A N N U A L R E P O RT 0 4 - 0 5

SONA KOYO STEERING SYSTEMS LIMITED

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Contents
2 Chairmans Letter Board of Directors Management Discussion and Analysis Corporate Governance Additional Shareholder Information Directors Report Auditors Report Financials 5

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28

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37

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SONA KOYO STEERING SYSTEMS LIMITED

Chairmans Letter
Dear Shareholders, 2004-05 was a good year for your Company. Let me begin by sharing with you the financial results. Net sales revenue increased by 27 per cent to Rs. 2,975 million. Profit before depreciation, interest and taxes grew 30 per cent to Rs.387.4 million. Net profit rose by almost 38 per cent to Rs. 166.7 million. Earning per share (EPS) rose from Rs.2.75 in 2003-04 to Rs.3.79 in 2004-05, and Return on net worth increased from 19.8 per cent in 2003-04 to 22.9 per cent in 2004-05. This improvement in your Companys performance has been driven by the overall growth of the Indian economy. 2003-04 saw 8.5 per cent GDP growth the highest since the advent of economic liberalisation. The Quick Estimates of the Central Statistical Organisation have pegged Indias GDP growth for 2004-05 at 6.9 per cent. However, I tend to agree with many economists that the final figure will be around 7.3-7.5 per cent. Two consecutive years of excellent growth has led to a significant increase in disposable income. This, reinforced by easy availability of cheaper consumer finance, contributed to a surge in demand for automobiles your Companys end-user segment. Production of passenger cars and multi-purpose

vehicles, including exports, increased by almost 22 per cent from 843,000 units in 2003-04 to over a million in 2004-05; and that of multi-utility vehicles grew by 24 per cent to exceed 181,000 units. Not surprisingly, therefore, your Companys gross sales increased by over 26 per cent from Rs.2,869 million in 2003-04 to Rs.3,629 million this year. However, there have been pricing pressures. Major part of volume growth in passenger cars in India has been concentrated in the lower A and B segments. In order to enlarge the market for these cars, manufacturers have revised prices downwards and have then sought corresponding price cuts from their component vendors. Such pricing pressures will continue and these will be faced by majority of auto-component manufacturers in India and elsewhere in the globe. The automobile market is getting increasingly competitive, and one should expect auto OEMs to extract the best value from their vendors. The way of countering it is to supply high value added products to a larger set of customers, increase exports, and continuously develop new generation products and enhance organisational capabilities to distinguish itself from competition. Your Company continues to supply to leading OEMs. While Maruti remains our oldest and dominant customer, we are increasing supplies to other leading Indian passenger car and SUV manufacturers such as Hyundai, Mahindra and Mahindra, Tata Motors, General Motors (India) and Toyota, whose share in our total sales has increased to 46%. As I had written last year, our vision is To make Sona Koyo a supplier of choice for global customers by 2010. Among other things, this requires greater exports and presence in key geographies. 2004-05 was the first year of executing the export thrust, and I am pleased to report that your Companys exports grew five-fold to Rs.253.9 million. Nevertheless, I should also tell you that our exports fell somewhat short of what we had ambitiously targeted for the year largely on account of initial teething problems, which I understand is quite common with other auto-component exporters. These problems have been resolved, and I feel confident of significantly increasing our exports and meeting our targets for 2005-06. We are in the process of setting up a Company in the USA to service our customers and engage in business development activities to enhance our export orders. The General Manager of the Company, Mr. Scott Bradford Holzworth, with over 20 years experience in the US automotive industry has already been hired and is presently working as a Consultant. Sona Koyo made its first international foray through a Joint Venture in France. In October 2004, your Company bought a 21 per cent stake in Fuji Autotech France S.A.S. (FAF), Europes fourth largest steering column manufacturer, the erstwhile Faurecia Systems de Direction, and which was wholly acquired by Fuji Kiko Co., Ltd. Japan in July 2004. Fuji Kiko is an associate company of Koyo Seiko Co., Ltd., Japan, Sona Koyos joint venture partner for steering systems in India. The shares of FAF were acquired at an attractive price along with shareholder rights that includes a position on the Board and the right to appoint an Executive Vice President (New Product Development), reporting to the CEO. Your Company also has the right to further increase its stake from 21 per cent to 30 per cent over the next three years at the same price. Fuji Autotech is a supplier of steering columns to European OEMs and has an in-house capacity of 2.5 million steering columns. It currently has a 16 per cent market share in steering columns in Europe. Its customer franchise includes the two French global auto majors, Renault and PSA Peugeot-Citroen, as well as the likes of Nissan, Toyota and Volkswagen. In 2004, it posted sales of over Euro 75 million. Sona Koyo picked up its 21 per cent stake for approximately Euro 5 million. We expect to offer Fuji Autotech Europe the advantage of Sona Koyos design capabilities and low cost manufacturing base. We also expect to leverage Fuji Autotechs marketing infrastructure to penetrate the European OEM customer base with lower cost components. Moreover, we expect the partnership with Fuji Autotech to provide access to latest generation commercial vehicle column technology, which could then be leveraged to gain further presence in the growing Indian and South Asian markets.

As far as higher value added offerings are concerned, Sona Koyos growing sales of hydraulic power steering manufactured at its Gurgaon facility and its plan to set up an electronic power steering (EPS) plant are steps towards enriching its product portfolio with more technologically sophisticated and higher value added products. We are also moving up the value chain by taking on the design responsibility on new vehicle platform projects. We have been given such an opportunity by a US off-highway vehicle manufacturer. We are also likely to be awarded the business by the Indian operation of one of the big three US automaker, where, Sona Koyo will be responsible for designing and supplying the Power Steering Gear. EPS involves integration of electronic controls into a mechanical steering system and involves many new mechanisms that were absent in manual or hydraulic steering systems. We expect to begin commercial production of an EPS model by the second half of 2005-06. We are also at an advanced stage of finalising a License Agreement for commercial vehicle steering columns. Subsequently, the prototype steering column will be built for all potential customers and we expect the test results to be available by middle of next year. This will enable us to commence commercial production by 2008-09. This product is based on contemporary international technology, and will mark your Companys entry into the commercial vehicle steering segment. In the previous year, I had spoken about my satisfaction at Sona Koyo having won the prestigious Deming Award. As one would expect, the process of continuously improving quality levels goes on. This year, your Company initiated new activities such as JIT (just in time) implementation, flow manufacturing, breakthrough management techniques, under the guidance of experts in the respective fields. To continue the Best Deming Practices, we have started the Back to Basics programme for senior management. In the past, I have been stressing on the imperative need of building in-house technological and R&D capabilities to transform from being a manufacturer of components to a full service provider and becoming a critical partner for OEMs in the product development process. To this end, your Company significantly enhanced its testing facilities in 2004-05. We have also invested in acquiring capabilities in electronics for the design and manufacture of EPS. I will also like to share with you the status of our capacity expansion programmes. We had realised some time earlier that most of our production lines, especially in steering parts, would be working at full capacity by 2004-05. Therefore, building capacity was essential. During 2004-05, your Company spent Rs. 370 million on this account; and will spend another Rs. 500 million on increasing existing product capacities in 2005-06, in addition to a further Rs. 300 million to manufacture C-EPS, a new product line. These investments will allow your Company to increase its capacity of manufacturing manual steering gears to over one million units per year and power steering to over 275,000 units per year. Looking forward, I expect greater focus on exports and significant business and technology flows from Fuji Autotech Europe. I also expect our EOU unit near Chennai to operate at full capacity. And I expect our engineers and shop floor colleagues to continue with their ongoing quest for zero defects, higher productivity and throughput as well as cost reduction. The future seems bright as your Company embarks on a high trajectory growth path. We seem well on our way to achieving our vision of being a supplier of choice for global customers. On behalf of every employee of Sona Koyo, please allow me to thank you for your belief and support.

Dr. Surinder Kapur

Chairman & Managing Director 4

SONA KOYO STEERING SYSTEMS LIMITED

BOARD OF DIRECTORS Dr. Surinder Kapur Chairman & Managing Director Mr. Hiroshi Oishi Nominee of Koyo Seiko Co., Ltd. Mr. Shinichi Takeuchi Nominee of Maruti Udyog Ltd. Mr. Jug Mohan Kapur Mr. B.L. Passi Mr. Lalit Suri Mr. Chander Uday Singh Mr. Ravi Bhoothalingam Mr. P.K. Chadha Dr. Omkar Goswami Mr. Sunjay J. Kapur

REGISTRAR AND TRANSFER AGENT Karvy Computershare Pvt. Ltd. 105-108, Arunachal Building 19, Barakhamba Road New Delhi 110 001 REGISTERED OFFICE UGF-6, Indraprakash 21, Barakhamba Road New Delhi 110 001 CORPORATE OFFICE 8th Floor, DLF Square, Jacaranda Marg M Block, DLF City Phase II Gurgaon 122 002 (Haryana) LIAISON OFFICE 2nd Floor Piramal Mansion 235, D. N. Road, Fort Mumbai 400 001 WORKS 1. 38/6 NH-8 Delhi-Jaipur Road Gurgaon 122 002 (Haryana) 2. P.O. Box 14 Chennai-Bangalore Highway Sriperumbudur Distt Chinglepet Tamil Nadu 602 105

EXECUTIVE MANAGEMENT Dr. Surinder Kapur Mr. K.M. Deshmukh Mr. P.V. Prabhu Parriker Mr. Yoshitaka Akiyama COMPANY SECRETARY Mr. Sudhir Chopra COLLABORATORS Koyo Seiko Co., Ltd., Japan Mando Machinery Corporation, Korea AUDITORS M/s S P Puri & Co. Chartered Accountants 4/18 Asaf Ali Road New Delhi 110 002 BANKERS State Bank of India Standard Chartered Bank State Bank of Hyderabad Citibank N.A. The Hongkong and Shanghai Banking Corp. Ltd.

Management Discussion and Analysis

The Indian economy continued on its high growth trajectory in 2004-05. After growing by an impressive 8.5 per cent in 200304, Indias real GDP growth is provisionally estimated at 6.9 per cent in 2004-05. Two consecutive years of high economic growth have led to a general improvement in disposable real income. This, coupled with the easy availability of lower cost financing, have contributed to high demand for passenger cars and utility vehicles Sona Koyo Steering Systems Ltd.s (Sona Koyo) target segment. Domestic passenger car and multipurpose vehicles sales increased by 17.1 per cent to around 885,000 vehicles, while domestic utility vehicles sales increased by 20.5 per cent to over 176,000 vehicles. In addition, exports of passenger cars increased by 28.2 per cent to over 160,600 units. While this demand driven growth in the automobile sector augured well for most auto-component manufacturers, profitability continued to be under pressure. This was primarily due to two factors. The first factor is the price sensitive nature of the market, especially for passenger cars. The need for being price competitive forced automobile manufacturers to continuously strive to seek price reductions from their suppliers. The second factor was the rise in input costs of key raw materials like steel, which accounts for a large proportion of total input costs. Even though some of the price increase of steel could be passed on to the customer, the profit margin was adversely impacted. Your Company has a strategy in place that continues to counter these adverse external pressures. Realising that profit margin will continue to be under pressure, it continues to stress on building scales by penetrating new markets and improving internal efficiencies to offset pressures on profitability. Further, your Company focusses on developing new technology products with higher levels of value addition. Thus, helping it go up the value chain and generating greater returns.

Your company has performed well during 2004-05. While the buoyancy in markets has contributed to a healthy growth in your Companys sales volumes, improvements in internal efficiencies have helped maintain profit margins. The highlights of your Companys performance during 2004-05 are: Net income from operations increased by 27.1 per cent from Rs.2,340 million in 2003-04 to Rs.2,975 million in 2004-05. Operating profit before depreciation, interest and tax (OPBDIT), excluding other income, increased by 26 per cent from Rs.283 million in 2003-04 to Rs.357 million in 2004-05. Profit after tax (PAT) increased by 37.7 per cent from Rs.121 million in 2003-04 to Rs.167 million in 2004-05. Return on Net Worth (RONW) increased from 19.8 per cent in 2003-04 to 22.9 per cent in 2004-05. Earning per share (EPS) increased from Rs.2.75 in 2003-04 to Rs.3.79 in 2004-05. Your Companys well-communicated vision is to generate 45 per cent of its total turnover from exports by becoming a supplier of choice for global customers by 2010. This translates into an increased emphasis on sales to overseas customers and exports increased by a factor of five to Rs.253.9 million in 2004-05. There were, however, some difficulties experienced on the export front, which are discussed later in the chapter. Being a supplier of choice for global customers required the company to also develop its presence in key international geographies. Your Company made its first such foray by entering into a joint venture with Fuji Kiko Co., Ltd., Japan (associate company of Koyo Seiko Co., Ltd., Japan) in France. In October 2004 your Company acquired a 21 per cent stake in Fuji Autotech France S.A.S. (FAF). This is the passenger car steering column business of Faurecia (erstwhile Faurecia Systems de Direction), which had been completely acquired by Fuji Kiko in July 2004. Your Company has the right to further increase its stake from 21 per cent to 30 per cent over the next three years at the same price. Your Company has the

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right to one Board Seat (out of the total Board strength of 5) of FAF and appointment of a senior executive (Executive Vice President) below the rank of CEO. FAF is a high-quality supplier of steering columns to OEMs including the two French global auto majors, Renault and PSA Peugeot Citroen, in addition to other reputed OEMs like Nissan, Toyota and Volkswagen in Europe. The company is headquartered in Mandeure, France, employs 360 people, and is the fourth largest player with a 16 per cent market share of steering columns in Europe. Manufacturing over 2.5 million steering columns, FAF achieved a sales turnover of Euro 75.1 million in 2004 with a PBT of Euro

3.53 million in 2004. Sona Koyo picked up its 21 per cent stake for approximately Euro 5 million. Your Company intends to fully leverage FAFs relationships and marketing infrastructure to penetrate FAFs existing European customer base. Further, Sona Koyo intends to leverage its high quality and low cost manufacturing base to supply components to FAF. Recently your Company also entered into a Memorandum of Understanding (MOU) with Fuji Autotech AB - the market leader in the commercial vehicle steering column segment in Europe, which will provide access to their proprietary commercial vehicle steering column technology for the domestic and international markets.

Markets
Sona Koyos product portfolio includes two distinct product families steering systems and driveline products. Steering Systems portfolio includes both manual and hydraulic power steering systems steering gears and columns. Driveline product portfolio includes case differentials, axle components, rear axle assemblies and propeller shafts. Although your company intends to maintain its dominant position in the domestic market, there is an increasing focus on exports. In the driveline products, we are in discussion with MUL for newer products. Domestic In the domestic market, Sona Koyos customer segment

PRODUCTION OF CARS AND UVS (NOS)

SONA KOYOS SALES

Cars

UVs 181,778 4000 3500 3000 2500 2000 1500 1,027,876 2135 2048 2188 2869 3629

1,400,000 1,200,000 125,938 1,000,000 800,000 600,000 517,907 564,052 608,851 400,000 200,000 843,235 105,667 114,479 146,325

1000 500 2000-01 2003-04 2001-02 2004-05 2002-03

With Sona Koyo continuing to maintain its market leadership in the passenger vehicles steering segment in volume terms during 200405, the increase in overall car production resulted in the Company recording its highest ever sales. Chart B shows that after a slight dip in 2001-02, the Companys top-line has been growing steadily.

2000-01

2003-04

2004-05

2001-02

2002-03

Source: SIAM

remains focussed primarily on passenger cars, utility vehicles and multi-purpose vehicles. Your company has announced plan to enter the commercial vehicles business for steering columns and, at a later stage, power steering gears, if commercially viable. With passenger vehicles sales increasing by 17.6 per cent from 902,100 units in 2003-04 to 1,061,000 units in 2004-05, the Indian market has finally crossed the threshold level of a million units. This growth in domestic demand along with increased exports has resulted in both passenger cars (including MPVs) and Utility Vehicles recording their highest ever production numbers during 2004-05. Chart A gives the production numbers for these two segments over the last five years.
SONAs Export Oriented Unit at Chennai

There are two points of note in the passenger car market. First, a major position of total volumes is concentrated in the lower A and B segments. Second, most manufacturers have revised prices of models downwards, creating new price points in the market to aggressively market their products. Since your Company has a significant presence in these segments, the price reduction on cars has contributed to pricing pressures on yourCompanys products. We have been countering this by focussing on enhancing internal efficiencies and cost reduction on an ongoing basis. Your Company has also enhanced sales by targeting other customers like Hyundai, Mahindra and Mahindra, Tata Motors, General Motors (India) and Toyota which account for over 45% of total sales. Your Company is increasing sales of higher margin products such as Hydraulic (normal) Power Steering as well as entering new product segments like Electronic Power

Steering (EPS) and is in the process of setting up a new EPS facility near Gurgaon. EPS is a complex product that integrates technologies from several critical suppliers; reliable performance of EPS requires intricate levels of design adaptation to suit the local environment. At the early stage of field testing, Sona Koyo came across potential problems with its EPS that were unique to the local market. Hence it became imperative to understand the underlying cause and work out the best solution to these problems in partnership with technology development partners. We have been successful in overcoming these difficulties and are positioned to start commercial supplies of an EPS model by mid 2005. Exports Your Companys export strategy continues to have two distinct approaches. The first involves leveraging its low cost high quality manufacturing capabilities to become an integral part of Koyos global supply chain. Here, the Company will focus on supplying larger volumes of the lower end steering systems to Koyo for its international clients. In the near future, we expect this to be the principal export growth driver. As mentioned earlier, during 2004-05, Sona Koyos exports increased five fold to Rs.253.9 million. Although this was a creditable performance, it was short of what we had targeted for 2004-05. Our export projection for 2004-05 was largely based on supplying 240,000 manual gear assemblies to a large North American automaker through Koyo Steering, USA. We, however, faced some initial problems

which required a late-stage design change that necessitated re-establishing the vendors supply chain and re-engineering the production processes. Such developments are common to most new platform launches. Nevertheless, it resulted in around three months delay in commencing supplies. At present, the production has been stabilised. To execute the order, we have set up machining lines at our existing units in Gurgaon and Chennai and also set up a 100 per cent Export Oriented Unit (EOU) near Chennai and we are confident of ramping production up in the future. Incidentally, setting up of EOU unit has entitled the Company to various incentives like zero custom duty on imports, exemption from excise duty on capital goods and other inputs, and re-imbursement of Central Sales Tax. The second approach to developing exports is to supply niche players in the non-passenger car segments such as offhighway vehicles by being responsible for designing, developing and providing complete steering solutions. Although the progress in this segment is slower than anticipated, the Company continues to work with its existing customers in Europe and America. Sona Koyo realises the necessity to create marketing infrastructure to support its export foray. A key element of this is to have international offices for client interaction. During 2005, your Company has initiated the process of setting up a marketing Company in the US, apart from its European presence through FAF.

