80 – –

(–) (–) (–) (–)

To Related Parties ....................................................................... 40.05 2.66 – –(–) (17.09) (–) (–)

6. Provisions for :Doubtful Advances during the year ............................................. – 20.03 – –

(–) (15.18) (–) (–)

Diminution in value of other assets written back ........................ – 45.00 – –(–) (98.53) (–) (–)

7. Write Off of Receivables .............................................................. – – – –(–) (10.00) (–) (–)

8. FinanceInter Corporate Deposits given ................................................... 6,00.00 – – –

(–) (15.18) (8,64.22) (–)

Inter Corporate Deposits refunded by parties ............................ 6,00.00 1,25.19 – –(–) (5,00.00) (12,07.77) (–)

Interest received .......................................................................... 21.28 1,18.10 – 1.17(–) (2,77.09) (13.10) (–)

Dividend received ........................................................................ – 19.25 91.70 –(–) (19.25) (66.49) (–)

Stock on hire ............................................................................... – – – –(–) (19.91) (–) (–)

Cash discount received ............................................................... – – – –(–) (6.85) (–) (–)

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Rupees lakhs

Sl. Nature of Transactions Subsidiary Associate Joint KeyNo. Companies* Companies Ventures Management

Personnel

Interest on Hire Purchase ............................................................ – – – –(–) (1.95) (–) (–)

9. Other TransactionsOther Income ............................................................................... – 3,29.15 4.32 –

(–) (2,65.72) (2.60) (–)

Other Expenses ........................................................................... 15,00.00 – – –(–) (2.04) (13.05) (–)

Reimbursements received from parties ....................................... 1,23.64 1,84.05 3.22 –(–) (4,81.93) (18.70) (–)

Reimbursements made to parties ............................................... – 59.21 – –(–) (23.86) (3.00) (–)

Advance given by group company ............................................. – 20.03 – –(–) (–) (–) (–)

Advance refunded by group company ........................................ – 2,00.00 – –(–) (–) (–) (–)

10. OutstandingsPayable ........................................................................................ 2,87.54 – 8,49.18 2,15.86

(–) (9,47.71) (10,68.57) (2,41.30)

Receivable ................................................................................... 1,51.82 19,34.48 64.41 –(–) (47,10.39) (19.10) (82.26)

Inter Corporate Deposits given ................................................... – 5,72.80 – –(–) (6,32.98) (–) (–)

Guarantees and Collaterals given ............................................... – – 9,00.00 –(–) (47,83.96) (9,01.92) (–)

Deferred payment under hire purchase ...................................... – – – –(–) (1.71) (–) (–)

11. Provision for Diminution in value of other related assets ............ – 6,68.71 – –(–) (7,13.71) (–) (–)

Provision for Doubtful debts /advances ...................................... – 5,04.71 – –(–) (12,22.69) (–) (–)

12. Share Application Money ............................................................. 48,50.00 – – –(–) (–) (–) (–)

13. Managerial Remuneration ............................................................ – – – 5,61.47(–) (–) (–) (5,42.59)

14. Dividends ..................................................................................... – – – 33.08(–) (–) (–) (22.47)

15. Stock Options .............................................................................. – – – 8.38(–) (–) (–) (22.04)

16. Loan given to Key Management Personnel ................................ – – – –(–) (–) (–) (1,25.00)

17. Loan Refunded by Key Management Personnel ........................ – – – 80.00(–) (–) (–) (45.00)

Previous year’s figures are in brackets.

* Amounts pertain to Mahindra Automotive Steels Ltd. except other expenses of Rs.1500.00 lakhs (2005 : Rs. Nil) relating to Tech MahindraFoundation.

