Chairman'sLetter to Shareholders TheGitanjali Brand Showcase Directors'Profiles Directors'Report Management'sDiscussion &Analysis Reporton Corporate Governance AuditorsReport

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BalanceSheet Profit& LossAccount CashFlow Slatement SchedulesForming pad of Accounts BalanceSheet Abstract and General Business Profile Statementunder Sectbn 212(8)of the Compan'es Act" 1956 Auditors'Report on Consolidated Accounts ConsolidatedBalance Sheet ConsolidatedProfit & LossAccount ConsolidatedCash Flow Statement Schedulesforming part of Consolidated Accounts Corporatelnformation

CHAIRMAN'S

].O SHAREHOI-DERS

GREETTNGSFROM G|TANJALI! lT lSA YEARSINCE I HAD THE -l PLEASUREOF WRITING TO YOU. THE YEARHAS PASSEDBY SO z QUICKLY,ALMOST LIKE THE TURN OF THE KALEIDOSCOPE.

Fleetingimages of eventsthat occurredthis yearappear on my = mindscreen.Looking back is a neglectedart when your company o t: is rushingtowards a radiantfuture. But I recountthese eyents to sharethe of success.and to inviteyou to experienceour quite = loys = senseof optimismfor the future.So, let the reminiscencebegin... ; Circa2005, the kaleidoscopeturned... l \ tt Your companyexpanded its retailfootprint in the world's most lucradvejewellery I market - USA F t!

I\t Our acquisitionof SamuelsJewellers brought us a reeil chainof iewellerystores numbe-ing 100 spread across l8 statesof USA! The eighth largest jewellerT reoil chain in the USA is now part of Gitanialigfoup. This brings us unprecedentedaccess to the Americaniewellery buyers. F Our retailnerwork now comorisesof We alsolaunched a ma,or new brand- MaTa- a collectionof 22k gold iewelleryfrom t the consolidatedplarform of Speakgoldby the World Gold Council.

We havealso acquired a maioriry interest in Tri-Star Worldwide owners of the F Canadia@brand of diamondsfrom CanadaThis adds a recognizedbrand and a new sourceof raw diamondsto our enterDrise

We have continued our inyestrnentto set up global quality infl'astructure for the i i diamondand jewellery indusuT. Our constructionwork for the buildingup of Gems& JewellerySEZ's continues through Gitaniali and its subsidiarycompanies r We set up a subsidiary- Gitan,aliLifest/les Ltd to buildand prornote luxury mallsacross rhe country. OURBUSINESS ISFAST REACHING THETIPP]NG POINT, A JUNCTUREWHERE ALL THE SYNERGIES WE HAVEBUILT OVER THE YEARSCOMBINE TO CREATE WEALTH THAT ISMUCH BEYOND THESUM OF OURINPUTS. We haveconsolidated our businessby increasing our snkes in GlLl IndiaLrd and D'Damas Jewellery(lndia) Pvt Ltd, efTectivelymaking them subsidiaries.

Apan from these new inidacives,your compeny hascontinually focused on strengtheningour flagshipbrands and extendingtheir franchise. The emergingsructure of our enterprisewill be structuredalong four distinctivelines of business- rl Diarnondsand Processing, rnanufrcture/ Jewellery z exports/retail, Luxury Ufestyle brands and Infrastructuredevelooment. o rr] z The resultsof our endeavoulsare evidentin the lt) financialresults - our toplinehas improved 36 per F5 cenqwhere as our profitsimproved by I l8 per = cent as comparedto the figuresin the lastyear = oposeda dividendof Rs. l-50 per

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qs whercall the \ d

is that futurethat we hurtle towards

BrighqBrilliant and prosperous

I leaveyou with this vision. Warm regards,

lrlehul C, Choksl Chairman THEGITANJALI

SHOWCASE

GFANAU GEI.SUMmD HASA W|DEARRAY OF BRANDS. WHICH CATER TO Att SEGI'TENTSOFTHE JEWEUIRY M nKETtN |NDIAnS BMNDSARE AMONGST THE I.IOSTVISIBI.I AND RESPECTED IN THE INDUSTRY.