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Operations

Your Company recognises that building sufficient capacity is the key to attaining the next level of growth. The focus is also to become a full service supplier in addition to manufacturing, where we provide a complete suite of services ranging from product designing to manufacturing to testing and validation. This should enable increased penetration to global OEM accounts. In order to build on these capabilities your Company has been focusing on creating global manufacturing capacities, improving internal efficiencies and investing in technology infrastructure to create a complete back-office engineering support base.

million to set up capacities to produce C-EPS, a new product line. These investments, coupled with the continuous efforts at debottlenecking existing production lines, will provide us with the increased capacity required to better service the expanding market demand. Thus, by the end of 2005-06, Sona Koyos manual steering gears manufacturing capacity will increase to 1,050,000 units per annum; and its power steering manufacturing capacity will increase to 295,000 units per annum. During the expansion phase, your Company continues to stress on cost management. In order to enhance our competitive edge, we regularly work on improving efficiencies across the entire production process. This includes focused activities like value analysis and value engineering (VA/VE), vendor rationalisation, promoting increased localisation and improved balancing of production lines. Across most of its facilities, Sona Koyo continues to adopt lean manufacturing techniques and Toyota Production Systems. Your Company also believes in fully utilising its existing assets. Existing gross fixed assets were utilised 2.25 times during 2004-05.

Manufacturing Capacities
During 2004-05, most product lines at Gurgaon and Chennai, especially in steering parts operated at full capacity with increased levels of outsourcing. Consequently, your Company embarked on a capacity expansion plan from the beginning of 2004-05. During 2004-05, your Company spent Rs.370 million for capacity expansion and added Rs.360 million worth of fixed assets. In 2005-06, we plan to spend another Rs.500 million on increasing existing product capacities, and a further Rs.300

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Quality Management (TQM and TPM)

Your Company has always stressed on its quality management initiatives to continuously improve its internal organisational efficiencies. As reported in earlier annual reports, your Company has been implementing Total Quality Management (TQM) and Total Productive Maintenance (TPM) practices throughout the organisation since 1998. These quality initiatives were recognised in 2003-04 when we received the coveted Deming Award.

CUSTOMER REJECTION INDEX

IN-HOUSE REJECTION INDEX

SUPPLIER REJECTION INDEX

120 100 80 60 40 20 100

120 100 80 60 40 20 5.8 2005 0 1998 2.9 2005 100

120 100 80 60 40 20 1.3 0 1998 2005 100

At Sona Koyo, however, we consider the 0 1998 award to be just a milestone in our quality management journey. The Company continues to relentlessly pursue its internal quality programmes, which are not applied to the shop floor but are integral to Sona Koyos planning process. To further strengthen these activities, we started some new initiatives last year which include: Just-in-time (JIT) implementation. Flow Manufacturing. Breakthrough Management. Supplier Development through TPM. Supplier Development through Maruti Center for Excellence. Risk Hazard Analysis. Jishu Hozen Kaizen Conference. Concept of doctors on the shop floor. Back to Basics (B2B) Programme. JIT and Flow Manufacturing practices are augmenting already existing Toyota Production System techniques. Breakthrough Management assists senior management in deciding which business ideas to pursue for ensuing long term survival of your Company. Charts C, D and E shows the improvements in customer rejection, in-house rejection and supplier rejection over the years of pursuing the quality initiatives.

Your Company considers all its suppliers as partners. To strengthen this partnership and develop the capabilities across its supply chain, Sona Koyo has been advocating TPM and TQM practices with suppliers. This involved a special programme where suppliers were grouped into two clusters. Quality improvements achieved by this activity with two key suppliers is shown in Chart F below. Your Companys Group Kaizen Activities (GKA) achieved yet another milestone when one of the groups was awarded the Best Improvement QC Award among Koyos overseas factories. This team was also invited by Koyo to participate in the All Koyo Kaizen Convention in Osaka, Japan. To ensure that the improvements achieved through various change management programmes are sustained over a long time horizon, your Company plans to institutionalised these through various initiatives, one of which being the B2B or Back to Basics programme. Under this initiative, each manager has been assigned one production line under his mentorship. He spends an entire day in a month at this line to closely observe various aspects of manufacturing activities. Managers are trained to synthesise the observed facts to create a model, which is then used to discover the underlying problems. During the rest of the month, the manager works towards solving these problems and to improve the overall operation of the manufacturing line assigned to him. The B2B programme, thus, not only increases the involvement of management by getting them in direct contact with the shop floor, but also helps in strengthening on-site observation skills of managers. Performance of this programme is reviewed on a monthly basis and continuous changes are being made to further improve it. Rewards and recognition schemes are also in place to recognise the good performers.

SUPPLIER REJECTIONS (PPM)

Before TPM 4000 3295 3000 2000 1368 1000

After TPM

1749

208 0 Supplier A
(Cluster 1)

Supplier B
(Cluster 2)

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Fuji Autotech France S.A.S.

Research and Development

Having realised the necessity of using technology as a competitive tool, your Company has been actively developing its in-house R&D capabilities. From being a pure manufacturing organisation in 1997, your Company currently has been actively partnering customers in product development. We have acquired capabilities to design, develop and test most of its manual steering gears and columns. At present, there are over 48 Sona Koyo designed products. New products, introduced in past three years, accounting for over 44% of total sales. During 2004-05, Sona Koyo significantly developed its testing facilities. Besides strengthening bench testing facilities, the Company has acquired capabilities for performance testing of the steering system on a vehicle. Your Company has also made substantial investments in instrumentation and software. This will definitely improve our market positioning, and go a long way in potential customers choosing your Company for their new development programmes. As mentioned in the last years annual report, Sona Koyo has partnered IIT-Delhi in a research project that deals with new concepts in steering system technology. Significant progress has been made in this project. In addition, in 2004-05, we collaborated with IIT-Mumbai on another R&D initiative. This project is expected to add a new generation product into our product portfolio. The investments in Electronics R&D have resulted in acquiring capabilities in electronics and the successful development of a prototype Electronic Control Unit (ECU) for electric power steering application. We have been also leveraging IT tools in our new product

development processes. Virtual simulation and analysis are integral to the design process. This has helped considerably reduce development time of new products. While in 1998, the lead time for new products was 12.3 months, in 2004-05 this reduced to 5.7 months.

Information Technology
In the last few years, Sona Koyo has been investing in various IT tools. During 2004-05, the Company reviewed its entire IT infrastructure, and focused on consolidating, integrating and optimising existing systems. This involved stabilising continuous business process flows of existing software and integrating the enterprise application interface. There were two such major initiatives integration of the design software Windchill with the ERP system and linking an enhanced design software (called PDM-Link) with the new product development software (called Project-Link) to create an integrated system for new product development. The Company has also invested in SCADA system machines which allow two-way information flow across the shop floor. This serial based, single touch system allows operators to directly feed in real-time production data. This data is stored in a central server, where it is integrated with the ERP system. These machines have been installed across 86 lines in your Companys factory at Gurgaon.

Human Resources
Over the years, it is the commitment and dedication of its employees that has helped your Company successfully implement its business strategy. As we build capacities, diversify our product portfolio and expand international operations, your Company is constantly developing its human

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resources to successfully meet future needs of the Company. We have been using quality management tools to develop a systematic work culture that emphasises process ownership across all levels of the organisation. These initiatives, which emanate from the shop-floor, are being extended across the organisation. In order to illustrate the change that the quality initiatives has brought about, one needs to compare the prevailing scenario today with that of 1998, the year the initiatives began. Absenteeism, an indication of employee commitment, has reduced from 11.3 per cent in 1998 to 6 per cent in 2004-05.

Suggestion per employee, a proxy for the sense of ownership that employees have in the Company, has increased from 2.5 suggestions per employee per year to 29 suggestions per employee per year. The Company constantly undertakes training activities to enhance skills of its human resource. This also includes programmes in partnership with Koyo Seiko (Japan). During 2005, the Company imparted 69 hours of training per person. With the FAF Joint Venture, the Company intends to undertake employee exchange programmes to impart best practices across its plants.

TABLE 1 In Rs.million NET INCOME

SONA KOYO ABRIDGED PROFIT AND LOSS STATEMENT 2004-05 2003-04 OPERATIONS
IN STOCK IN TRADE

FROM

2,974.9 2,617.5 -12.1 2,048.5 168.9 235.0 177.2 357.4 109.2 248.3 24.9 223.4 30.0 253.3

2,340.4 2,056.8 -5.6 1,609.6 115.6 205.7 131.5 283.6 94.9 188.7 15.0 173.7 13.9 187.6 66.6 121.0 2.75

TOTAL EXPENDITURE

Financial Highlights
Table 1 gives the Sona Koyos abridged Profit and Loss Account for 2004-05. The salient features of Sona Koyos financial performance are: The Companys top-line continued to register high levels of growth. Net income from operations increased by 27.1 per cent from Rs.2,340.4 million in 2003-04 to Rs.2,974.9 million in 200405. Even in an inflationary environment with high prices of raw materials like steel, the Companys focus on improving operational efficiencies has contributed to Sona Koyo maintaining its profitability margins. Operating profit margin (OPBDIT/net income from operations) remained at 12 per cent.

(A) INCREASE/DECREASE (B) CONSUMPTION (D) STAFF COST

OF

RAW MATERIAL
COST

(C) MANUFACTURING

(E) OTHER EXPENDITURE OPBDIT DEPRECIATION & AMORTISATION OPBIT FINANCE CHARGES OPBT OTHER INCOME PBT TAX (INCLUDING PAT EPS(RS.)
DEFERRED)

86.7 166.7 3.79

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A key element in this efficiency improvement has been the improved productivity of employees with employee cost to net income from operations decreasing from 8.8 per cent in 200304 to 7.9 per cent in 2004-05. Consequently, there has been a healthy 37.7 per cent growth in profit after tax (PAT) from Rs.121 million in 2003-04 to Rs.166.7 million in 2004-05. The Company declared a 50 per cent dividend for the year under review.
TABLE 2 KEY FINANCIAL RATIOS 2004-05 OPBDIT/ PBT/ PAT/
NET INCOME FROM OPERATIONS

Risks and concerns

Today, Sona Koyo is an auto component manufacturer with a high degree of reliance on the Indian automotive market. The Indian automobile industry has had two successive years of buoyant growth. Although this is expected to continue, there could be chances of a downturn in the automotive sector. The auto-component industry is highly dependent on relationships between auto-majors. Changes in ownership patterns and mergers and acquisitions lead to different alignment of relationships between global OEMs and their suppliers. Such changes in alignments can create risks for Sona Koyo. Most of Sona Koyos products have a significant component of technology. The automotive component industry is a fast evolving industry and products become obsolete faster than ever before. Sonas products, therefore, bear the risk of obsolescence, especially if customers products life cycle is shortened. Sona Koyo has been increasing its export thrust. This has exposed the Company to risks associated with foreign currency fluctuations. Product liability claims from overseas customers remains another potent risk. Finally, any increase in prices of key raw materials like steel will correspondingly add to cost pressures on the Company.

2003-04 12.1% 8.0% 5.2% 16.5% 19.8%

12.0% 8.5% 5.6% 14.0% 22.9%

NET INCOME FROM OPERATIONS NET INCOME FROM OPERATIONS

ROCE RONW

Table 2 gives the key financial ratios of the company for 200405. It is evident that on all profitability fronts, Sona Koyo has maintained or improved its performance during 2004-05. However, return on capital employed (ROCE) has reduced from 16.5 per cent in 2003-04 to 14 per cent in 2004-05. This needs further explanation. The ROCE ratio is skewed since acquisition debt, for financing your Companys investment in FAF was assumed on your Companys Balance Sheet. Due to the fact that no dividend was paid in the fiscal year 2004-05, no returns were generated on this investment. If we make adjustments for this, the ROCE actually increase marginally to 16.7 per cent. More importantly, during 2004-05, the Company has invested significantly in capital equipment. Many of these lines have not started production during 2004-05. So, while the investments have been made and financing arranged, there is no contribution to increasing the bottom line.

Outlook
Growth of the automobile industry in India may to equal the same y-o-y growth rates in the past years of high growth. However, your Company is expected to grow at the same rate as the industry and exports will add to the growth momentum. While remaining cautiously optimistic about the prospects for 2005-06, we believe that we are well on our way to attaining the scale, products and efficiencies to achieve the objective of being a supplier of choice for the global automotive industry. Cautionary Statement Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in the automobile industry global or domestic or both, significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other costs. 15

Internal Control Systems and their Adequacy

Sona Koyo has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that transaction are authorised, recorded and reported expeditiously. The Companys internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial information and other data, and for maintaining accountability of assets.

33

Corporate Governance

Sona Koyo Steering Systems Limited remains committed to high standards of corporate governance. The Company believes that appropriate disclosure procedures, transparent accounting policies, strong and independent Board practices, and highest levels of ethical standards are critical to enhancing and retaining investor trust and generating sustainable corporate growth. It is with this conviction that Sona has set in place systems, procedures, and standards that are promoting good corporate governance standards within the Company. The Securities and Exchange Board of India (SEBI) regulates corporate governance practices of companies listed on the Indian stock exchanges. These regulations are notified under Clause 49 of the Listing Agreements of all the stock exchanges in the country. This Clause specifies the standards that Indian companies have to meet, and the disclosures that they have to make, with regard to corporate governance. In 2004-05, SEBI amended the existing provisions of Clause 49 of the Listing Agreement, thereby enhancing the scope of Corporate Governance practices for listed Companies. Through a circular dated 29 March 2005, SEBI has mandated all listed Companies to comply with the revised Clause 49 by 31 December 2005. Your Company is establishing systems and procedures to comply with the amended provisions of the Code of Corporate Governance ahead of its implementation date. This chapter, along with the chapters on Additional Shareholders Information and Management Discussion and Analysis, reports Sonas compliance with existing Clause 49 of the Listing Agreement and the extent of its compliance with the revised Clause 49.

17

1. BOARD OF DIRECTORS

A. Composition of the Board

As on 31 March 2005, Sonas Board consists of eleven Directors. The Chairman and Managing Director is a whole-time executive Director. The remaining ten are non-executive Directors, of whom six are independent. Koyo Seiko Co., Ltd., Japan, the financial and technical collaborator of Sona, has nominated a non-executive Director on the Board of the Company. Maruti Udyog Ltd (MUL), which is the co-promoter of Sona as well as its major customer, has also nominated one non-executive Director on the Board of the Company. The composition of the Board is in conformity with the Clause 49, which stipulates that in case the Chairman is an executive Director, at least 50 per cent of the Board should consist of independent Directors.

B. Number of Board Meetings

In the year ended 31 March 2005, Sona held four Board meetings on 12 April 2004, 21 July 2004, 15 October 2004, and 14 January 2005. The maximum time gap between any two Board meetings during the year was less than four months.

C. Directors attendance record and directorships held

See TABLE1 for details.
TABLE 1 Name of Director DETAILS OF SONAS BOARD OF DIRECTORS FOR THE YEAR ENDED 31 MARCH 2005 Position Board Board Meetings meetings held during attended the period of Directorship 4 2 1 1 3 4 4 4 4 4 4 4 2 4 2 1 Nil 2 2 4 4 4 1 Nil 2 1 Whether attended last AGM Directorships held in other public limited companies incorporated in India* 9(4) 1(1) 4(3) Nil Nil Nil 3(-) 4(1) 2(1) 12(2) Nil 2(1) 6(6)

DR. S. KAPUR MR. J. SUGIMORI ** MR. SHINICHI TAKEUCHI *** MR. K. TAKEDA #

MR. HIROSHI OISHI ## MR. J. M. KAPUR MR. SUNJAY J. KAPUR ###

Executive Chairman and whole-time Director Non-executive Director nominee of MUL Non-executive Director nominee of MUL Non-executive Director Nominee of Koyo Non-executive Director Nominee of Koyo Non-executive Director (Brother of Dr. S. Kapur) Non-executive Director (Son of Dr. S. Kapur) Independent Director Independent Director Independent Director Independent Director Independent Director

Yes Yes N.A. No No No Yes Yes Yes Yes No No No

MR. P. K. CHADHA MR. RAVI BHOOTHALINGAM MR. LALIT SURI MR. CHANDER UDAY SINGH MR. B.L. PASSI DR. OMKAR GOSWAMI ~

Independent Director

18

Notes * Figures in ( ) denotes listed Companies. ** Ceased to be a Director with effect from 15 October 2004 due to withdrawal of his nomination by Maruti Udyog Ltd. *** Nominated by Maruti Udyog Ltd and appointed by the Board as an additional Director with effect from 14 January 2005. # Ceased to be a Director with effect from 21 July 2004 due to withdrawal of his nomination by Koyo Seiko Co., Ltd., Japan. ## Nominated by Koyo Seiko Co. Ltd., Japan and appointed by the Board to fill the casual vacancy in place of Mr. Kiyoshi Takeda with effect from 21 July 2004. ### Appointed as an additional Director with effect from 12 April 2004. ~ Appointed as an additional Director with effect from 15 October 2004.