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MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Significant related party transactions are as under :Rupees lakhs

Nature of Transactions Associate Companies Amount Joint Ventures Amount

1. Purchase – Goods Mahindra Ugine Steel Company Limited 27,10.95 Mahindra Sona Limited 46,51.49(94,58.31) (49,52.51)

2. Sale – Goods Mahindra Ugine Steel Company Limited 42,71.90 Mahindra Sona Limited 0.39(88,07.99) (–)

3. Investment – Purchase Mahindra Inframan Water –Utilities Private Limited (2.00)

4. Provision for Mega One Stop Farm Services Limited 19.86Doubtful Advance (11.24)

Mriyalguda Farm Solution Limited 0.17(3.94)

5. Inter Corporate Mega One Stop Farm Services Limited – Jayem Automotives Limited –Deposits given (11.24) (8,61.22)

Mriyalguda Farm Solution Limited –(3.94)

6. Inter Corporate Mahindra Ugine Steel Company Limited 80.19 Jayem Automotives Limited –Deposits refunded (5,00.00) (12,02.77)by parties

Mahindra Construction Company Limited 45.00(–)

Previous year’s figures are in brackets

19. Earnings per Share :2006 2005

Amount used as the numerator – Balance of profit for 2005-2006 (Rupees lakhs) .................................... 1,269,71.66 681,53.78

(Gain)/Loss on difference in exchange on bonds ......................................................................................... 1,18.93 (6,47.62)

Amount used as the numerator for diluted earnings per share (Rupees lakhs) .......................................... 1,270,90.59 675,06.16

Weighted average number of equity shares used in computing basic earnings per share ......................... 22,51,11,765 22,24,99,782

Effect of potential ordinary (equity) shares on conversion of bonds/debentures ......................................... 2,06,32,529 2,18,34,008

Weighted average number of equity shares used in computing diluted earnings per share ....................... 24,57,44,294 24,43,33,790

Basic Earnings per share (Rs.) (Face value of Rs. 10 per share) ................................................................. 56.40 30.63

Diluted Earnings per share (Rs.) .................................................................................................................... 51.72 27.63

In the computation of earnings per share for the periods above, the Company has considered the bonus shares issued by it in September 2005and given effect to the Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants ofIndia.

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20. Investment in Associates

No. of Equity % of Cost of Goodwill/ Share in Carryingshares held Holding Investments Capital accumulated Cost

(Equity reserve Profit/(Loss)/Shares) Reserves

(Nos.) (Rupees lakhs)Unquoted :Owens Corning (India) Limited ......................... 2,81,24,794 21.50% 28,12.48 (7,63.78) 12,79.46 40,91.95

2,81,24,794 21.50% 28,12.48 (7,63.78) 11,40.94 39,53.42

Mahindra Construction Company Limited ........ 9,00,000 37.49% 96.88 – (96.88) –12,00,000 49.99% 1,29.17 – (1,29.17) –

Officemartindia.com Limited ............................. 14,99,997 50.00% 22.00 – (22.00) –14,99,997 50.00% 22.00 – (22.00) –

Rathna Bhoomi Enterprises Private Limited ..... 500 22.00% 0.05 – (0.05) –500 22.00% 0.05 – (0.05) –

Kota Farm Services Limited .............................. 2,73,420 32.74% 27.34 – (27.34) –2,73,420 32.74% 27.34 – (27.34) –

Mriyalguda Farm Solution Limited .................... 3,37,500 32.74% 33.75 – (33.75) –3,37,500 32.74% 33.75 – (33.75) –

Mega One Stop Farm Services Limited ........... 3,51,000 32.74% 35.10 2.52 (35.10) –3,51,000 32.74% 35.10 2.52 (35.10) –

Mahindra Automotive Steels Limited(Refer (a) below) ................................................ 82,21,936 47.11% 80,01.00 43,72.44 (4,22.12) 75,78.88

– – – – – –

Total .................................................................. 116,70.8339,53.42

Quoted :Mahindra Ugine Steel Company Limited .......... – – – – – –

1,52,41,885 49.28% 63,44.04 22,67.09 (6,43.88) 57,00.16

Siroplast Limited ............................................... 13,41,203 30.56% 290.13 54.92 104.45 3,94.5812,83,480 29.25% 256.51 35.25 78.77 3,35.28

Total .................................................................. 3,94.5860,35.44

(a) During the year the Company acquired 82,21,936 shares of Mahindra Automotive Steels Limited (MASL). MASL has since acquired thebusiness of Amforge Industries Limited effective 1st April, 2005 as a result of which 1,48,20,206 shares are to be issued to shareholders ofAmforge Industries Limited and further shares are to be issued to Mahindra & Mahindra Limited. Accordingly, on post issuance of such shares,which will be effective 1st April, 2005, MASL will be an associate of the Company.