Ddanas DtDamas

Leunchsd In 2O03 by Gemplus and Damas,the leadingjewellery retailer

from the l4iddle East.J The br.and D'Damar speaks about tuxury

and hlgh asplratlont, bestowingon the wearer an aura of exclusiviq and

I fne lr|nO tartct3 the weddlng setment andcaters to

midmarker segmenc tl. Contemporary coltecflon of brandedgold

diamondieweltery,J Comblnes internationalquality widr Indianvalues -! D'damas'vast rcpertolre of sub brands and jewdlery collections

offer everTcustomer a choice that refleco her personalityand uste. while

blendinginto occasion..J rhere are vrrrous sub-brands and collections

under the umbrellabrand of D'damas

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.&&.- s.{S hII{ SrrrcrC lr.rllrrr Asmi

Asml celebrates the Inner rtrength and fire of a woman - the inner shakti -/ The Asml Gollectlon features sparkllng dlamonds harmo- niously set in contemporar/ designsas an external reflecdon of the fire within. r'$'The brand alms to fulflll every women'3 Innate need for setf- expresslon while celebratingher inner fire. i. lt is sloned as a premlum, work wear collectlon I asmt catcrr to the ryoman of tub3tancc and sadsfiesher need for reward and recognitioni$Eech Asml dlamond ls posltloned as a unlque dlamond whh highindividual appeil | A DTC

promoted brand by rhe GitanialiGroup I Crafted wlth ttallan flnesse and excellence

"oOo' s1.l"g.l,l I Sanginl

Sanglnl wai promoted In assoclatlon wlth Sanghayl Export3 - one of is flagshipbrands in the year2006. .€kitu lea{lng brand in the gold jewellerysegment;r$ The brand focuses on couples, especlally men. rSThe brand celebrates the Intcnslty of the man woman relatlonshlp. tl tt off"rt men an Inlmltabte and preclous way ro expressthe depth of love and the intensity of the bond they share as a couple.

.{ tne Sanglnl dlamond fewellery collectlon encompasses different productr from rings,pendants to bridal jewellery.

Nakshatra

The brand stands for power, rFlsrerf, beauty,and rhe symbolismofthe srars , * The range Incllnes towards tradltlonal deslgns with diamondsplaced anistically to resemblefloral patterns. I The iewetlerydeslgns focusattention rowardsthe central dlamond..f'The range Includes almost all varletles of lewellery from solitairesto bridallewellery. I lt was nccordedthe Superbrand Status In 2004..!-lt ls a DTC brand promoted by the Gitaniali Group in associadonwirh two other

Sightholders,Dimexion and MahendraBrothers (it'

Giti

One of the flrst ,ewellery brands launchedin India Ji Directedtowards

the domestlc market and partlyfor expons J Brandvalue is'Genulne

diamond and gold lewellery at affordable prlces' -d The brand

promores*Easy Elegance' d lt was accordedSuperbrand status ln

2004.

I _: .tr.- .l z, Giantti

E Giantti is a high-end jewellery brandmarkered through an exclusivesalon ct) c in .d The collecdonoffers a unique internatlonal allure coupled 1

jeweller = by personalattention of a private and offers tailored professional = guidancefrom qualifiedexperts ; :a t\j I I t\ trfl"{.ti-".q s\ {,:rr o *{f"r*-t"1*x * ii 4*},lr"

Collection G

Jewellerydesigned ro grrce rhe contemporary lndlan woman, j, The

collecrionis outward looklng, ambitious,and expressive.l lt is a styllzed

celebratlon of the intlmate relatlonshlp betweenrhe modern lndian

woman and her iewellery.

MEHULC. CHOKSI (+e/ A commerce graduate,has been associatedwith $e genls and iewellery indusry for over three decades He haswide o

G,K.NAIR(/d/ A commerce gnduate and r Chartered Accoununt, has been whh Gianiali for over 9 years and hasbeen on the Board since 1999, He oversees .l fesource mobilisadon,corporate planning,restruchJring of variousgroup z compeniesand headingthe corporate financeteam- He is responsiblefor the financeand accountingfuncdons, MlS, personnel and administration. He is also responsiblefor shapingthe corporate srategl and identi{ying global opporcunitiesfor the companl in assisdnt the macro level strategr C" formulationin the companyand he hasa wide experiencein various t: operational and functionalareas having worked in the non-bankingfinance for over l2 yearswith LKP MerchantFinancing Ltd. industry = ADRIANUSB. VOORN (6;'/ A H.T.S (MechanicalEngineer) from Netherlandsand a Dutch national, Mr Voorn is the third generationinheritor of skillsin the Diamond S manufacturingindustry. He has previouslyworked witfi large corporations 9 in Europeand fuia andhas been instrumental in independentlyestablishing s many plants He overseesthe manufacturingoperations at Gitaniali.He \ specialisesin Fine Cut and BelgiamCut diamonds. Mr. Voorn hasbeen a Director on the Boardsince 1999.

DHANESHV. SHETH(:"J A Commerce Graduate,has been associatedwiti Gitaniali for the past wo decades,having been a Director for almost l7 years. He advisesthe company on its marketingoperations, the buying and selling of rough diamondsand other aspecs of BusinessDevelopmenl

T3 suJALA.SHNL(,7e) A commercegraduate and a ChaneredAccounenL fu a practising Charteredaccounutnt, he hasover l6 yearsexperlence in thefield of Auditing,Taxation and Managemenr Consultancy. He is currently HonoraryJoint Secretary of rheChamber of Tax Consultane.He is a partnerin the firm M/sDalal & Shah,Chartered Accounbnts, where he is primarilyresponsible for the manatementconsultancy services of the firm.