Independent Director shall mean a non-executive director of the company who: a. apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three financial years; d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: i) the statutory audit firm or the internal audit firm that is associated with the company, and ii) the legal firm(s) and consulting firm(s) that have a material association with the company. e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; and f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

None of the Directors is a member of more than 10 Board-level committees, or a Chairman of more than five such committees, as required under Clause 49 of the Listing Agreement.

D. Information supplied to the Board

Among others, this includes: Annual operating plans and budgets and any updates. Capital budgets and any updates. Quarterly results for the Company and its operating divisions or business segments. Minutes of meetings of audit committee and other committees of the Board. The information on recruitment and remuneration of senior officers just below the Board level, including appointment or removal of Chief Financial Officer and the Company Secretary. Show cause, demand, prosecution notices and penalty notices which are materially important. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems. Any material default in financial obligations to and by the Company, or substantial nonpayment for goods sold by the Company. Any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the Company or taken an adverse view regarding another enterprise that can have negative implications on the Company. Details of any joint venture or collaboration agreement. Transactions that involve substantial payment towards goodwill, brand equity or intellectual property. Significant labour problems and their proposed solutions. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. Sale of material nature of investments, subsidiaries, assets, which is not in normal course of business. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material. Non-compliance of any regulatory, statutory or listing requirements and shareholders service such as nonpayment of dividend, delay in share transfer etc. Details of investment of surplus funds available with the Company. Sona has established procedures to enable its Board to periodically review compliance reports of all laws applicable to the Company, as well as steps taken by the Company to rectify instances of non-compliances.

E. Directors with materially significant related party transactions, pecuniary or business relationship with the Company
The Company has business transactions at prevailing market prices and terms with Pune Heat Treat (P) Ltd., a Company in which the wife of Sonas Chairman and Managing Director has a majority shareholding. The Company supplies components to Maruti Udyog Ltd., the co-promoter of the Company and pays royalty, technical know-how fees and other charges to Koyo Seiko Co., Ltd., Japan for extending technology of manufacturing various auto components. All transactions are conducted at arms length and at prevailing market prices. None

19

of these transactions involve a conflict with the financial interests of Sona. The detailed related party transactions are given in Schedule 21 to the Annual Accounts of the Company.

F. Remuneration of Directors: Sitting Fees, Salary, Perquisites and Commission

TABLE 2 gives the details of the remuneration package of Directors and their relationships with each other.

TABLE 2 Name of Director

REMUNERATION (IN RS.) PAID OR PAYABLE TO DIRECTORS FOR THE YEAR ENDED 31 MARCH 2005 Relationship with other Director Brother of Mr. J. M. Kapur None None None None Brother of Dr. S. Kapur Son of Dr. Surinder Kapur None None None None None None Sitting Fee * Commission on profits N.A . # # Nil 20,000 80,000 40,000 1,10,000 1,10,000 30,000 10,000 30,000 10,000 Salary Perquisites Total

DR. S. KAPUR MR. J. SUGIMORI #** MR. SHINICHI TAKEUCHI #~ MR. K. TAKEDA^ MR. HIROSHI OISHI^^ MR. J. M. KAPUR MR. SUNJAY J. KAPUR *** MR. P.K. CHADHA MR. RAVI BHOOTHALINGAM MR. LALIT SURI MR. CHANDER UDAY SINGH MR. B. L. PASSI DR. OMKAR GOSWAMI ~~

96,35,000 18,00,000 Nil Nil Nil Nil Nil Nil 2,00,000 2,50,000 80,000 Nil Nil Nil N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

18,91,418 1,33,26,418 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. # # Nil 20,000 80,000 40,000 3,10,000 3,60,000 1,10,000 10,000 30,000 10,000

NOTES: 1. * Sitting Fee includes the fee paid for attending the Committee Meetings. # Sitting fee for attending the Board Meetings was paid to the nominating Company Maruti Udyog Ltd.. ** Ceased to be a Director with effect from 15 October 2004 due to withdrawal of his nomination by Maruti Udyog Ltd. ~ Nominated by Maruti Udyog Ltd. and appointed by the Board as an additional Director with effect from 14 January 2005. ^ Ceased to be a Director with effect from 21 July 2004 due to withdrawal of his nomination by Koyo Seiko Co., Ltd., Japan ^^ Nominated by Koyo Seiko related to and of the Directors except Mr. Sunjay J. Kapur, Mr. of Dr. Surinder Kapur, None of the employees areCo., Ltd., Japanany appointed by the Board to fill the casual vacancy in place ofsonKiyoshi Takeda with effect from 21 July 2004 the *** Appointed as an additionalDirector of effect Company. 2004. Chairman & Managing Director with the from 12 April ~~ Appointed as an additional Director with effect from 15 October 2004. 2. The Company has not issued any Stock Option Shares

None of the employees are related to any of the Directors. SERVICE CONTRACT OF THE CHAIRMAN AND MANAGING DIRECTOR As approved by the Shareholders of the Company in their Twentieth Annual General Meeting, held on 21 July 2004, an agreement dated 15 October 2004 was executed between the Company and Dr. S. Kapur, Chairman and Managing Director of the Company for his re-appointment, with remuneration, for a period of three years, with effect from 28 September 2004. BASIS FOR COMPENSATION PAYMENT TO THE NON-EXECUTIVE DIRECTORS The Shareholders of the Company in its Annual General Meeting held on 18 July 2003, subject to the approval of the Central Government, pursuant to the provisions of Section 198, 309, 310 and other applicable provisions, if any, of the Companies Act, 1956, have approved payment and distribution of commission not exceeding 1 per cent of the net profits of the Company calculated in accordance with the provisions of Section 349 and 350 of the Act amongst the Directors or any of them or some of them other than the Managing Director / Whole-time Director of the Company, as may be determined by the Board of Directors. The Government of India, Ministry of Finance, Department of Company Affairs vide its letter dated 10 February 2004 has granted its approval to the above. Accordingly, the Board of Directors of the Company in its meeting held on 20 April 2005 has decided for the payment of remuneration to the Chairman of the Audit Committee Rs. 50,000/- and the other members of the Audit Committee Rs. 40,000/- per Audit Committee Meeting attended by them for the Financial Year 2004-2005 by way of commission out of the net profits of the Company for the Financial Year ended 31st March, 2005.

G. The details of the shares and convertible instruments held by the non-executive Directors
See Table 3 for details 20

SHARES AND CONVERTIBLE INSTRUMENTS HELD BY THE NONEXECUTIVE DIRECTORS AS ON 31 MARCH 2005 Name of Director Number of shares held Number of convertible instruments held MR. SHINICHI TAKEUCHI MR. HIROSHI OISHI MR. J. M. KAPUR MR. SUNJAY J. KAPUR MR. P.K. CHADHA MR. RAVI BHOOTHALINGAM MR. LALIT SURI MR. CHANDER UDAY SINGH MR. B. L. PASSI DR. OMKAR GOSWAMI NIL NIL 354,502 825 NIL NIL NIL 5,000 NIL NIL N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

TABLE 3

H. Committees of the board

AUDIT COMMITTEE As on 31 March 2005, Sonas Audit Committee comprises Mr. R. Bhoothalingam (Chairman), Mr. L. Suri and Mr. P. K. Chadha, all of whom are Independent Directors. This committee met five times during the year: 12 April 2004, 20 July 2004, 14 October 2004, 13 January 2005 and 28 March 2005. Minutes of the Audit Committee meetings were placed before and discussed by the Board. The attendance record of the Audit Committee is as follows:

ATTENDANCE RECORD OF SONAS AUDIT COMMITTEE FOR THE YEAR ENDED 31 MARCH 2005 Name of Director Position Audit Committee Audit Meetings held Committee during the Meetings period of attended directorship MR. RAVI BHOOTHALINGAM MR. LALIT SURI MR. P.K. CHADHA Chairman (Independent Director) Independent Director Independent Director 5 5 5 5 2 5

TABLE 4

The Audit Committee of Sona performs the following functions: Oversight of the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. Reviewing, with the management, the annual financial statements before submission to the Board for approval, with particular reference to: Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956. Changes, if any, in accounting policies and practices and reasons for the same Major accounting entries involving estimates based on the exercise of judgment by management Significant adjustments made in the financial statements arising out of audit findings Compliance with listing and other legal requirements relating to financial statements Disclosure of any related party transactions Qualifications in the draft audit report. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

21

Discussion with internal auditors any significant findings and follow up there on. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. To review the functioning of the Whistle Blower mechanism, in case the same is existing. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee Besides others, the Audit Committee of Sona reviews the following information: Management discussion and analysis of financial condition and results of operations Statement of significant related party transactions (as defined by the audit committee) submitted by management Management letters / letters of internal control weaknesses issued by the statutory auditors Internal audit reports relating to internal control weaknesses The appointment, removal and terms of remuneration of the Chief internal auditor. The audit committee is also presented with the following information on related party transactions (whenever applicable): A statement in summary form of transactions with related parties in the ordinary course of business Details of material individual transactions with related parties which are not in the normal course of business Details of material individual transactions with related parties or others, which are not on an arms length basis along with managements justification for the same. The Audit Committee is empowered, pursuant to its terms of reference, to: Investigate any activity within its terms of reference and to seek any information it requires from any employee Obtain legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise, when considered necessary The Chairman of the Audit Committee was present at the last Annual General Meeting to answer shareholders queries. The Audit Committee is regularly apprised of the various follow-up actions taken on the direction of the Audit Committee. Mr. Sudhir Chopra, Company Secretary of Sona, is the Secretary to the Committee. The Audit Committee regularly invites such executives as it considers appropriate, including the head of the finance function, the head of internal audit and the representative of the statutory auditors, to be present at the meetings of the Committee. SHAREHOLDERS / I NVESTORS G RIEVANCE COMMITTEE Sonas Shareholders / Investors Grievance Committee comprises Dr. Surinder Kapur, Chairman and Managing Director and Mr. J. M. Kapur, Non-executive Director. The Committee looks into redressal of Shareholders and Investors complaints related to transfer of shares, non receipt of Balance Sheet, non receipt of declared dividend and ensures expeditious share transfer process. Minutes of the Shareholders/Investors Grievance Committee meetings were placed before and discussed by the Board. The attendance record of the Shareholders / Investors Grievance Committee is as follows:
ATTENDANCE RECORD OF SONAS SHAREHOLDERS/INVESTORS GRIEVANCE COMMITTEE FOR THE YEAR ENDED 31 MARCH 2005 Name of Director Position Shareholder Shareholder Committee Committee Meetings held Meeting during the period Attended of Directorship MR. J. M. KAPUR DR. SURINDER KAPUR Chairman (Non-Executive Director) Member (Chairman and Managing Director) 5 5 5 5 TABLE 5

22

R EMUNERATION COMMITTEE Pursuant to the provisions of Schedule XIII to the Companies Act, 1956 and Clause 49 of the Listing Agreement, Sonas Remuneration Committee was initially set up by the Board of Directors in its meeting held on 27 March 2002 and reconstituted on 18 July 2004. As on 31 March 2005, the Committee consisted of four members Mr. P.K. Chadha

(Chairman), Independent Director, Mr. Ravi Bhoothalingam, Independent Director, Mr. J.M. Kapur, Non-Executive Director and Mr. B.L. Passi, Independent Director. The Remuneration Committee of the Company recommends to the Board the compensation paid to non-executive Directors in accordance with the Companies Act, 1956. The Committee met once during the year on 12 April 2004. Minutes of the Remuneration Committee meeting were placed before and discussed by the Board. The attendance record of the Remuneration Committee is as follows:
ATTENDANCE RECORD OF SONAS REMUNERATION COMMITTEE FOR THE YEAR ENDED 31 MARCH 2005 Name of Director Position Remuneration Remuneration Committee Committee Meetings held Meetings during the period Attended of Directorship MR. P.K. CHADHA MR. RAVI BHOOTHALINGAM MR. J.M. KAPUR MR. B.L. PASSI MR.CHANDER UDAY SINGH * Chairman (Independent Director) Member (Independent Director) Member (Non Executive Director) Member (Independent Director) Member (Independent Director) 1 1 1 1 1 1 1 1 1 1 TABLE 6

NOTES: * Ceased to be a member with effect from 15 October 2004.

2. MANAGEMENT

A. Management discussion and analysis

This annual report has a detailed chapter on management discussion and analysis.

B. Disclosures by management to the Board

All details relating to financial and commercial transactions where Directors may have a potential interest are provided to the Board and the interested Directors neither participate in the discussion nor do they vote on such matters.

C. Disclosures by management to the Board

In compliance with the recently amended SEBI regulation on prevention of insider trading, the Company has instituted a comprehensive code of conduct for its management staff and relevant business associates. The code lays down guidelines, which advises them on procedures to be followed and disclosures to be made, while dealing with shares of Sona and cautioning them on consequences of violations.

23

D. Code of Conduct for Directors and Senior Management

Sona is the process of formulating the Code of Conduct for the Directors and Senior Management and will implement the same within the prescribed time limit mentioned by SEBI vide its circular no. SBEI/CFD/DIL/CG/1/2005/29/3 dated 29 March 2005. RISK MANAGEMENT Sona is in the process of establishing risk assessment and minimization procedures which shall be periodically reviewed by the Board. SUBSIDIARY COMPANIES Sona does not have any subsidiary Company. DISCLOSURE OF ACCOUNTING TREATMENT IN PREPARATION OF FINANCIAL STATEMENTS Sona has followed the guidelines of accounting standards laid down by the Institute of Chartered Accountants of India (ICAI) in preparation of its financial statements.

3. SHAREHOLDERS

A. Disclosures regarding appointment or re-appointment of Directors

According to the Articles of Association of Sona, at every Annual General Meeting of the Company, one-third of the rotational Directors retire by rotation or if their number is not three or a multiple of three, the number nearest to one-third retire from office. Thus, Mr. Lalit Suri, Mr. B.L. Passi and Mr. Chander Uday Singh shall retire at the Annual General Meeting of the Company and being eligible, offer themselves for re-appointment. During the year, the Board of Directors of your Company has appointed Mr. Hiroshi Oishi, nominee of KOYO as Director of the Company on 21 July 2004, to fill the casual vacancy of Mr. Kiyoshi Takeda from the office of the Directorship, Dr. Omkar Goswami as an additional Director of the Company on 15 October 2004 and Mr. Shinichi Takeuchi, nominee of MUL, as an additional Director of the Company on 14 January 2005. In terms of the Companys Articles of Association, Mr. Hiroshi Oishi shall hold the office up to the date of the forthcoming Annual General Meeting. The abbreviated resumes of the Directors seeking re-appointment / appointment and details of their shareholding in the Company are as follwos : Mr. Lalit Suri (58 years) graduated in Commerce from the Shri Ram College of Commerce. He also undertook a two-year specialization in automobile engineering with Vauxhall Motors, England. Currently, Mr. Suri is the Chairman and Managing Director of Bharat Hotels Limited and a Member of Parliament in the Rajya Sabha. Besides hotels, Mr. Suri has business interests in aviation, exports, automobile ancillaries, real estate, telecom & information technology and newspaper publishing. Some of the companies where Mr. Suri serves as a member of the Board include Subros Ltd., Mercantile Capital & Financial Services Ltd., Premium Export Ltd. and Deeksha Holdings Ltd. Mr. Lalit Suri does not hold any equity shares of the Company.

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Mr. B. L. Passi (69 years) has over 40 years of experience in the field of finance, automobile trade, transportation and agriculture. Mr. Passi is one of the largest automobile distributors in the country. He had served on the Boards and sub-committees of nationalized banks like the Bank of India and Central Bank of India. He was also a member of the Board of Directors of Rajasthan State Industrial & Mineral Development Corporation Limited and served as a member of the New Delhi Municipal Committee (NDMC) and Chairman of Projects Negotiations and Tender Sub Committee of NDMC. He serves on Board of Directors of companies like Tata Housing & Development Co. Limited and Banaras Hotels Limited. Mr. B. L. Passi does not hold any equity shares of the Company. Mr. Chander Uday Singh (48 years) is a Commerce graduate from H.R. College of Commerce & Economic, Mumbai and L.L.B. from Government Law College, Mumbai. Mr. Singh is a practicing lawyer as Counsel in the Mumbai High Court and also in the Supreme Court of India. He was a Senior Correspondent with India Today and is experienced in dairy and agriculture. Mr. Chander Uday Singh is holding 5,000 equity shares of the Company. Mr. Shinichi Takeuchi (57 years), a Japanese national is a Graduate from the Department of Technology, Shizuoka University. He joined Suzuki Motor Corporation in 1970 and elevated to the position of Plant Manager of Kosai Plant in the year 2001. In 2001, Mr. Takeuchi was appointed on the Board of Maruti Udyog Ltd. as Director(P&PE). In 2003, Mr. Takeuchi was promoted as Joint Managing Director of Maruti Udyog Ltd. Mr. Shinichi Takeuchi was nominated by Maruti Udyog Ltd. as their representative on the Board of the Company. The Board of Director on 14 January 2005 appointed Mr. Shinichi Takeuchi as Director of the Company in place of Mr. J. Sugimori. Accordingly, Mr. Shinichi Takeuchi will be seeking appointment at the ensuing Annual General Meeting. Mr. Shinichi Takeuchi serves on the Board of Maruti Udyog Ltd., Subros Limited, Suzuki Metal India Limited and Bharat Seats Limited. Mr. Takeuchi is member of Audit Committee and Remuneration Committee of Suzuki Metal India Limited. Mr. Shinichi Takeuchi does not hold any equity shares of the Company. Mr. Hiroshi Oishi (53 years), a Japanese national and has Master Degree in Mechanical Engineering from Tamagawa University. He joined Koyo Seiko Co., Ltd., Japan (KOYO) in 1976. Since 1991 to 2000 he was deputed in various overseas projects of KOYO. Rising on the Corporate Ladder, Mr. Oishi was promoted as Deputy Director (Strategic Planning Department) of KOYO in 2002 and further as Director of KOYO in 2004. Mr. Hiroshi Oishi was nominated by KOYO as their representative on the Board of the Company. The Board of Directors on 21 July 2004 appointed Mr. Oishi as Director of the Company in place of Mr. Kiyoshi Takeda. Mr. Hiroshi Oishi does not hold any equity shares of the Company. Mr. Hiroshi Oishi will be seeking reappointment, as Mr. Kiyoshi Takeda was due to retire at this Annual General Meeting. Mr. Hiroshi Oishi is not a Director of any other Indian Company and is nor a member of any Committee thereof. Mr. Hiroshi Oishi does not hold any equity shares of the Company. Dr. Omkar Goswami (48 years) is the Founder and Chairman of CERG Advisory Private Limited. CERG is the acronym for the Corporate and Economic Research Group. He did his Masters in Economics from the Delhi School of Economics in 1978 and his D.Phil (Ph.D) from Oxford in 1982. He taught and researched economics for 18 years at Oxford, Delhi School of Economics, Harvard, Tufts, Jawaharlal Nehru University, Rutgers University and the Indian Statistical Institute, New Delhi. In March 1998 he become the Editor of Business India. From August 1998 up to March 2004, he was the Chief Economist of the Confederation of Indian Industry the apex Industry organisation of India. From 1993 onwards, he has served on several government committees on corporate governance, bankruptcy and company laws, infrastructure, tax reforms, and others. He has also been a consultant to the World Bank, the IMF, the ADB and the OECD. He serves as an independent Director on the Boards of Dr. Reddys Laboratories, Infosys Technologies, Infrastructure Development Finance Company, Crompton Greaves, SRF and DSP-Merrill Lynch Fund Managers. Dr. Omkar Goswami does not hold any equity shares of the Company.