21. Joint Ventures Disclosure :Group’s Share in Joint Ventures with respect to other items :

2006 2005Rupees LakhsRupees LakhsRupees LakhsRupees LakhsRupees Lakhs Rupees Lakhs

a) Sales ............................................................................................................................................................... 41,39.62 41,30.64

b) Excise Duty ..................................................................................................................................................... (3,38.92) (3,48.44)

c) Depreciation / Amortisation ............................................................................................................................ (61.55) (73.70)

d) Provision for Current Tax including Fringe Benefit Tax .................................................................................. (3,22.52) (2,74.18)

e) Provision for Deferred Tax (Net) ..................................................................................................................... 20.99 15.21

Figures in brackets signify charge to Profit and Loss Account.

146

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

22. Segment Information:

Segment Report for the year ended 31st March, 2006.

Primary Segment Disclosure - Business SegmentRupees lakhs

Automotive Farm IT Services Financial Other Eliminations ConsolidatedSegment Equipment Services Segments Total

Segment

REVENUE

Gross External Revenue ............. 6,450,23.55 3,462,07.70 1,388,51.53 583,21.40 1,963,99.46 – 13,848,03.645,549,21.63 2,585,53.42 1,027,72.92 399,88.48 1,045,89.07 – 10,608,25.52

Less : Excise Duty on Sales ...... 1,111,83.05 20,25.42 – – 127,87.49 – 1,259,95.96964,62.16 71,58.19 – – 33,56.28 – 1,069,76.63

Net External Revenue ................. 5,338,40.50 3,441,82.28 1,388,51.53 583,21.40 1,836,11.97 – 12,588,07.684,584,59.47 2,513,95.23 1,027,72.92 399,88.48 1,012,32.79 – 9,538,48.89

Inter Segment Revenue .............. 5,73.79 44,52.15 18,13.93 1,92.42 534,58.42 (604,90.71) –4,68.98 20,07.50 16,81.56 4,82.60 227,57.39 (273,98.03) –

Total Revenue ............................ 5,344,14.29 3,486,34.43 1,406,65.46 585,13.82 2,370,70.39 (604,90.71) 12,588,07.684,589,28.45 2,534,02.73 1,044,54.48 404,71.08 1,239,90.18 (273,98.03) 9,538,48.89

RESULT

Segment result before 541,01.05 311,69.48 253,90.61 150,86.95 + 336,93.80 – 1,594,41.89exceptional items ........................ 484,02.10 194,25.98 77,34.38 131,59.14 + 170,45.76 – 1,057,67.36

Exceptional items (2,54.76) (3,41.89) – – (2,37.42) – (8,34.07)allocated to Segments ................ (10,65.52) (2,86.56) – – (37.81) – (13,89.89)

Segment result after 538,46.29 308,27.59 253,90.61 150,86.95 + 334,56.38 – 1,586,07.82exceptional items ........................ 473,36.58 191,39.42 77,34.38 131,59.14 + 170,07.95 – 1,043,77.47

Unallocable Corporate 50,82.08expenses (net of income) 65,29.09

Operating Profit 1,535,25.74978,48.38

Less : Interest expense not allocable to segments 67,67.4457,65.25

Add : Interest Income not allocable to segments 63,18.2750,61.02

Add : Exceptional Items Unallocable to segment 271,74.4922,74.89

Profit before Tax 1,802,51.06994,19.04

Less : Income Taxes – Current Tax including Fringe benefit Tax 439,08.86315,87.06

– Deferred Tax (36,15.04)(13,13.80)

Profit for the year before prior year adjustments 1,399,57.24691,45.78

Less : Adjustments pertaining to previous years 23.111,60.40

Balance of Profit for the year before Share of Profit of Associates 1,399,34.13689,85.38

Share of Profit of Associates 4,66.6934,22.19

Profit for the year 1,404,00.82724,07.57

+ In line with Accounting Standard 17 on Segment Reporting, results of “Financial Services” segment are computed after charge of interest costas segment expense.