PRAKASHD. SHAH(.'2) A graduatein commerce and law. he is a leadingpraccicing Advocate at the Bombay High Courq wirh oyer 23 yearsof experience.He is the proprietor of PDS Legal,a solicitors and advocatesfirm.

S.KRISHNAN (/'// A Masters degree holder in commerce besidesbeing a D M.M., M.F.m.. he is a leadingprofessional in the financialservices industry and hasyast experienceIn banking fund managemenrand capital market operations. He hasheld top managementpositions in TAIB BankEC, TAIB Securities,Everest Fund, Aldercrest Tnding Limited and First Bankwith professionalexperience in USA Europe, Fliddle East Africa and India.

SURESHCHUKKAPATLI (4 i ) A bachelor In l,lechanicalEngineering he is a leadingprofessional tn the infrastrucure industry. He is a Director and Founder Promoter of the Lanco Group of Companieswith acdvitiesacross power, steel,cement, consruction and sofrware developmenLHe is a Director on Board of SaharaAsset I'lanagementCompany Pvt Ltd. and he is a Member of InternationalAssociation of BusinessLeaders. He was a former member of Confederation of lndian Industry (Southern Region),heading committees in the areas of Power, HR and Information Technology. He hasheld top positionsin AutomobileAssociaUon of India(Guntur District) and served as member of Advisory Committee of Bankof Baroda,Zonal RailwayUsers Consulative Committee and Central Board of Film Certification.

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TUTflEMlilftBERS Your Directors pr$enr the 2 | st Annral Repon of the Conprny

togetherwhh the AudhedStatement of Accouns for the yearended March 3 |, 2007.

";+F DIREC]'ORS'REPORT

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o t: 2006-2007 2005-2006 22?i06.97 = a 21004.85 4

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Provisionlor Herred Tax

Net Profit for dte Year

Profit brorght forward from erdier Years

Reserucsof ArmbFmted Compenhs

Proposed Dividend (induding Dividmd Tax)

w"v,, 'n RNOVIiR&PROIril' applovalin their meeringheld on September21. 2006. Subsequentlythe authorisedshare capital of the Company The Directorswish to inform you that duling the financial wasincreased to Rs 1200nrillions divided into 120,000,000 year-endedMarch J l, 2007,rhe salesand o(her income equiryshares of Rs l0/. eachpursuant to members' increasedfrom Rs. 15223.77Millions to Rs.22206.97 approvalthrough Posul Balloton March9, 2007 Millions.The net profit before tax stood at Rs.916.48 Millionsas againstRs. 543.18 Millions in rhe previous year. The net profit after tax srood ar Rs.819 Millionsas I' LND U'l'lLISil'l'lON againstRs 478.02l''lillions in the previousyear. lnltld Publlc Oftur ,d' The Cornpanyhad a balanceof Rs.2750.00millions from DI\TDINI) its IPO proceedsas on April | , 2006. During the year Your Direcrors reconrmendeda dividendof l5 per cent endedon March31, 2007 the Companyutilized rhe IPO (Rs 1.50per equiq/share) for the year endedMarch J l. proceedsas follows: 2007.The paymentof dividendis subjectto rhe approval of shareholdersat the ensuingAnnual General Pleeting and will be paid on 60,552.545Equity Shares of Rs.| 0/- each @ Rs. 1.50per equity5h3re atgregaring ro fu. 90.83million excludingapplicable taxes.

lSStrEOlr SECtrlU'I'l I1S ,d lssue of I per cent Forelgn Currency ' ConYertible Bonds (FCCBS) Pursuantto the approvalaccorded by the members at cheAnnual General Meedng held on September2 l, 2005,tlre Compan;ron November 24,7006 raisedUS USD I l0 millionsthrough I percentForeign Curlency Conver-tibleBonds (FCCBs). The FCCBshave a maturiry fu on June30, 2007,the balanceproceeds of Rs.1400.00 periodof 5 yearsand I dayand are lisredon Singapore millionscontinued to be temporarilyinvested in Fixed ExchangeSecurities Trading Umited. The proceedsof this Deposits.pending final utilizadon issueis beingutilized by the Companytowards overseas acquisitionsand other infrastructureactivities including Forelgn Currency Convertlbte Bonds developmentof SpecialEconomic Zones (SEZs) J- Our of the toul issueproceeds aggregatint to US USD I l0 00 millions,aker havingadjusred issue related lssue of Egulty Shares on Preferentlal ,t expenses,the company hasreceived a net proceedsof Allotment basls US USD 105.60millions through FCCB issuewhich has Pursuantto the all applicableapprovals including approval beenutlized as follows: accordedby the membersthrough postalballot on Mar-ch 9, 2007,the Companyhad on May 29, 2007 allotted Amount 1,554.050equity shares of Rs l0/- eachon preferential i Partlculars u5D Mllllons) basisto B lll CapiulPanners, L P,USAand B lll - A 25.00 CapitalPanners, L. P.,USA Theseshares were allofted 39.22 as paruconsideration towards acquisirionof Samuels Jewelers,Inc, USA The sharesare locked-infor a period 40.38 of one year frorn the date of allotment I Os.60 r\tj'llIOlilsL,l) SI l,\ liE (l,tPll At. As on June30, 2007,the balanceproceeds of US USD Duringthe year under review,the authorised share 40.38millions continued to be in deposi6.temporarily capitalof Rs.750millions was reclassifiedas 75,000,000 with overseasbanks pendingfinal urilization equityshares of Rs.l0f eachpursuant to shareholders'