B. Communication to shareholders
All important information relating to the Company and its performance, including financial results and shareholding pattern are posted on the web-site www.sonagroup.com. The web-site also displays all official press releases and presentation to analysts made by the Company. Also, pursuant to the requirement of Clause 51 of the Listing Agreement, the Company submits information / returns under the Electronic Data Information Filing and Retrieval (EDIFAR) System on-line on SEBIs web-site www.sebi.gov.in. The Company is required to submit the following information: Financial Statements comprising Balance Sheet, Profit & Loss Account and full version of Annual Report; Half Yearly Financial Statements including Cash Flow Statements and Quarterly Financial Statements. Corporate Governance Reports. Shareholding Pattern Statement. Action taken against any Company by any regulatory agency, if any.

25 25

The quarterly, half-yearly and annual results of the Companys performance are published in newspapers such as The Financial Express / Business Standard (English) and Veer Arjun (Hindi).

C. Investor grievances
As mentioned earlier in this chapter, the Company has constituted a Shareholders / Investors Grievances Committee for redressing shareholders and investors complaints. The status of complaints is reported to the Board of Directors in their meeting. Mr. Sudhir Chopra, Company Secretary, is the compliance officer.

D. Share Transfer
During the year, the Company has changed its Registrar and Transfer Agent from MCS Limited (MCS) to M/s. Karvy Computershare Pvt. Ltd.(KARVY). KARVY the Registrar and Share Transfer Agent of the Company conducts all share transfers and related matters both for physical transfer of Securities as well as dematerialisation / rematerialisation of securities. KARVY is registered with SEBI as a Category I Registrar.

E. Details of non-compliance
The Company has complied with all the requirements of regulatory authorities and no penalties or strictures were imposed on the Company by any stock exchange or SEBI or any statutory authority on any matter related to capital market in the year under review.

F. General Body Meetings

Details of the last three Annual General Meetings are given in TABLE 7.

TABLE 7

DATE, TIME AND VENUE OF THE LAST THREE AGMs Date 23 July 2002 Time 11.00 A.M. Venue FICCI Golden Jubilee Auditorium Federation House, Tansen Marg New Delhi 110 001. FICCI Golden Jubilee Auditorium Federation House, Tansen Marg New Delhi 110 001. FICCI Golden Jubilee Auditorium Federation House, Tansen Marg New Delhi 110 001.

Financial Year (Ended) 31 March 2002

31 March 2003

18 July 2003

11.00 A.M.

31 March 2004

21 July 2004

10.30 A.M.

G. Special Resolutions
In the ensuing 21 Annual General Meeting of the Company to be held on 19th July 2005, the shareholders consent is being sought by way of Special Resolution for keeping the documents mentioned in Section 163 of the Companies Act, 1956 at the Companys new Registrar and Transfer Agent M/s. Karvy Computershare Pvt. Ltd. The details of Special Resolutions passed in the previous three Annual General Meetings are as under: 20th Annual General Meeting held on 21 July 2004 Re-appointment of Dr. Surinder Kapur as Chairman & Managing Director for a further period of three years, with remuneration, on revised terms and conditions with effect from 28 September 2004. 19th Annual General Meeting held on 18 July 2003 Payment and distribution of commission not exceeding 1% of the net profits of the Company calculated in accordance with the provisions of Section 349 and 350 of the Act amongst the Directors or any of them or some of them other than the Managing Director / Wholetime Director of the Company, as may be determined by the Board of Directors. Delisting of Equity Shares of the Company from Delhi Stock Exchange, Bangalore Stock Exchange, Ludhiana Stock Exchange, Calcutta Stock Exchange and Ahmedabad Stock Exchange pursuant to the provisions of SEBI (De-listing of Securities) Guidelines, 2003. 18th Annual General Meeting held on 23 July 2002 Appointment of Mr. Sunjay J. Kapur, relative of Dr. Surinder Kapur, under Section 314 of the Companies Act, 1956. 26

H. Postal ballots
Section 192A of the Companies Act, 1956, read with Para 4 of the Companies (Passing of Resolution by Postal Ballot) Rules, 2001 provides certain matters to be passed by the Company through Postal Ballot only. At the ensuing Annual General Meeting to be held on 19th July 2005 there is no matter proposed to be passed by the Company which requires Postal Ballot. Also, there was no matter passed through Postal Ballots at the 20th Annual General Meetings of the Company. Auditors certificate on Corporate Governance As required by Clause 49 of the Listing Agreement, the Auditors certificate is given below.

AUDITORS CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENTS
To the Members of SONA KOYO STEERING SYSTEMS LIMITED

1. We have reviewed the implementation of Corporate Governance procedures by SONA KOYO STEERING SYSTEMS LTD. (the Company) during the year ended 31st March, 2005, with the relevant records and documents maintained by the Company, furnished to us for our review and the report on Corporate Governance as approved by the Board of Directors. 2. 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 Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. 3. On the basis of our review and according to the information and explanations given to us, the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement with the Stock Exchanges have been complied with by the Company. 4. We state that in respect of investor grievances received during the year ended 31st March, 2005, no investor grievances are pending against the Company for a period exceeding one month as per records maintained by the Shareholders / Investors Grievance Committee. 5. We further 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 S.P. Puri & Co. Chartered Accountants

Place : Gurgaon Dated : 20th April, 2005

(Rajiv Puri - Partner) Membership No. : 84318

27

4. ADDITIONAL SHAREHOLDER INFORMATION

Annual General Meeting DATE: 19 July 2005 VENUE: The Air Force Auditorium, Subroto Park, New Delhi 110 010. TIME: 10.30 A.M. Financial Calendar FINANCIAL YEAR: 1 April to 31 March. For the year ended 31 March 2005, results were announced on: 21 July 2004: First Quarter 15 October 2004: Second Quarter 14 January 2005: Third Quarter 20 April 2005: Annual Book Closure The dates of book closure are from 1 July 2005 to 19 July 2005 inclusive of both days. Dividend Date A 50 per cent dividend on Equity Share Capital was recommended on 20 April 2005 and subject to approval from the shareholders at the AGM, will be paid on 25 July 2005 onwards. Listing The Companys Equity Shares are being listed on Mumbai Stock Exchange and National Stock Exchange. The Calcutta Stock Exchange has, in principle, confirmed the delisting of Equity Shares of the Company. Stock Codes TABLE 1: Stock Code
TABLE 1 STOCK CODES Stock code 520057 SONASTEER

Name of the stock exchange The Stock Exchange, Mumbai The National Stock Exchange, Mumbai

The ISIN Number of Sona (or demat number) on both NSDL and CDSL is INE643A01027.

28

Stock Data Table 2 gives the monthly high and low prices and volumes of Equity Shares of Sona at Mumbai Stock Exchange (BSE) and National Stock Exchange (NSE) for the year ended 31 March 2005. As Charts A & B show, during the year, the Company has consistently outperformed the Sensex.

TABLE 2

MONTHLY SHARE PRICE (IN RS.) DATA AND VOLUMES ON BSE AND NSE BSE High 200.00 176.00 154.95 166.00 184.90 45.50 58.00 61.90 60.60 58.80 65.15 68.50 Low 167.10 128.00 132.00 135.10 35.50 39.95 41.60 49.00 55.10 49.00 55.00 53.65 Volumes 262948 110869 127441 173575 453527 803437 3142175 2515661 1784295 1265865 2329869 2369587 High 199.00 180.00 155.00 167.00 184.00 45.75 56.75 62.00 60.80 58.50 65.45 70.25 NSE Low 163.00 130.00 134.00 136.00 155.50 40.10 41.25 48.75 55.80 44.25 56.30 54.50 Volumes 230651 105120 124350 270165 753523 1693930 7403108 7298369 4461001 2814866 4803518 3359407

Month and Year APRIL, 2004 MAY, 2004 JUNE, 2004 JULY, 2004 AUGUST, 2004 SEPTEMBER, 2004# OCTOBER, 2004# NOVEMBER, 2004# DECEMBER, 2004# JANUARY, 2005# FEBRUARY, 2005# MARCH, 2005#

NOTES: High and Low are in rupees per traded share. These are simple, un-weighted average. Volume is the total monthly volume of trade (in number) in Sonas shares on the BSE & NSE. # Pursuant to the approval of the shareholders at the Twentieth Annual General Meeting, the Equity Shares of the Company have been sub-divided from the one Equity Share of the Face Value of Rs. 10/- each to the five Equity Shares of the Face Value of Rs. 2/- each. Accordingly, the share price at BSE & NSE represents for sub-divided share having Face Value of Rs. 2/- each.

CHART A: Sonas adjusted closing share price with the BSE Sensex for 2004-2005
200 180 160 140 120 100 80 60 40 20 0 May 04 Nov 04 Aug 04 Mar 05 Apr 04 Dec 04 Sep 04 Feb 05 Jun 04 Jul 04 Oct 04 Jan 05 SENSEX SONA

NOTES: Both Sensex / Nifty and Sona Share Prices are indexed to 100 as on 1 April 2004.

29

Distribution of shareholding TABLE 3 AND 4 give the distribution pattern of shareholding of Sona as on 31 March 2005.

DISTRIBUTION OF SHAREHOLDING BY SIZE CLASS AS ON 31 MARCH 2005. Number of shares Number of Number of shares Shareholding % shareholders held (Rs. 2/- each) UPTO 5000 5001-10000 10000-20000 20001-30000 30001-40000 40001-50000 50001-100000 100001 TOTAL
AND ABOVE

TABLE 3

19,166 409 131 30 29 15 30 52 19,862

8,087,065 1,538,373 996,485 398,957 516,987 351,773 1,134,089 30,943,271 43,967,000

18.39 3.50 2.27 0.91 1.17 0.80 2.58 70.38 100.00

TABLE 4 Category

DISTRIBUTION OF SHAREHOLDING BY OWNERSHIP AS ON 31 MARCH 2005 No. of Equity Shares Held

(Face Value of Rs. 2/- each)

Percentage of Shareholding

Promoters Holding

1. Promoters a) Indian Promoters - Dr. Surinder Kapur (Main Promoter) - Maruti Udyog Limited (Co-Promoter) b) Foreign Promoter 2. Persons acting in Concert with Dr. Surinder Kapur Sub Total (1+2) B. Non-Promoters Holding 3. Institutional Investors a) Mutual Funds and Unit Trust of India b) Banks, Financial Institutions, Insurance Companies (Central / State Govt. Institutions / Non-Government Institutions) c) FIIs Sub Total (3) 4. Others a) Private Corporate Bodies b) Indian Public c) NRIs / OCBs / Foreign National d) Any Other (Clearing Members) Sub Total (4) GRAND TOTAL (1+2+3+4) 3,953,788 12,475,593 2,410,700 149,081 18,989,162 43,967,000 8.99% 28.37% 5.48% 0.34% 43.19% 100.00% 2,168,247 1,430,769 4.93% 3.25% 2,424,005 3,450,000 Nil 14,753,217 20,627,222 5.51% 7.85% Nil 33.56% 46.92%

751,600 4,350,616

1.71% 9.89%

30

Shares held in physical and dematerialized form As on 31 March 2005, 47.04 per cent of Sonas shares were held in dematerialized form and the rest in physical form. The promoter, co-promoter and their associates own 46.92 per cent of Sonas shares, out of which 1.75 per cent are held in dematerialized form. If the shares held by the promoters in the physical form are to be excluded from the total number of shares, then dematerialized shares account for 87.26 per cent of the remainder. Outstanding GDRs/ADRs/ Warrants / Convertible Instruments and their impact on equity The Company has no outstanding GDRs, ADRs, Warrants or any Convertible Instruments. Details of public funding obtained in the last three years The Company has not obtained funding (including public funding) in the last three years. Share transfer system During the year the Company has changed its Registrar and Transfer Agent from MCS Ltd. to M/s. Karvy Computershare Pvt. Ltd. All share transfers and related operations are conducted by M/s. Karvy Computershare Pvt. Ltd., the Registrar and Transfer Agent of the Company, which is registered with the SEBI as a Category 1 Registrar. The Company has constituted a Shareholders / Investors Grievances Committee for redressing shareholders and investors complaints. Investor correspondence should be addressed to: 1. Karvy Computershare Pvt. Ltd. (Unit : Sona Koyo Steering Systems Limited) 105-108, Arunachal Building, 19, Barakhamba Road, New Delhi 110 001 2. The Company Secretary Sona Koyo Steering Systems Ltd. UGF-6, Indra Prakash 21 Barakhamba Road New Delhi 110 001.

Unclaimed Dividends Under the Companies Act, 1956, dividends that are unclaimed for a period of seven years have to be transferred to the Investor Education and Protection Fund administered by the Central Government. Table 5 gives the date of dividend declaration or payment since 1998 and the corresponding dates when unclaimed dividends are due to be transferred to the Central Government. Table 6 gives the unclaimed dividend amount since 1998.

TABLE 5 Year 1998 1999 2000 2001 2002 2003 2004

DATE OF TRANSFERRING UNCLAIMED DIVIDEND TO THE CENTRAL GOVERNMENT. Type Final Final Interim Final Final Final Final Date of decleration 4 September 1998 30 July 1999 16 May 2000 8 August 2001 23 July 2002 18 July 2003 21 July, 2004 Date due for transfer to Central Government 15 October 2005 10 September 2006 15 May 2007 7 September 2008 22 August 2009 17 August 2010 20 August 2011

31

TABLE 6 Year Type

UNCLAIMED DIVIDEND AS ON 31 MARCH 2005. No. of warrants issued 11479 11338 10392 10868 11109 11584 12399 No. of warrants unclaimed 534 567 526 734 993 1028 898 % unclaimed 4.65 5.00 5.06 6.75 8.94 8.87 7.24 Amount of dividend (Rs. lakh) 203.74 197.85 268.62 319.86 242.82 346.22 351.74 Dividend unclaimed (Rs.Lakh) 2.04 2.01 2.31 2.32 2.14 4.06 4.67 % unclaimed 1.00 1.02 0.86 0.73 0.88 1.17 1.33

1998 1999 2000 2001 2002 2003 2004

Final Final Interim Final Final Final Final

Number and nature of complaints regarding shares Table 7 gives the data on Investors complaints during the year ended 31 March 2005.

TABLE 7

DETAILS OF COMPLAINTS REGARDING SHARES FOR THE YEAR 2004-2005. Number of complaints 9 4 2 3 18 Number redressed 9 4 2 3 18

Nature of complaint Non-receipt of dividend / Interest / Redemption Non-receipt of shares lodged for transfer Non-receipt of annual report Others Total

Plant Locations 38/6, NH-8, Delhi-Jaipur Road, Gurgaon-122001 (Haryana). P.O. Box 14, Chennai-Bangalore Highway, Sriperumbudur, Distt. Chinglepet, Tamil Nadu 602 105. Registered office UGF-6, Indrapraksh, 21 Barakhamba Road, New Delhi 110 001.