147

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Segment Information (Contd.): Rupees lakhs

Automotive Farm IT Services Financial Other Eliminations ConsolidatedSegment Equipment Services Segments Total

Segment

OTHER INFORMATIONSegment Assets ................................ 2,446,87.29 1,451,99.58 822,09.69 4,604,01.66 1,910,99.30 – 11,235,97.52

2,005,38.84 1,177,16.28 570,18.17 3,038,68.76 1,261,04.32 – 8,052,46.37Unallocable Corporate Assets .......... 2,400,10.29

1,407,79.74

Total Assets ..................................... 13,636,07.819,460,26.11

Segment Liabilities ............................ 1,163,37.89 711,63.58 262,53.70 4,145,39.03 * 767,84.16 7,050,78.36951,60.24 519,72.20 149,24.85 2,649,59.51 * 475,17.69 4,745,34.49

Unallocable Corporate Liabilities ...... 2,035,60.081,974,10.56

Total Liabilities ................................. 9,086,38.446,719,45.05

Capital Expenditure ........................... 346,14.30 91,51.74 40,70.84 12,70.76 117,47.04182,56.15 52,91.14 57,94.75 10,15.77 69,61.82

Depreciation / Amortisation .............. 134,35.36 60,54.06 41,37.82 5,17.33 32,36.49123,35.44 54,70.26 34,05.94 3,84.86 12,42.94

Non cash expenditure other than 5,20.79 10,65.28 – – 6,38.45depreciation ...................................... 2,39.48 4,22.66 – – 1,69.46

* In line with Accounting Standard 17 on Segment Reporting, segment liabilities of “Financial Services” segment include the related interestbearing liabilities.

Secondary Segment Disclosure - Geographical SegmentRupees lakhs

Domestic Overseas Total

Revenue From External Customers ............................. 11,248,15.25 2,599,88.39 13,848,03.648,784,23.28 1,824,02.24 10,608,25.52

Segment Assets ........................................................... 10,506,22.08 729,75.44 11,235,97.527,676,42.94 376,03.43 8,052,46.37

Capital Expenditure ...................................................... 559,94.01 48,60.67 608,54.68369,44.61 3,75.02 373,19.63

Notes :

1. Business Segments

The Group has considered business segments as the primary segment for disclosure.

The segments have been identified taking into account the organisational structure as well as the differing risks and returns of these segments.

Automotive Segment comprises of sales of automobiles, spare parts and related services.

Farm Equipment Segment comprises of sales of Tractors, spare parts and related services.

IT Services comprise of services rendered for IT and Telecom.

Financial Services comprise of services relating to financing, leasing and hire purchase of automobiles and tractors.

Others comprise of Steel trading, Project management, Investment, Automotive components, Power plant, Timesharing, etc.

2. Secondary Segments

The geographical segments are considered for disclosure as secondary segment.

Domestic segment includes sales to customers located in India and service income accrued in India.

Overseas segment includes sales and services rendered to customers located outside India.

148

MAHINDRA & MAHINDRA LIMITED (CONSOLIDATED)

Segment Revenue comprises of :2006 2005

Rupees lakhs Rupees lakhs

Sales ................................................................................................................................... 11,067,29.75 8,706,42.57

Income from Services rendered .......................................................................................... 1,713,19.73 1,214,14.23

Income from long term contracts ....................................................................................... 172,12.46 114,60.37

Income from project management ..................................................................................... 13,50.40 11,98.50

Hire purchase and lease income ........................................................................................ 58,67.60 42,98.36

Income from Loan, Retained Interest in Securitised Assets & Securitisation .................... 568,40.93 371,82.44

Other allocable income * .................................................................................................... 254,82.77 146,29.05

Total .......................... 13,848,03.64 10,608,25.52

2006 2005Rupees lakhs Rupees lakhs

*Other allocable income includes :

Interest Income ................................................................................................................... 5,13.69 3,71.57

Scrap Sales ......................................................................................................................... 55,02.91 37,19.54

Commission ........................................................................................................................ 6,11.79 4,28.39

Dividend .............................................................................................................................. 2,73.17 1,34.33

Profit on Sale of Long Term Investments ........................................................................... 87,22.68 55,00.95

Others ................................................................................................................................. 98,58.53 44,74.27

Total .......................... 254,82.77 146,29.05

23. Previous year’s figures have been regrouped/restated wherever necessary.

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