32

D IRECTORS R EPORT
TO THE MEMBERS, Your Directors have pleasure in presenting their Annual Report together with audited accounts of the Company for the year ended 31st March, 2005. Performance 2004-05 Rs./Lacs Sales and Other Income 36594 Profit before Interest & Depreciation 3874 - Interest 249 - Depreciation & Write Offs 1092 Profit before Tax 2533 Less : Provision for Tax 698 Provision for Deferred Tax Liability/(Assets) 169 Profit after Tax 1666 Add : Profit Brought Forward 478 Profit available for Appropriations 2144 Appropriations Proposed Dividend Tax on Dividend Transfer to General Reserve Balance Carried Forward 440 61 1000 643 2144 351 45 1000 478 1874 2003-04 Rs./Lacs 28830 2975 150 949 1876 611 55 1210 664 1874

Stock Exchange, vide its letter dated 13 th April, 2005, has confirmed the in-principle delisting of Equity Shares of the Company. Fixed Deposits During the year the Company has not invited any deposits from the public. Directors Our colleagues Mr. Kiyoshi Takeda, Nominee of Koyo Seiko Co., Ltd., Japan (KOYO) effective from 21st July, 2004 and Mr. J. Sugimori, Nominee of Maruti Udyog Ltd. (MUL) effective from 15th October, 2004 have ceased to be Directors of the Company due to withdrawal of nomination by KOYO and MUL. Your Directors take this opportunity to place on record the appreciation of services rendered by them during their association with the Company. During the year, the Board of Directors of your Company have appointed Mr. Hiroshi Oishi, nominee of KOYO as Director of the Company on 21st July, 2004, to fill the casual vacancy of Mr. Kiyoshi Takeda from the office of the Directorship, Mr. Omkar Goswami as an additional Director of the Company on 15th October, 2004 and Mr. Shinichi Takeuchi, nominee of MUL, as an additional Director of the Company on 14th January, 2005. In terms of the Companys Articles of Association, Mr. Hiroshi Oishi shall hold the office upto the date of the forthcoming Annual General Meeting. The requisite resolution pertaining to the appointment of Mr. Hiroshi Oishi, Mr. Omkar Goswami and Mr. Shinichi Takeuchi as detailed in Item Nos. 7 to 9 of the Notice and relevant Explanatory Statements are commended to the Shareholders approval. Pursuant to Article 122 of the Articles of Association of the Company Mr. Lalit Suri, Mr. B.L. Passi and Mr. Chander Uday Singh will retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for reappointment. Audit Committee Pursuant to the provisions of Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreements with Stock Exchanges, the Audit Committee of Directors of the Company consisted of the following members : a) b) c) Mr. Ravi Bhoothalingam Mr. Lalit Suri Mr. P.K. Chadha

Dividend Your Directors recommended a Dividend of 50% on Equity Share Capital of the Company for the Financial Year 2004-2005 as against the Dividend paid at the rate of 40% on Equity Share Capital for the previous Financial Year. Corporate Governance The Company has been pro-active in following the principles and practices of good Corporate Governance. The Company has taken adequate steps to ensure that the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreements with the Stock Exchanges are complied in its letter and spirit. A separate statement on Corporate Governance is produced as a part of the Annual Report along with the Auditors Certificate on its compliance. Listing The Securities of your Company are listed at National Stock Exchange and Mumbai Stock Exchange and the Company has paid the Listing Fee due to them. Pursuant to the provisions of the Securities and Exchange Board of India (De-listing of Securities) Guidelines, 2003 and as approved by the Shareholders of the Company in their 19 th Annual General Meeting held on 18th July, 2003, The Calcutta

The Audit Committee in its meeting held on 20th May, 2002, had appointed Mr. Ravi Bhoothalingam as the Chairman of the Audit Committee. The Board of Directors of the Company in their meeting held on 20th April, 2005 reconstituted the Audit Committee of Directors by appointing Mr. Omkar Goswami and Mr. Sunjay J. Kapur as its additional members. 33

Accordingly, the Audit Committee of Directors of the Company now consists of the following members : a) b) c) d) e) Mr. Ravi Bhoothalingam Mr. Lalit Suri Mr. P.K. Chadha Mr. Omkar Goswami Mr. Sunjay J. Kapur

certificate under Section 224(1B) of the Companies Act, 1956, has been received from them. The notes to accounts referred to in the Auditors Report are self-explanatory. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo A statement containing the necessary information as required under the Companies (Disclosure of particulars in the Report of Directors) Rules, 1988 and forming part of the Directors Report for the year ended 31st March, 2005 is given as Annexure - A to this report. Employees In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, the particulars of employees are given in Annexure - B forming part of this report. Acknowledgements Your Directors acknowledge with gratitude the co-operation and support extended by SONAs customers namely Maruti Udyog Limited, Hyundai Motors (India) Ltd., Toyota Kirloskar, TELCO Ltd., Mahindra & Mahindra, Hindustan Motors Ltd. and Koyo Seiko Co., Ltd., the Financial Institutions, Banks, various agencies of the Government, SONAs collaborators - Koyo Seiko Co., Ltd., Japan and Mando Machinery Corporation, Korea. Your Directors also wish to place on record their sincere appreciation of the services rendered by all employees of the Company and are thankful to the Shareholders for their continued patronage.

Directors Responsibility Statement Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors Responsibility Statement, it is hereby confirmed : a) That in the preparation of the Accounts for the Financial Year ended 31st March, 2005, the applicable accounting standards have been followed along with proper explanation relating to material departures; That the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review; That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and That the Directors had prepared the annual accounts for the Financial Year ended 31st March, 2005 on a going concern basis.

b)

c)

d)

For and on behalf of the Board

Auditors Auditors M/s. S.P. Puri & Co., Chartered Accountants, retire as Auditors at the forthcoming Annual General Meeting and have indicated their willingness to be reappointed as Auditors. The requisite Place : Gurgaon Dated : 20th April, 2005 Dr. Surinder Kapur Chairman & Managing Director

34

ANNEXURE - A TO

THE

DIRECTORS REPORT

Form - A : Particulars with respect to Conservation of Energy

Power and Fuel Consumption 2004-2005 Chennai# Gurgaon* (Units) Rs. Rs. (Units) Rs. Rs. (Litres) Rs. Rs. 10,93,000 44,41,978 4.06 64,04,882 4,26,46,052 6.66 16,91,619 3,82,04,074 22.58 0.264 5,00,008 28,92,375 5.78 51,860 5,79,816 11.18 17,730 5,68,316 32.05 0.341 2003-2004 Chennai# Gurgaon* 10,24,962 42,52,228 4.15 51,54,084 2,94,24,441 5.71 14,03,711 2,28,29,762 16.26 0.272 2,51,420 15,53,815 6.18 27,480 3,26,437 11.88 12,640 2,91,437 23.05 0.459

1.

HSEB/TNEB Power purchased (KHW) Total Amount Rate per unit

2.

Captive Generation DG Set (KWH) Total Amount Rate per unit

3.

Diesel Consumption Total Amount Rate / Litre Litre per unit

Total saving achieved during Financial Year 2004-05 Rs. 29.43 lacs. Above saving achieved by taking the following initiatives: a) Generation of power per litre of HSD/LDO has been improved by 2.94% compared to financial year 2003-04. b) Fuel efficiency improved by 3.26% compared to financial year 2003-04 by proper load distribution and effective preventive maintenance of DG Sets. c) Modification of piping on cooling towers for stopping the operation of hot well pumps. d) Installation of Energy Saving Circuits on pneumatic gauges.

Generation per litre of HSD/LDO has improved by 25.67% (from 0.459 litre/unit to 0.341 litre/unit). Consumption of electricity increased 95.38% whereas sales growth for the financial year 2004-05 increased 127.27% for Chennai unit.

Form - B : Particulars with respect to Technology Absorption

A. Technology Absorption 1. Efforts in brief towards Technology Adoption and Innovation. a) Developed capabilities and virtual simulation & testing of new products before they are released for manufacturing. b) Localization of critical parts of Power Steering continued. c) Engineers were sent to Koyo Seiko Co., Ltd., Japan for training on Electric Power Steering. d) Electronics Department was set up for understanding the future trends of Electronics in Steering System. 2. Benefits derived as a result of above efforts e.g. Product Improvement, Cost Reduction, Product Development, Import Substitution etc. a) New business opportunities in the global market for Off Highway Vehicle. b) Import substitution and savings in foreign exchange due to localization. c) We have become more competitive in prices due to localization of parts in the global markets.

35

B. Research and Development 1. Specific areas in which R&D carried out by the Company. a) On-vehicle testing capabilities were developed to capture the data of Vibration, Noise, Steering Efforts and Returnability. b) Test track for on-vehicle tests of Steering Systems was made. 2. Benefits derived as a result of the above R&D. a) We can perform on-vehicle tests of our products in order to understand end customer requirements better. b) We were able to significantly reduce the customer rejections and warranty due to design at new product development stage itself. 3. Expenditure on R&D. Rs. 261.95 lacs.

Form - C : Foreign Exchange Earnings and Outgo

Foreign Exchange outflow on account of import of components, parts, and capital goods during the year was Rs. 4289.01 lacs. The Companys products are import substitute and as such there has been an effective saving of Rs. 11925.62 lacs to the government in terms of foreign exchange outflow. During the year the Companys exports amounted to Rs. 2539.37 lacs.

A NNEXURE B

TO THE

D IRECTORS REPORT

Statement of particulars of employees pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 for the financial year ended 31st March, 2005.
Sl. Name No. Age Designation/ Nature of duties Remuneration (Rs.) Qualification Experience (Years) Date of Employment Last Employment

1.

Dr. S.Kapur

61

Chairman & 1,33,26,418/Managing Director

Ph.D.(Mech.Engg.) Michigan State University, U.S.A.

31

01.10.1990

Bharat Gears Ltd. (Vice Chairman & Managing Director)

NOTES : 1. 2. Remuneration received includes Salary, Allowances, Commission, payment in respect of Rent / Furnished Accommodation, Companys contribution to Provident Fund and Superannuation Fund, Medical reimbursement and LTA. Employment of Dr. Surinder Kapur is contractual.

36

A UDITORS R EPORT
TO THE MEMBERS OF SONA KOYO STEERING SYSTEMS LIMITED

iii) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account and returns; iv) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; v) Based on confirmations received from other public companies in which directors of the Company are directors and/or written representations made by the directors of the Company as on 31st March, 2005 and taken on record by the Board of Directors, we report that none of the directors of the Company is disqualified as on 31 st March, 2005 from being appointed as a director in terms of clause (g) of subsection (1) of Section 274 of the Companies Act, 1956;

We have audited the attached Balance Sheet of Sona Koyo Steering Systems Limited (the Company) as at 31st March, 2005, the Profit & Loss Account and the Cash Flow Statement for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Companys Management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 1. As required by the Companies (Auditors Report) Order, 2003 (Order) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in Paragraphs 4 & 5 of the said Order. Further to our comments in the Annexure referred to in paragraph 1 above, we report that: i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit;

vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India :a) b) c) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2005; in the case of the Profit & Loss Account, of the profit for the year ended on that date; and in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

2.

ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us;

For S.P. Puri & Co., Chartered Accountants

Place : Dated :

Gurgaon April 20, 2005

(S.P. Puri - Partner) Membership No. 5024

37

The Annexure referred to in paragraph 1 of the Auditors Report of even date to the members of Sona Koyo Steering Systems Limited for the year ended 31st March, 2005. On the basis of such checks as we considered appropriate, we further report that : i. a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. All the fixed assets of the Company have not been physically verified by the management during the year but there is a regular phased programme of physical verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its fixed assets. No material discrepancies were noticed on such verification. In our opinion, and according to the information and explanations given to us, fixed assets disposals during the year were not substantial and, therefore, do not affect the going concern assumption. Physical verification of inventory has been conducted by the management at reasonable intervals. In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were found reasonable and adequate in relation to the size of the Company and the nature of its business. On the basis of examination of records of the inventory, we are of the opinion that the Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and book records, which in our opinion were not material have been properly dealt with in the books of account.

v.

Based on the audit procedures applied by us and according to the information and explanations given to us, the Company has not entered into any transactions during the year that needs to be entered into the Register maintained under Section 301 of the Companies Act, 1956.

vi. The Company has not accepted any deposits from the public covered under Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956. vii. The Company has an adequate internal audit system, which in our opinion, is commensurate with the size of the Company and the nature of its business. viii. We have broadly reviewed the books of account maintained by the Company in respect of manufacture of Companys automotive products pursuant to the order made by the Central Government for the maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however made a detailed examination of the records with a view to determine whether they are accurate or complete. ix. a) According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has been generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it. According to the information and explanations given to us, no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty and Cess were outstanding, as at 31st March, 2005 for a period of more than six months from the date they became payable. According to the information and explanations given to us, and on the basis of our examination of the books of account, there are no dues of Sale Tax, Income Tax, Customs Duty, Wealth Tax, Service Tax, Excise Duty and Cess which have not been deposited on account of any dispute, other than the following:
Nature of Dues Amount (Rs.) Period to which it relates 02.12.1999 TO 31.03.2003 1999 - 2000 Forum where dispute is pending Appeal filed before CESTAT Commissioner of Income Tax (Appeals), New Delhi

b)

c)

ii. a) b)

c)

iii. According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has neither granted or taken any loans, secured or unsecured, to or from companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956. iv. In our opinion, having regard to the information and explanations given to us that some of the inventory items purchased are of specialised nature and for which alternative quotations are not available, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for sale of goods. There are no sales of services during the year. During the course of our audit, no major weaknesses has been noticed in the internal controls. 38

b)

Name of statute

Central Excise Act, Excise Duty 1944 Demands Income Tax Act, 1961 Income Tax Demands

2,83,13,256

10,87,900

x.

The Company does not have any accumulated losses at the end of the financial year and has not incurred cash losses in the financial year covered by our audit and in the immediately preceding financial year.

xvii. Based on the information and explanations given to us and on an overall examination of the Balance Sheet of the Company as at 31st March, 2005, we report that no significant funds raised on short-term basis have been used for long-term investment by the Company. xviii.Based on the audit procedures performed and the information and explanations given to us by the management, we report that the Company has not made any preferential allotment of shares during the year. xix. The Company has no outstanding debentures during the year. xx. The Company has not raised any money by public issue during the year. xxi. Based on the audit procedures performed and the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year.

xi. Based on our audit procedures and on the information and explanations given to us, we are of the opinion that, the Company has not defaulted in repayment of dues to a financial institution, bank or debenture holders. xii. According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. xiii. The Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provision of this clause of the Companies (Auditors Report) Order, 2003 is not applicable to the Company. xiv. According to information and explanations given to us, the Company is not dealing or trading in Shares, Securities, Debentures and other investments. All investments in Shares have been held by the Company, in its own name. xv. According to the information and explanations given to us, the Company has not given any guarantee for any loan taken by others from a bank or financial institution. xvi. Based on our audit procedures and on the information and explanations given by the management, the term loans have been applied for the purpose for which they were raised.

For S.P. Puri & Co., Chartered Accountants

Place : Dated :

Gurgaon April 20, 2004

(S.P. Puri - Partner) Membership No. 5024

39

BALANCE SHEET AS
AT

31ST M ARCH, 2005

Schedules As at 31st March, 2005 Rs./Lacs As at 31st March, 2004 Rs./Lacs

Particulars

I.

SOURCES OF FUNDS 1. Shareholders Fund a) Share Capital b) Reserves & Surplus Loan Funds a) Secured Loans b) Unsecured Loans Deferred Tax Liability (Net) 1 2 Sub-Total 3 4 20(10) Total 5 16812.65 7484.15 9328.50 62.74 9265.76 875.84 10141.60 6 Sub-Total 2966.10 13107.70 13243.09 6609.99 6633.10 62.74 6570.36 1842.00 879.34 6409.92 7289.26 8632.50 38.00 8670.50 1809.58 17769.34 879.34 5244.58 6123.92 3615.22 38.00 3653.22 1641.03 11418.17

2.

3. II.

APPLICATION OF FUNDS 1. Fixed Assets a) Gross Block Less : Depreciation Net Block Less: Security Deposit b) Capital Work In Progress

8412.36 34.00 8446.36

2. Investments 3. Current Assets, Loans and Advances a) b) c) d) e) Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances

7 8 9 10 11 Sub-Total 12 13 Total

2098.46 4116.22 80.20 67.65 2054.98 8417.51 4429.17 3988.34 673.30 17769.34

1237.02 2176.33 78.93 70.67 1835.13 5398.08 2995.59 2402.49 569.32 11418.17

Less : Current Liabilities and Provisions Net Current Assets MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted)

Significant Accounting Policies & Notes to the Accounts 20 Note on Related Party Disclosures 21 The Schedules referred to above form an integral part of the Accounts As per our report of even date attached For S.P. Puri & Co., Chartered Accountants (S.P. Puri - Partner) Membership No. 5024 Place : Gurgaon Dated : 20th April, 2005 40 Sudhir Chopra - Company Secretary Ashish Tandon - Finance Controller For and on behalf of the Board

Dr. Surinder Kapur - Chairman & Managing Director Ravi Bhoothalingam - Director

PROFIT & LOSS ACCOUNT F OR THE YEAR ENDED 31ST MARCH, 2005
Particulars Schedules Year ended 31st March, 2005 Rs./Lacs Year ended 31st March, 2004 Rs./Lacs

INCOME Gross Sales Other Income Less: Excise Duty & Other Taxes Total EXPENDITURE Raw Materials and Components Consumed Decrease/(Increase) in Stock of Finished Goods and Work-in-Process Manufacturing Expenses Employees Remuneration and Benefits Administrative, Selling & Other Expenses Finance Charges 15 16 17 18 19 Total Cash Profit Miscellaneous Expenditure Written off Depreciation Profit before Tax Provision for Tax- Current Year Provision for Tax- Prior Years Increase/(Decrease) in Deferred Tax Liability Profit after Tax Profit Brought forward from last Year Profit available for appropriation Proposed Dividend Tax on proposed Dividend Transfer to General Reserve Balance carried to Balance Sheet Basic & diluted Earning Per Share (In Rs.) Significant Accounting Policies and Notes to the Accounts Note on Related Party Disclosure 20(11) 20 21 (121.15) 1689.45 2350.43 1771.76 248.98 26424.23 3624.87 162.79 928.79 2533.29 624.00 74.07 168.55 1666.67 477.69 2144.36 439.67 61.66 1000.00 643.03 3.79 (56.14) 1156.03 2057.48 1314.54 150.18 20718.21 2824.89 171.08 778.06 1875.75 610.80 0.00 54.86 1210.09 664.41 1874.50 351.74 45.07 1000.00 477.69 2.75 20484.76 16096.12 14 36294.39 299.70 36594.09 6544.99 30049.10 28691.11 139.25 28830.36 5287.26 23543.10

The Schedules referred to above form an integral part of the Accounts

As per our report of even date attached For S.P. Puri & Co., Chartered Accountants (S.P. Puri - Partner) Membership No. 5024 Place : Gurgaon Dated : 20th April, 2005 Sudhir Chopra - Company Secretary Ashish Tandon - Finance Controller For and on behalf of the Board

Dr. Surinder Kapur - Chairman & Managing Director Ravi Bhoothalingam - Director

41

S CHEDULES F ORMING P ART

OF

A CCOUNTS
31st March, 2005 Rs./Lacs 31st March, 2004 Rs./Lacs

S CHEDULE 1 S HARE CAPITAL

AUTHORISED 5,00,00,000 Equity Shares of Rs.2/- each (Previous Year 1,00,00,000 Equity Shares of Rs. 10/- each) 10,00,000 Cumulative Redeemable Preference Shares of Rs. 100/- each ISSUED, SUBSCRIBED AND PAID UP 4,39,67,000 Equity Shares of Rs 2/- each, fully paid up (Previous Year 87,93,400 Equity Shares of Rs. 10/- each, fully paid up) 1000.00 1000.00

1000.00 2000.00 879.34 879.34

1000.00 2000.00 879.34 879.34

S CHEDULE 2 R ESERVES & S URPLUS

Capital Reserve (On account of reissue of forfeited Equity Shares) Capital Redemption Reserve Securities Premium Account General Reserve - Balance as on 01.04.2004 - Add transfer from Profit & Loss Appropriation Account Profit & Loss Account - Balance as per Profit & Loss Account 0.44 1000.00 1475.74 2290.71 1000.00 0.44 1000.00 1475.74

3290.71 643.03 6409.92

2290.71 477.69 5244.58

S CHEDULE 3 SECURED L OANS

Term Loans from Banks Term Loans from Other Short Term Loans from Banks Sales Tax Loan NOTES : 1. Term Loans from Banks include :
a) External Commercial Borrowings of USD 3 Million (Previous year USD 3 Million) is secured by an exclusive first charge on the specific Plant & Machinery and equitable mortgage of the land in Chennai. b) Working Capital Rupee Loan of Rs. 700 lacs (Previous year Rs.700 lacs) is secured by a pari-passu charge on Plant and Machinery excluding the charge created exclusively for above mentioned ECB Loan. c) Rupee Term Loan of Rs. 10.17 lacs (Previous year Rs.15.32 lacs) is secured by hypothecation of the specific assets brought under this loan. d) External Commercial Borrowing (ECB) of USD 6 million (Previous year nil ) is secured by first pari-passu charge on all the movable and immovable properties both present and future excluding the charge created exclusively for above mentioned ECB Loan. e) Term Loan from others of Rs. 754.92 lacs (Previous year nil ) is secured by exclusive first charge on specific equipment financed.

5551.28 754.92 1804.37 521.93 8632.50

2050.82 0.00 998.62 565.78 3615.22

42

2. The short term loans from Banks are secured by hypothecation of inventories, book debts and other receivables both present & future. 3. Sales tax loan is secured by pari passu first charge over all immovable property including embedded fixed assets of the Company excluding the assets exclusively charged to other lenders.

31st March, 2005 Rs./Lacs

31st March, 2004 Rs./Lacs

S CHEDULE 4 U NSECURED L OANS

Lease Rental Deposit - Long Term Less : Reduced from fixed assets Loans from Others 62.74 (62.74) 38.00 38.00 62.74 (62.74) 38.00 38.00

S CHEDULE 5 F IXED A SSETS

Sl. Assets No. Gross Block (At Cost) As At Additions Sales/ 01.04.04 Disposal As at 31.03.05 Upto 31.03.04 Depreciation As at For the Written Year Back 31.03.05 Net Block As at As at 31.03.05 31.03.04

1. Land 2. Building

200.08 1278.40

0.00 455.01 14.84

0.00 0.00 0.00

200.08 1733.41 158.50

0.00 303.27 68.77

0.00 41.60 20.26

0.00 0.00 0.00

0.00

200.08

200.08 975.13 74.89

344.87 1388.54 89.03 69.47

3. Lease Hold Improvements 143.66 4. Plant & Machinery 5. Jigs & Fixture 6. Electric Installation 7. Furniture & Fixture 8. Office Equipment 9. Vehicles Total Previous Year

9661.99 2723.63 102.25 224.14 354.03 1044.91 233.63 8.46 150.83 28.24 202.81 48.21

56.76 12328.86* 5234.19 0.00 0.00 0.00 0.00 5.71 110.71 374.97 382.27 1247.72* 276.13* 36.37 112.85 223.15 537.21 94.18 6609.99 5907.31

657.51 53.92 5837.78 6491.08 4427.80 6.69 18.36 31.95 117.04 35.38 0.00 0.00 0.00 0.00 0.71 43.06 131.21 255.10 654.25 128.85 67.65 243.76 127.17 593.47 147.28 65.88 111.29 130.88 507.70 139.45

13243.09 3632.03 12430.01 908.12

62.47 16812.65 95.04 13243.09

928.79 54.63 7484.15 9328.50 6633.10 778.06 75.38 6609.99 6633.10

* Includes Plant & Machinery Rs. 188.21 Lacs (Previous Year Rs. 189.27 Lacs ), Vehicles Rs.Nil (Previous Year Rs. 6.56 Lacs) and Office Equipment Rs. Nil (Previous Year Rs. 1.20 Lacs) given on lease. The gross value of fixed assets taken on financial lease and Capitalised in the Companys books of accounts is Rs. 93.42 Lacs (Previous Year Rs.93.42 Lacs ). The written down value of these assets as on 31st March, 2005 is Rs. 65.09 Lacs (Previous Year Rs. 75.75 Lacs). The minimum lease rental payable in future is Rs. 31.19 Lacs (Previous Year Rs. 59.99 Lacs) - within 1 year Rs. 28.80 Lacs (Previous Year Rs. 28.80 Lacs); - between 2 to 5 years Rs. 2.39 Lacs (Previous Year Rs. 31.19 Lacs). The Net Present Value as on 31st March, 2005 of the minimum lease rentals is Rs. 30.26 Lacs (Previous Year Rs. 44.20 Lacs). 43

31st March, 2005 Rs./Lacs

31st March, 2004 Rs./Lacs

S CHEDULE 6 L ONG TERM INVESTMENTS (Valued At Cost)

A : UNQUOTED : In Trade Investments i) 1,20,000 Equity Shares of Rs. 10/- each in Turbo Investment Ltd. ii) 1,20,000 Equity Shares of Rs. 10/- each in Hypersonic Investment Ltd. iii) 1,00,000 Equity Shares of Rs.10/- each in Roop Automotive Ltd. iv) 1,25,213 Equity Shares of Euro 16 each in Fuji Autotech France S.A.S. (Incorporated in France)* *Purchased during the year 12.00 12.00 10.00 2932.10 2966.10 12.00 12.00 10.00 0.00 34.00

S CHEDULE 7 I NVENTORIES
Stores and Spare Parts Raw Materials and Components Material with Vendors Material in Transit Work-in-process Finished Goods Loose Tools 201.48 1197.46 11.35 54.31 251.17 98.11 284.58 2098.46 52.88 566.25 17.59 140.70 168.26 59.86 231.48 1237.02

S CHEDULE 8 S UNDRY D EBTORS

(Unsecured, considered good) Debt outstanding for a period exceeding 6 months Other Debts 10.73 4105.49 4116.22 8.90 2167.43 2176.33

S CHEDULE 9 C ASH A ND B ANK BALANCES

Cash and cheques in hand Balances in Current Accounts with Scheduled Banks 2.57 77.63 80.20 3.36 75.57 78.93

44

31st March, 2005 Rs./Lacs

31st March, 2004 Rs./Lacs

S CHEDULE 10 O THER C URRENT A SSETS

Claims Receivable 67.65 67.65 70.67 70.67

S CHEDULE 11 L OANS A ND ADVANCES

(Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received Security Deposits Balance with Excise and Customs Authorities Advance payment against Income Tax (Net of Provisions)

975.55 321.22 334.06 424.15 2054.98

904.37 330.64 205.35 394.77 1835.13

S CHEDULE 12 C URRENT L IABILITIES A ND PROVISIONS

A. CURRENT LIABILITIES Acceptances Sundry Creditors - due to Small Scale Industrial Undertakings - due to Others Investor Education and Protection Fund - Unpaid Dividends Other Liabilities 0.00 504.62 2579.96 19.59 715.61 3819.78 662.09 442.66 1014.35 17.42 383.31 2519.83

B. PROVISIONS Corporate Dividend Tax Proposed Dividend Gratuity Leave Encashment

61.66 439.67 19.66 88.40 4429.17

45.07 351.74 0.00 78.95 2995.59

S CHEDULE 13 MISCELLANEOUS E XPENDITURE

(To the extent not written off or adjusted) Deferred Revenue Expenditure Project Expenses Opening Balance: 01.04.2004 Add: Addition during the year Less: Written off during the year Research & Development (New Products) Expenses Opening Balance: 01.04.2004 Add: Addition during the year Less: Written off during the year 103.62 5.86 43.42

66.06

103.62

465.70 260.91 119.37

607.24 673.30

465.70 569.32

45

31st March, 2005 Rs./Lacs

31st March, 2004 Rs./Lacs

S CHEDULE 14 OTHER I NCOME

Lease Rental Income Sales of Scrap and Miscellaneous items Miscellaneous Income Profit on disposal of Fixed Assets 0.03 116.47 168.86 14.34 299.70 16.04 57.61 65.60 0.00 139.25

S CHEDULE 15 D ECREASE/(INCREASE) GOODS AND WORK

INVENTORY as at 31.03.2004 Finished Goods Work-in-process INVENTORY as at 31.03.2005 Finished Goods Work-in-process

IN IN

S TOCK OF FINISHED PROCESS

59.87 168.26 228.13 171.99

(98.11) (251.17)

(349.28) (121.15)

(228.13) (56.14)

S CHEDULE 16 MANUFACTURING E XPENSES

Stores and spare parts consumed Loose tools consumed Power and fuel Freight & Octroi charges Machine repairs and maintenance Royalty 432.52 339.97 512.11 110.81 141.29 152.75 1689.45 288.01 217.89 335.08 82.21 108.57 124.27 1156.03

S CHEDULE 17 E MPLOYEES R EMUNERATION

AND

B ENEFITS
1859.71 189.69 301.03 2350.43 1593.26 184.97 279.25 2057.48

Salaries, wages and allowances Contribution to Provident and other Funds Employees welfare expenses 46

31st March, 2005 Rs./Lacs

31st March, 2004 Rs./Lacs

SCHEDULE 18 ADMINISTRATIVE, S ELLING

AND

O THER E XPENSES
111.48 5.88 29.28 114.79 93.25 256.28 93.82 244.60 520.88 4.72 291.09 0.00 3.75 0.50 1.33 0.11 1771.76 0.00 1771.76 103.30 4.67 27.17 76.68 80.00 303.57 89.91 183.39 241.53 1.60 251.91 0.11 2.70 1.04 0.55 0.00 1368.13 53.59 1314.54

Rent Rates and taxes Insurance Building repairs and maintenance Other repairs and maintenance Travelling, Conveyance and Vehicle Expenses Communication & Stationery Expenses Legal & Professional Charges Forwarding Expenses Directors Sitting Fee Miscellaneous Expenses Loss on sale of Long Term Trade Investments Auditors Remuneration Audit Fee Fee for other services (i) Taxation Matters (ii) Certifications Out of Pocket Expenses Reimbursed Less : Recovered from Supplier

SCHEDULE 19 FINANCE CHARGES

Interest on fixed loans Other interest Less : Interest received (Gross) Net interest on loans Bank and other finance charges Cash discount Less: Recovered from Suppliers 175.02 23.98 199.00 17.79 181.21 42.98 25.90 250.09 1.11 248.98 97.66 25.94 123.60 22.96 100.64 43.06 23.06 166.76 16.58 150.18

CHEDULE SCHEDULE 20 TO NOTES TO THE ACCOUNTS

1. SIGNIFICANT ACCOUNTING POLICIES I. II. Basis of Accounting : The financial statements are prepared under the historical cost convention on an accrual basis. Fixed Assets and Depreciation : Fixed Assets are stated at cost of acquisition less accumulated depreciation. However, in case of fixed assets acquired under foreign currency loans, exchange difference arising consequent to realignment of the rupee value of such foreign currency loans is adjusted to the cost of relevant fixed assets. 47

The Company provides depreciation on fixed assets on straight-line method at the rates specified in Schedule XIV to the Companies Act, 1956 on a pro-rata basis from the month in which the asset is put to use, except as stated below. Depreciation on additions to fixed assets due to exchange rate fluctuations during the year is charged prospectively from such year. III. Leasehold improvements are depreciated at the rate of 20% per annum or over the period of lease if less than five years. Assets situated at employees residence are depreciated at the rate of 33.33% per annum. Vehicles are depreciated at the rate of 12% per annum from April, 2003.

Project Expenses : All expenses identifiable to a project, including interest on funds borrowed for the project incurred up to the date of commencement of trial production are capitalised to the project. Expenses including depreciation, which are material, incurred after that date up to the commencement of commercial production are treated as deferred revenue expenses and written off over a period of 60 months or earlier. Expenses incurred after commencement of commercial production are charged off to revenue. Expenses incurred for implementing other projects (such as Enterprise Resource Planning Application Software) are treated as deferred revenue expenses and written off in 36 months after implementation of the project.

IV.

Technical know-how expenses : Lump sum technical know-how fees paid to the technical collaborator for acquiring plant or building or equipment related know-how are capitalized to the relevant asset and are depreciated as per the Companys accounting policy. Lump sum technical know-how fees paid to the technical collaborators for acquiring know-how other than that mentioned above are written off to revenue over a period of 60 months from the commencement of commercial production. Composite lump sum technical know-how fees paid for both the above mentioned type of know-how are apportioned between the two based on technical estimates made by the company. Running royalty paid to the collaborators is written off to revenue in the year in which it accrues.

V.

Leases : Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased items are capitalized at the fair market value and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the Profit & Loss Account.

VI.

Investments : Long term Investments are valued at their acquisition cost. Provision for diminution, other than temporary, is made wherever necessary.

VII.

Inventory Valuation : a) Stores and spare parts are valued at weighted average cost. b) All tools (including loose tools) are written off over their useful life and unissued tools are valued at lower of weighted cost and market value. c) Raw materials and components, and work-in-process are valued at lower of weighted average cost and net realisable value.

d) Finished Goods are valued at lower of weighted average cost and market value. VIII. Foreign Currency Transactions : Foreign currency transactions are recorded on the basis of average of the exchange rates in force during the relevant week of each month. In case of transaction covered by forward contracts other than on account of Fixed Assets, the difference between the contract rate and exchange rate prevailing on the date of transaction is charged to Profit & Loss Account, proportionately over the contract period. All assets and liabilities denominated in foreign currency are restated at relevant year-end rates. Exchange losses arising due to acquisition of fixed assets are treated as adjustment to the carrying cost of such fixed assets. IX. X. 48 Excise : Excise duty on finished goods manufactured is accounted on the basis of production of goods. Research & Development : a) Capital expenditure for Research & Development is capitalized in the year of installation. b) Revenue expenses incurred for R & D for existing products are charged to Profit & Loss Account for the year.

c)

Expenses incurred for the development of new products for which letters of intent have been received from customers, are accumulated and are amortized equally over six years to the Profit & Loss Account or over the sale of 300,000 units of the related product whichever is higher/earlier. However, the Company will review the carrying cost of the above expenses every year (based on product life, actual production expected etc.) and derecognize to the extent no future economic benefits are expected from its use.

XI.

Income : 1. Price escalation claims from customers and discounts from suppliers are accounted for in the year under audit only if they are settled with the customer and supplier respectively up to the date of finalization of accounts. 2. Dividend on investment is accounted for in the year in which it is declared. 3. All export benefits are recognized as income when there is substantial certainty as to their realisibility e.g. a) b) 4. DEPB license are recognized as income on the relevant application being filed. Duty draw back is accounted in the year of export.

Sales include jobwork charges.

XII.

Expenses : a) Discounts to customers and price escalation to suppliers to the extent not settled at the balance sheet date are accounted for on the basis of reasonable estimates made after considering negotiations with vendors/customers. b) Jigs and fixtures costing less than Rs. 5,000/- each are written off in the year of purchase. c) Goods received are accounted as purchases on satisfactory completion of inspection. d) Borrowing costs on loans relatable to assets are capitalized to the extent incurred prior to the assets being put to use. Other borrowing costs are written off in the year to which they pertain. e) The Company has various schemes of retirement benefits such as Provident Fund Scheme and Superannuation Scheme (contribution-defined schemes) and Gratuity Scheme (benefit defined scheme) which are approved by the Income Tax Department. The contributions paid / payable to the contribution defined schemes is charged off to the Profit & Loss Account every year. In case of the Gratuity Scheme and the liability on account of accumulated leave, the charge to the Profit & Loss Account is actuarially determined. f) Warranty cost is provided on the basis of cost of warranty claims received from the customers and a reasonable estimate for future claims is made based on empirical data.

XIII.

Deferred Tax Liability : Deferred tax liability / assets arising out of timing difference are recognized in the Profit & Loss Account of the year in which they arise. Current Year Rs./Lacs Previous Year Rs./Lacs 105.39

2. 3.

Estimate amount of contracts remaining to be executed on capital account not provided for Liabilities: Contingent Liabilities I. Claims against the Company not acknowledged as debt on account of a) b) c) II. III. a) Excise Duty Others Service Tax Income Tax

1035.15

755.08 42.23 51.03 363.44 1213.03

0.00 42.13 39.51 579.63 1431.07

In respect of matters in appeal Customer Bills Discounted

4.

a) b)

Advances recoverable in cash or in kind in Schedule No. 11 includes Rs. 809.98 lacs (previous year Rs. 62.74 lacs) given on capital account. Security deposit in Schedule 11 includes Rs. Nil (previous year Rs. 30.17 lacs) due from firm in which directors are interested.

5. 6.

Purchases are net of Rs.1350.19 lacs (previous year Rs. 785.80 lacs) being the value of dispatches made to vendors for job work. The Company has an R & D Center (Approved by the Department of Scientific and Industrial Research, Ministry of Science & Technology, Govt. of India) on which revenue expenditure incurred in addition to capital expenditure of Rs.134.32 lacs (previous year Rs. 136.11 lacs) is as under:

49

Current Year Rs./Lacs a) b) c) d) e) Traveling Expenses Salary & Allowances Components, Tools & Spares Professional Charges Others TOTAL *Includes Rs. 23.49 lacs (previous year Rs. 24.34 lacs) of Deferred Revenue Expenditure. 7. Deferred Revenue Expenditure / Capital work in progress during the year Includes: a) b) c) d) e) f) g) h) i) j) 8. Technical know-how Fees Professional Charges Development Expenses Testing Charges Components, Tools & Spares Traveling Expenses Interest & Bank Charges Others Salary TOTAL Less: Receipts from Customers NET TOTAL 73.50 11.50 37.63 10.58 126.64 22.23 36.94 32.39 23.49 374.90 36.50 338.40 15.27 47.21 4.49 39.37 21.29 127.63*

Previous Year Rs./Lacs 16.35 59.15 1.31 13.95 35.17 125.93*

38.66 18.31 192.30 20.68 113.63 24.03 68.63 29.72 24.34 530.30 24.50 505.80

The amount of Excise Duty and other taxes paid on sales is reduced from income and comprise Sales Tax of Rs.1109.41 lacs (previous year Rs. 937.42 lacs) and Excise Duty of Rs. 5435.58 lacs (previous year Rs. 4349.84 lacs). The Sales Tax paid is net of Sales Tax waived (in lieu of Sales Tax Deferment) of Rs.119.32 lacs (previous year Rs. 127.67 lacs). The Companys operations consist of only the automotive component segment and export sales constitutes less than 10% of total turnover & accordingly the segment wise reporting is not applicable. Deferred Tax Liability (Net) of Rs.1809.58 lacs (previous year Rs.1641.03 lacs) as shown in the Balance Sheet consist of: Current Year Rs./Lacs a) Deferred tax liability representing tax arising out of timing difference on account of i) Depreciation ii) Deferred Revenue Expenditure iii) Custom Duty & Excise Duty And: b) Deferred tax asset representing future tax benefit on i) Leave Encashment Provision TOTAL (23.48) 1809.58 (21.19) 1641.03 1586.37 226.63 20.06 1407.20 204.25 50.77 Previous Year Rs./Lacs

9. 10.

11.

Earning Per Share (EPS) - Net Profit after tax - Profit/(Loss) attributable to the Equity Shareholders - Basic/Weighted average number of Equity Shares outstanding during the year (Nos.) - Nominal value of Equity Shares (In Rs.) - Basic/diluted Earning Per Share (In Rs.)

(A) (B)

1666.65 1666.65 43967000 2.00 3.79

1210.09 1210.09 43967000 2.00 2.75

(A/B)

Note :- As required by Para 44 of the Accounting Standard (AS) 20 Earning Per Share, previous years EPS have been restated on the basis of number of shares being split from Rs. 10/- to Rs. 2/- per share. 12. 50 There are no small scale industrial undertakings to which the Company owes a sum, which is outstanding for more than 30 days as at 31st March, 2005.

13.

Additional information pursuant to Part II of Schedule VI to the Companies Act, 1956: A) Particulars of Capacity (as certified by the management & accepted by the Auditors) Item Licensed & Installed Capacity (Nos.) Current Year 847000 153000 396000 132000 120000 200000 Previous Year 706000 153000 353000 132000 120000 200000

Steering Gear Assembly including component Axle Assemblies Case Differential Assembly Propeller Shaft Rack & Pinion Assy. Column & UJ Assy. B) Production, Sale & Closing Stock of Finished Goods i) Opening Stock & Production Item Current Nos. Steering Gear Assembly 501 Axle Assembly including Comp. 335 Rack & Pinion Assy. 47 252 Column & UJ Assy. Others including sale of bought out components as spares Opening Stock Year Value 41.86 13.05 0.57 2.39 1.99 Previous Year Nos. Value 1642 46.71 668 9.51 252 3.51 1371 10.78 1.15

(Rs. in lacs) Production Current Year (Nos.) 634415 482064 66297 242254 Previous Year (Nos.) 527776 339331 31341 119837

59.86 71.66 Total Note :Production includes 135 pcs. (previous year 134 pcs.) of Sub Assembly Steering. ii) Sales & Closing Stock
Item Sales Current Year Nos. Value Steering Gear Assembly incl. components 633105 Axle Assembly including components 480707 Others incl. sale of bought out components as spares Job work income Rack & Pinion Assy. 66098 241871 Column & UJ Assy. Total 16542.11 8753.73 5091.84 176.90 2382.08 3347.73 36294.39 Previous Year Nos. Value 528917 339664 14255.51 6647.09 5105.11 169.56 981.41 1532.43 28691.11

(Rs. in lacs)
Closing Stock Current Year Nos. Value 1811 1692 51.57 33.97 1.31 Previous Year Nos. Value 501 41.86 335 13.05 1.99

31505 120932

246 635

4.38 6.88 98.11

47 252

0.57 2.39 59.86

Notes : 1. Above values include price escalation claims/reduction. 2. In view of the number of components and spares being large and having different units of measurement, it is not possible to give the quantitative information. C) Raw Material and Components consumed Item Current Year Qty./M.Ton Raw Material : Steel Bars(In M.T.) Components 257.13 Value 94.58 20390.18 20484.76

(Rs. in lacs)
Previous Year Qty./M.Ton 306.65 Value 148.80 15947.32 16096.12

257.13

306.65

Note: In view of innumerable sizes/numbers of the components it is not possible to give quantitative details.

51

D) Value of consumption of imported and indigenous raw materials, components and percentage of each to total consumption: Item Current Year Rs./Lacs % Rs./Lacs Previous Year %

Raw Material & Components Imported Indigenous Stores & Spares Imported Indigenous

4211.16 16273.60 20484.76 6.57 425.95 432.52

20.56 79.44 100.00 1.52 98.48 100.00

4496.54 11599.58 16096.12 26.95 261.06 288.01

27.94 72.06 100.00 9.36 90.64 100.00

E) CIF Value of Direct Imports Capital Goods Components & Spares Tools
F) Trading Account
Description of Goods RESERVOIR Op. Stock Sets Rs. in lacs 0 0.00

244.27 4415.97 150.91 4811.15

778.92 3546.89 71.41 4397.22

Purchase Sets Rs. in lacs

Sales Sets Rs. in lacs

Closing Stock Sets Rs.in lacs 734 1.3

17063

27.29

16329

41.99

Trading Account (Previous Year) Description of Goods TIE ROD COMP. STRG. Op. Stock Sets Rs. in lacs 0 0.00 Purchase Sets Rs. in lacs Sales Sets Rs. in lacs Closing Stock Qty. Rs.in lacs 0 0.00

585384

426.41

585384

431.86

Current Year Rs./Lacs G) Expenditure in Foreign Currency (on Cash Basis) Royalty (Net of taxes) Technical Services (Net of Taxes) Foreign Travels Membership Fees H) Remittance in Foreign Currency (on Cash Basis) Dividend No. of Non Resident Shareholders No. of Shares held by Non Resident Shareholders Year to which the dividend relates I) Earnings in Foreign Exchange (on accrual basis) a) FOB value of Export of Goods The net difference of Rs.2.14 lacs (previous year Rs. 9.22 lacs ) on account of foreign currency fluctuation on revenue account has been charged to relevant revenue account. Managerial Remuneration a) Salary b) Commission c) Perquisites d) Contribution to Provident & Superannuation Funds 75.22 135.25 32.70 12.42 255.59 90.53 191 2263303 2003-04 2130.61

Previous Year Rs./Lacs

49.89 37.43 52.76 0.00 140.08 63.21 218 2257575 2002-03 486.38

14)

I)

18.00 96.35 14.07 4.86 133.28

12.00 68.00 11.37 3.24 94.61

52

Current Year Rs./Lacs II) Calculation of Commission payable to Directors including Managing Director Profit before Tax Add: Depreciation as per Profit & Loss Account Profit on sale of assets as per Sec. 350 of Companies Act Loss on sale of assets as per Profit & Loss Account Net loss on sale of investments Less: Depreciation as per Sec.350 of Companies Act Profit on sale of assets as per Profit & Loss Account Loss on sale of assets as per Sec. 350 of Companies Act Adjusted Profit before tax Add: Managerial Remuneration Net Profit u/s 198 for the year 6% of the above (previous year 6%) Commission restricted to maximum payable as per resolution a) Managing Director b) Non Whole Time Directors

Previous Year Rs./Lacs

2533.29 928.79 14.34 0.00 0.00 928.79 14.34 0.00 778.06 0.00 5.25 0.11 778.06 0.00 5.25

1875.75

943.13

783.42

943.13 2533.29 133.28 2666.57 159.99 96.35 5.30

783.31 1875.86 94.61 1970.47 118.23 68.00 5.70

15)

INTEREST IN JOINT VENTURES The Company, during the year, has acquired 125213 Equity Shares of Euro 16 each in Fuji Autotech France S.A.S. incorporated in France. This being 21% of the paid up share capital of Fuji Autotech France S.A.S. The Financial Statements, unaudited and certified by the management of Fuji Autotech France S.A.S., are drawn upto 31st December, 2004. The Companys interest in this joint venture is reported as Long Term Investment (Schedule - 6) and is stated at cost. The Companys share of each of the assets, liabilities, income and expenses etc. related to its interest in this joint venture is as follows:

As at 31st March, 2005 Rs./Lacs

A) Assets 1. Fixed assets (Net block) Nil Capital work in progress Investments 2. Current Assets, Loans and advances Inventories Sundry debtors Cash and bank balance Other current assets B) Liabilities 1. Loan funds Unsecured Loans 2. Current Liabilities and Provisions C) Income 1. Sales and Services (net) 2. Other Income D) Expenditure 1. Materials consumed 2. Manufacturing and other expenses 3. Interest and finance charges 4. Depreciation 5. Provision for taxation E) Profit After Taxes 16) Previous year figures have been regrouped / recast wherever necessary. 1439.30 74.35 541.05 468.38 2546.46 100.42 127.33

As at 31st March, 2004 Rs./Lacs

Nil Nil Nil Nil Nil Nil Nil

87.13 2944.98

Nil Nil

8941.40 63.78

Nil Nil

4595.29 3557.04 8.69 424.22 157.08 262.86

Nil Nil Nil Nil Nil Nil

53

S CHEDULE 21 R ELATED PARTY D ISCLOSURE

TRANSACTIONS WITH RELATED PARTIES Rs./Lacs
CONTROL SUBSTANTIAL INTEREST (1) PURCHASE OF GOODS Purchase of Goods (Previous Year) SALE OF GOODS Sale of Goods (Previous Year) RENDERING OF SERVICES Rendering of Services (Previous Year) RECEIVING OF SERVICES Receiving of Services (Previous Year) LEASING OF PREMISES Leasing of Premises (Previous Year) INVESTMENT IN SHARE CAPITAL Investment in Share Capital (Previous Year) REMUNERATION * Remuneration (Previous Year) OUTSTANDING BALANCE AS ON 31.3.2005 (DEBIT) Outstanding balance as on 31.03.2004 (Debit) OUTSTANDING BALANCE AS ON 31.3.2005 (CREDIT) Outstanding balance as on 31.03.2004 (Credit) (2) 2370.88 (1914.93) 96.55 (79.12) ASSOCIATES KEY RELATIVE MANAGEMENT OF KEY PERSONNEL MANAGEMENT PERSONNEL (4) (5) TOTAL

136.22 (105.71)

(3) 3957.43 (3107.72) 18717.90 (16007.12) 124.60 (105.57) 37.51 (0.35) 11.04 (13.80) 2932.10 0.00

133.26 (94.61) 878.42 (511.47) 1683.18 (2045.48) (309.65) (271.06)

69.43 (99.00)

0.00 (17.77)

(6) 6328.31 (5022.65) 18814.45 (16086.24) 124.60 (105.57) 173.73 (106.06) 11.04 (13.80) 2932.10 0.00 202.69 (211.38) 2561.60 (2556.95) (309.65) (271.06)

1. Figures in bracket are in respect of the previous year. 2. * Remuneration included Superannuation and Provident Fund. Name of Related Parties & Description of Relationship is as below 1. 2. 3. The Individual/Entity Exercise Control over the Company The entity having substantial interest in the Company Associates 1. 1. 1. 2. 3. 4. 5. 6. 7. 8. 9. 1. 2. 3. 4. 5. 1. Dr. Surinder Kapur Koyo Seiko Co., Ltd. Sona Somic Lemforder Components Ltd. Sona Cold Forgings Ltd. Sona Okegawa Precision Forgings Ltd. Mahindra Sona Ltd. Pune Heat Treat Pvt. Ltd. Sona e-Design and Technologies Ltd. Kapur Properties & Investments Maruti Udyog Ltd. Fuji Autotech France S.A.S. Dr. Surinder Kapur - (Transactions disclosed under category (1) above) Mr. P.V. Prabhu Parriker Mr. Kiran M. Deshmukh Mr. Sudhir Chopra Mr. Ashish Tandon Mr. Sunjay J. Kapur

4.

Key Management Personnel

5.

Relative of Key Individual Exercising Control

54

C ASH FLOW S TATEMENT

Year Ended 31st March, 2005 Rs./Lacs A. CASH FLOW FROM OPERATING ACTIVITIES : Net Profit before tax and extraordinary items Adjustment for : Depreciation Miscellaneous Expenditure Written Off (Profit)/Loss on sale of Fixed Assets (Profit)/Loss on sale of Investments Interest Paid Interest Received Operating Profit before Working Capital Changes (Increase)/Decrease in Sundry Debtors (Increase)/Decrease in Inventories (Increase)/Decrease in Loans & Advances/Other Current Assets Increase/(Decrease) in Current Liabilities & Provisions Cash generated from operations Income Tax Paid Cash Flow before extraordinary items Project Expenses Net Cash from operating activities B. CASH FLOW FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (including Capital Work in Progress) Proceeds from sale of Fixed Assets Proceeds from purchase of Investments Interest Received Net cash (used)/raised from investing activities C. CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from fresh borrowings Repayment of borrowings Interest Paid Interest Paid (Added to CWIP) Dividend Paid Tax on Dividend Paid Net Cash used in financing activities Net increase in cash & cash equivalents (A+B+C) Cash & Cash Equivalents as at 31.03.2004 Cash & Bank balances Cash Credit Accounts Cash & Cash Equivalents as at 31.03.2005 Cash & Bank balances Cash Credit Accounts (2647.82) 22.16 (2932.10) 17.79 (5539.97) 4275.72 (64.19) (199.00) (18.06) (351.74) (45.07) 3597.66 (804.48) 78.93 (998.62) 80.20 (1804.37) 56.12 (732.70) 78.93 (998.62) 2073.50 (655.28) (123.60) (68.63) (346.21) (44.36) 835.42 (243.11) 2533.29 928.81 162.79 (14.34) 0.00 199.00 (17.79) (1939.89) (861.44) (187.44) 1329.06 778.06 171.07 5.25 0.11 123.60 (22.96) (546.72) (315.67) (104.63) 425.32 Year ended 31st March, 2004 Rs./Lacs 1875.75

1258.47 3791.76

1055.13 2930.88

(1659.71) 2132.05 (727.45) 1404.60 (266.77) 1137.83

(541.70) 2389.18 (643.15) 1746.03 (244.53) 1501.50

(2617.85) 14.42 0.44 22.96 (2580.03)

(919.69)

(676.58)

(1724.17)

(919.69)

NOTES TO CASH FLOW STATEMENT : 1. Figures in brackets indicate cash outflow and without brackets indicate cash inflow. 2. Unsecured loans comprising of bank borrowings, loans from others and lease rental deposits have been grouped as part of financing activities. 3. Cash & cash equivalents include cash flows from cash credit borrowings from banks. As per our report of even date attached For S.P. Puri & Co., Chartered Accountants (S.P. Puri - Partner) Membership No. 5024 Place : Gurgaon Dated : 20th April, 2005 Sudhir Chopra - Company Secretary Ashish Tandon - Finance Controller For and on behalf of the Board

Dr. Surinder Kapur - Chairman & Managing Director Ravi Bhoothalingam - Director

55

SONA KOYO STEERING SYSTEMS LIMITED B ALANCE S HEET A BSTRACT

I. Registration Details Registration No. Balance Sheet Date II. Capital Raised during the year (Amount in Rs. Thousands) Public issue Bonus issue III. 18415

AND

C OMPANYS GENERAL B USINESS PROFILE

State Code 31 Date 03 Month 55 2005 Year

Rights issue Private issue

Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) Total Liabilities 1776934 Sources of Funds Paid up Capital 87934 Deferred Tax Liability 180958 Secured Loan 863250 Application of Funds Net Fixed Assets 1014160 Net Current Assets 398834 Accumulated Losses

Total Assets 1776934 Reserves & Surplus 640992

Unsecured Loan 3800 Investments 296610 Misc. Expenditure 67330

IV. Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure 3629439 3376112 Profit / (Loss) Before Tax Profit /(Loss) After Tax 253329 166667 Earning Per Share in Rs. Dividend Rate % 3.79 50 V . Generic Names of Three Principal Products of Company (as per monetary terms) Item Code No. A012-4000 Product Description 800 CC Column Assembly Collapsible Item Code No. D040-5000 Product Description Scorpio - Hydraulic Power Steering Item Code No. A023-9000 Product Description Omni Rear Axle Assembly For S.P. Puri & Co., Chartered Accountants (S.P. Puri - Partner) Membership No. 5024 Place : Gurgaon Dated : 20th April, 2005 Sudhir Chopra - Company Secretary Ashish Tandon - Finance Controller For and on behalf of the Board

56

Dr. Surinder Kapur - Chairman & Managing Director Ravi Bhoothalingam - Director

F INANCIAL S TATISTICS
IN US DOLLARS REVENUE ACCOUNT
Year Ended Sales Profit Before Taxes Taxes Dividend (Total) Capital (Total)

CAPITAL ACCOUNT
Reserves Borrowings Gross Block Earning Per Share (US$) Dividend Net Worth Per Per Share Share (US$) (US$)

31.03.2001 45,579 31.03.2002 41,755 31.03.2003 45,812 31.03.2004 64,912 31.03.2005 82,469

444 1,268 1,893 4,244 5,756

(US$000) 64
295 624 1,506 1,969

752 563 818 898 1,139

4,011 3,832 1,842 1,989 1,998

11,968 8,597 9,280 11,866 14,565

(US$000) 6,973
3,390 4,124 8,265 19,701

25,181 24,721 26,031 29,962 38,202

0.02 0.09 0.12 0.31 0.09*

0.05 0.04 0.06 0.09 0.02*

1.57 1.18 1.26 1.58 0.38*

Note : Rupee figures have been converted into US Dollars at the prevailing exchange rates at the end of each year. *Current year earning, dividend and networth per share is on the basis of number of shares being split from Rs.10/- to Rs.2/- per share.

F UND FLOW - LAST FIVE YEARS

(US$000)
2004-2005 2003-2004 2002-2003 2001-2002 2000-2001 SOURCES OF FUNDS 1. 2. A. Increase in capital B. Premium on Share Capital Funds generated from operations A . Profit after Tax B. Depreciation C. Deferred Tax Investment (Net) Borrowings 3,787 2,110 383 9,670 15,950 2,738 1,760 124 1 4,692 9,315 (2,094) 1,269 1,582 (82) 20 1,733 2,428 973 1,499 67 2,701 325 5,565 380 1,695 519 2,594

3. 4.

APPLICATION OF FUNDS 1. 2. 3. 4. 5. Capital Expenditure Dividends Investments Increase in Working Capital Repayment of Loans 6,276 1,139 6,662 1,773 100 15,950 6,033 898 901 1,483 9,315 929 818 269 412 2,428 698 563 761 3,543 5,565 1,014 752 (1,117) 1,945 2,594

Note : Rupee figures have been converted into US Dollars at the prevailing exchange rates at the end of each year.

57

NO GIFT COUPON WILL BE DISTRIBUTED AT THE ANNUAL GENERAL MEETING

N OTICE
Notice is hereby given that the Twenty First Annual General Meeting of the Members of Sona Koyo Steering Systems Limited will be held as under: Day Date Time Venue : : : : Tuesday 19th July, 2005 10.30 A.M. Air Force Auditorium Subroto Park New Delhi 110 010.

Director of the Company, whose period of office would be liable to determination by retirement of Directors by rotation. 10) To consider and, if thought fit, to pass with or without modification(s), the following resolution as a Special Resolution: RESOLVED THAT pursuant to the provisions of Section 163 of the Companies Act, 1956, the Company hereby approves that the Register of Members, the Index of Members, the Register and Index of Debentureholders and the copies of all Annual Return prepared under Section 159 of the Act together with the copies of certificates and documents required to be annexed thereto under Section 161 of the Act or any one or more of them, be kept at the office of Karvy Computershare Private Limited, Registrar and Transfer Agent, which is presently located at 105108, Arunachal Building, 19, Barakhamba Road, New Delhi 110 001 instead of at the office of MCS Limited, the former Registrar and Transfer Agent of the Company. 11) To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT the consent of the Company be and is hereby accorded under Section 293(1)(a) and other applicable provisions, if any, of the Companies Act, 1956 to mortgaging and / or charging by the Board of Directors of the Company of all or part of immovable and movable properties of the Company, wheresoever situated, present and future, of every nature and kind whatsoever and / or the whole of the undertaking of the Company in favour of ICICI Bank Ltd. (ICICI), Standard Chartered Bank (SCB), Citibank N.A. (CB) and Hongkong and Shanghai Banking Corporation (HSBC) to secure: i) ICICI Bank Ltd., as Trustee on behalf of ICICI Bank Ltd., Singapore, of its Foreign Currency Loan to the tune of US$ 60 lacs; Standard Chartered Bank, New Delhi acting as an Agent and Security Trustee for Standard Chartered Bank, London Branch of its External Commercial Borrowing to the tune of US$ 20 lacs; Standard Chartered Bank of its Export Finance Facility of US$ 20 lacs; Standard Chartered Bank of its additional Working Capital Facilities to the tune of Rs. 100 lacs; Citibank N.A. of its additional Working Capital Facilities to the tune of Rs. 230 lacs; and The Hongkong and Shanghai Banking Corporation of its Import Facility of Rs. 1000 lacs;

to transact the following business: ORDINARY BUSINESS 1) To receive, consider and adopt the audited Profit & Loss Account for the year ended 31st March, 2005, the Balance Sheet as at that date and the Reports of Directors and Auditors thereon. To declare dividend for the year ended 31st March, 2005. To appoint a Director in place of Mr. Lalit Suri, who retires by rotation and being eligible, offers himself for reappointment. To appoint a Director in place of Mr. B.L. Passi, who retires by rotation and being eligible, offers himself for reappointment. To appoint a Director in place of Mr. Chander Uday Singh, who retires by rotation and being eligible, offers himself for reappointment. To appoint Auditors of the Company and fix their remuneration.

2) 3)

4)

5)

6)

SPECIAL BUSINESS 7) To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT Mr. Hiroshi Oishi be appointed a Director of the Company, whose period of office would be liable to determination by retirement of Directors by rotation. 8) To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT Mr. Omkar Goswami be appointed a Director of the Company, whose period of office would be liable to determination by retirement of Directors by rotation. 9) To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT Mr. Shinichi Takeuchi be appointed a

ii)

iii) iv) v) vi)

together with the interest thereon at the respective agreed rates, compound interest, additional interest, liquidated damages, commitment charges, premia on prepayment or

on redemption cost, charges, expenses and other monies payable by the Company to ICICI, SCB, CB and HSBC under the respective Heads of Agreement / Loan Agreement / Subscription Agreement / Credit Facility Agreement / Letter of Sanction / Memorandum of terms and conditions, entered into / to be entered into by the Company in respect of the said facilities. RESOLVED FURTHER THAT mortgage / charges created / to be created and / or all Agreements / Documents executed / to be executed and all acts done in terms of the above resolution by and with the authority of the Board of Directors are hereby confirmed and ratified. 12) To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT in supersession of the ordinary resolution passed by the members in the Twentieth Annual General Meeting of the Company held on 21st July, 2004, pursuant to Section 293(1)(d) and all other applicable provisions, if any, of the Companies Act, 1956, consent of the Company be and is hereby accorded to the Board of Directors to borrow from time to time, moneys for the purposes of the Company, notwithstanding that the moneys to be borrowed together with the moneys already borrowed by the Company (apart from the temporary loans obtained from the Companys Bankers in the ordinary course of business) will exceed the aggregate of the Paid Up Capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose, provided that the total amount of the moneys borrowed excluding interest at any time shall not exceed Rs. 200 crores. Place : Registered Office : UGF-6, Indraprakash 21, Barakhamba Road New Delhi - 110 001 Dated : 20th April, 2005 NOTES: 1) A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and on a poll, to vote in his stead and such a proxy need not be a member of the Company. Proxies in order to be effective must be received by the Company not less than 48 hours before the time for holding the meeting. For security reasons, briefcases, transistors, bags, tiffin boxes, cameras, binoculars etc. are not allowed inside the Auditorium. The Register of Members and Share Transfer Books of the Company will remain closed from Friday the 1st July, 2005 to Tuesday the 19th July, 2005 (both days inclusive). Dividend to Shareholders as recommended by the Directors for the year ended 31st March, 2005, when declared at the meeting, will be paid : i) to those members whose names appear in the Register of Members of the Company, after giving effect to all valid share transfers in physical form By Order of the Board 7) Sudhir Chopra Company Secretary

lodged with the Company or its Registrar on or before 30th June, 2005; and ii) in respect of shares held in electronic form, to those beneficiaries whose names appear on the statements of beneficial ownership furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL), at the end of business hours on 30th June, 2005.

Non Resident Indian Shareholders having NRE Account in any scheduled bank are requested to intimate the same to the Company immediately for remittance of dividend. The Company will dispatch the dividend warrants from 25th July, 2005 onwards. 5) Pursuant to the approval of the shareholders at the twentieth Annual General Meeting, the Equity Shares of the Company have been sub-divided from the one Equity Share of the Face Value of Rs. 10/- each to five Equity Shares of the Face Value of Rs. 2/- each. The members holding Equity Shares of the Face Value of Rs. 10/- each are requested to surrender the respective Share Certificate(s) to the Company or its Registrar and Transfer Agent viz. Karvy Computershare Private Limited, to enable the Company to issue fresh Share Certificate(s) pertaining to Equity Shares of the Face Value of Rs. 2/each. The members holding Equity Shares in physical form and desirous of obtaining dividend through ECS facility are requested to send the duly filled up and signed ECS Form as enclosed with the Annual Report to the Company or its Registrar & Transfer Agent viz. Karvy Computershare Private Limited. Information under Section 205A read with the Companies Unpaid Dividend (Transfer to General Revenue Account of the Central Government) Rules, 1978 as amended is given below : i) Pursuant to Section 205 of the Companies Act, 1956, all unclaimed / unpaid dividends up to the financial year ended 31st March, 1995 have been transferred to the General Revenue Account of the Central Government. Shareholders, who have not yet encashed their dividend warrants for the said period are requested to claim the amount from the Registrar of Companies, N.C.T. of Delhi & Haryana, Paryavaran Bhawan, B-Block, C.G.O. Complex, Lodhi Road, New Delhi 110 003 by submitting an application in the prescribed Form. Consequent upon amendment in Section 205A of the Companies Act, 1956 and introduction of Section 205C by the Companies (Amendment) Act, 1999, the amount of dividend for the subsequent years remaining unpaid or unclaimed for a period of seven years from the date of transfer to Unpaid Dividend Account of the Company is to be transferred to the Investor Education and Protection Fund set up by the Government of India and no payments shall be made

6)

2)

3)

ii)

4)

in respect of any such claims by the Fund. Accordingly, all unclaimed / unpaid dividends upto the financial year ended 31st March, 1997 have been transferred to the said Investor Education and Protection Fund. Members who have not yet encashed their dividend warrant(s) for the financial year ended 31st March, 1998 onwards are requested to make their claims to the Company without any delay. 8) Members holding Equity Shares in physical form are requested to notify promptly change in their address, if any, to the Companys Registered Office or M/s. Karvy Computershare Private Limited, 105-108, Arunachal Building, 19, Barakhamba Road, New Delhi 110 001, the Registrar and Transfer Agent, quoting the folio number and members holding Equity Shares in electronic form are requested to notify promptly change in their address, if any, to the respective depository participant. All the queries related to Accounts must be sent to the Company before 5th July, 2005.

Resolution No. 8 In order to meet the future challenges and grab the emerging business opportunities, it is imperative for SONA to deepen and broaden its perspective at the Board level. With the above objective, Mr. Omkar Goswami, a Management Consultant, was appointed as an Additional Director by the Board of Directors of your Company on 15th October, 2004. According to the provisions of Section 260 of the Companies Act, 1956, Mr. Omkar Goswami holds office as Director only upto the date of the ensuing Annual General Meeting. As required by Section 257 of the Act, notice has been received from a member signifying his intention to propose the appointment of Mr. Omkar Goswami as Director of the Company. Keeping in view of Mr. Omkar Goswamis rich experience in the Management Consultancy and Corporate Governance arena, the Board considers it desirable that the Company should continue to avail the benefit of his expertise. The brief resume and disclosure of shareholding of Mr. Omkar Goswami have been given in the section of Corporate Governance of the Annual Report. Except Mr. Omkar Goswami, none of the Directors of the Company is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval. Resolution No. 9 Mr. J. Sugimori, Nominee of Maruti Udyog Ltd. (MUL), ceased to be a Director from the Board of the Company on 15 th October, 2004. Subsequently, upon nomination of MUL, Mr. Shinichi Takeuchi, Jt. Managing Director of MUL, was appointed as an additional Director by the Board of Directors of your Company in its meeting held on 14th January, 2005. The notice under Section 257 of the Companies Act, 1956 has been received from a member signifying his intention to propose the appointment of Mr. Shinichi Takeuchi as Director of the Company. Having regard to his knowledge and experience the Board considers that the appointment of Mr. Shinichi Takeuchi as a Director of the Company will prove beneficial to the Company. The brief resume and disclosure of shareholding of Mr. Shinichi Takeuchi have been given in the section of Corporate Governance of the Annual Report. Except Mr. Shinichi Takeuchi, none of the Directors of the Company is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval. Resolution No. 10 Pursuant to Section 163 of the Companies Act, 1956, the Shareholders of the Company in their Extraordinary General Meeting held on 30th July, 1994 had approved for maintaining the documents referred to in the resolution, which are normally required to be kept at the registered office of the Company, at

9)

10) The members desirous to appoint a nominee in respect of their shareholding in the Company are requested to send to the Company or its Registrar and Transfer Agent the duly filled up and signed nomination form enclosed with the Annual Report. 11) As a measure of economy copies of Annual Report will not be distributed at the Annual General Meeting. Members are requested to bring their copy of the Annual Report to the meeting. 12) Members who hold shares in de-materialised form are requested to bring their Client ID and DP ID Nos. for easier identification of attendance at the meeting. EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956. Resolution No. 7 Mr. Hiroshi Oishi was appointed as a Director of the Company on 21st July, 2004 to fill the casual vacancy caused due to vacation of office of Director by Mr. Kiyoshi Takeda, nominee of Koyo Seiko Co., Ltd., Japan, the Companys Foreign Collaborator. Mr. Kiyoshi Takeda was due to retire at this Annual General Meeting. The notice under Section 257 of the Companies Act, 1956 has been received from a member signifying his intention to propose the appointment of Mr. Hiroshi Oishi as Director of the Company. Having regard to his knowledge and experience, the Board considers that the appointment of Mr. Hiroshi Oishi as a Director of the Company will prove beneficial to the Company. The brief resume and disclosure of shareholding of Mr. Hiroshi Oishi have been given in the section of Corporate Governance of the Annual Report. Except Mr. Hiroshi Oishi, none of the Directors of the Company is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval.

the office of MCS Limited, the former Registrar and Transfer Agent of the Company. In order to provide better services to the Companys investors and be benefited by the development of information technology, during the year, the Company has appointed Karvy Computershare Private Limited as its Registrar and Transfer Agent, in place of MCS Limited. Accordingly, it is proposed to shift and keep the documents referred to in the resolution at the office of Karvy Computershare Private Limited as detailed in the resolution. For this purpose, Shareholders approval is sought under Section 163 of the Companies Act, 1956. If there is any change in the address of the location of New Delhi Office of the Registrar and Transfer Agent, the shareholders will be duly informed of the same. However, every efforts will be made to keep the current secretarial records at the Registered Office of the Company also. None of the Directors is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval. Resolution No. 11 The Institutions / Banks referred to in the resolution have granted the Term Loans / Working Capital Facilities as contained in the resolution. As per the Loan Agreements entered into with them, the Company has to agree to create mortgage and / or charge in favour of the concerned Lenders on the properties of the Company. This attracts the provisions of Section 293 (1)(a) of the Companies Act, 1956. None of the Directors is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval.

Resolution No. 12 In terms of the provisions of Section 293(1)(d) of the Companies Act, 1956, approval of the members is required, to borrow moneys in excess of the aggregate of the Paid Up Capital of the Company and its Free Reserves, that is to say, reserves not set apart for any specific purpose. The members of the Company at its meeting held on 21st July, 2004 had accorded approval to borrow moneys upto a limit of Rs. 120 crores. As a sequel to the growth in the operations of the Company attributable to the expansion plans, diversification into new products and to avail business opportunities, it may become necessary to borrow moneys in excess of the said limit of Rs. 120 crores. The proposed resolution is to enable the Board of Directors to borrow moneys upto a limit of Rs. 200 crores. None of the Directors is concerned with or interested in the resolution. The resolution is accordingly recommended for members approval. Inspection of Documents The material documents referred to hereinabove will be open for inspection for the Members at the Registered Office of the Company from the date hereof upto the date of the meeting during business hours.

Place : Registered Office : UGF-6, Indraprakash 21, Barakhamba Road New Delhi - 110 001 Dated : 20th April, 2005

By Order of the Board

Sudhir Chopra Company Secretary

SONA KOYO STEERING SYSTEMS LIMITED REGISTERED OFFICE UGF-6 INDRAPRAKASH 21, BARAKHAMBA ROAD NEW DELHI 110 001 INDIA TEL: 91-11-2331 1924 FAX: 91-11-2332 7205 www.sonagroup.com CORPORATE OFFICE 8TH FLOOR, DLF SQUARE JACARANDA MARG, M BLOCK DLF CITY, PHASE II GURGAON 122 002, HARYANA INDIA TEL: 91-124-510 4641-44 FAX: 91-124-510 4645