I8 I )l ltlic'l'0RS'IU:IPOR' I'

SUBSIDITRILS ITULA'IIDPARTY'I'R..INSACIIONS The Companyhad following subsidiaries as on March 3 | Relatedpar-ty U?nsacUons have been disclosed 2007: in the notesto accounts.

(l/ l1rehullmpex Limited trlxlil)DHPOSnS /i- CRIAJewellery privare LimiLed. Duringthe year under revieu your Company 1r.iGitanj:rli Expons Cor-porationLinrirerl. hasneither invitednor accepted tt L Hyderabad anyfixed depositsfrom the public Gems SEZ Limited. . wirhinthe meaningof Sectron5gA of the 1l.i Fancas/Diamond Curs pnvaceLinrited CompaniesAcL t955 rrl. Gili lndiaLimited /ll: DesireLifestyle privare Linrrted 1/,1 DlRticl'oRs Shubalavan/aaJewel Crafts privateLimited Mr Vijay 1i.?.GiranJali Infr-atech Linrited KurnarJada resigned fi.om the Boardwith effect frorn May 14,2001. /11Srmuels Jewelers, Inc, USA. The Boardrecorded is appreciation t'GifJnjali of the conribution // VenturesDMCC, Dubai madeby Mr. Jadaduring his tenureas rGrtani.tli a Director. 1,-'. USA,Inc. (Holding Cornpany of Tri_Star Worldwide LLC,USA) o F.l Excludedfrom In accordancewith the Afticles of fusociation consolidacedaccounts and shtement of the z Company,Mr. S Krishnan prakash undersection 212(8) of rhe CompaniesAcL 1956.being and Mr. D. Shah. Direccors fecenUytncorDorated. reure by roution and beingeligible, ofTer themselvesfor re-appointments. 6)

In ternrsof approvalgr-anted by the CentralGovernrnent (t) t- LrnderSecLion 2 t 2(8) of the ConrpaniesAcq 1956,copy DI It[C'l CIt{S' IUTSPONSIB tLITy h.l of the Reportof the Bolrd of Directors and Audirors, SIATIII:|ENT ; BalanceSheet Profitand LossAccount of the Subsidiaries Pursuantto the requirementunder Section217(2M) exrsungas on Marchj = l, 2007,have not beenattached of the CompaniesAcL 1956n t$ .urpuct to Direaors, a witi the BalanceSheet ofthe Company ThesedocumenB ResponsibilityStaremenL it is herebyconfirmed: - will be madeavailable upon requestby any Memberof \ the Cornpanyinrer-ested in obrainingthe (i) thar in s sarre These the preparationof rhe annualaccounG for s docunrentswill alsobe availablefor inspecrion the i during financialyear ended MarchJ l, 2007.the applicable \ businesshours at the AdrninistrativeOffice of drc iiccountingsundards have been followed along with \tR Company proper explanation relatingto materialdepartures, if any;

However,as directedby the Central Government.the (i') that the Directors haveselected such accoundng br-ieffinancial data ofthe subsidiar-ies hasbeen furnished policiesand applied them consistentlyand made underthe head"Sutement under secrion 2 | 2(g) of the iudgrnentsand esttnates that are reasonableand CompaniesAcr, 1956"forming parr ol the Annual prudenrso Reoorc as ro giveatrue andfair view of the stateof AfterMarch 3l, 2002thc (ollowingCornpanics affairsof the bccarne Companyas at March3 l, 20OZ and of the Subsitiiaries: plofir of the Companyfor the saidperiod;

/r/, D'Damas (lndia)private (iii) Jewellery Limited. that the Directors havetaken proper and sufficient r,l.,,Gitanjali Lifestyles Lrrnited care for the maintenanceof adequaceaccounung records in accordance with the provisionsofthe CompaniesAcL 1956,for safeguarding cO\s()t.ll),\t'tit ) trl\ ANCt ;\L the rssersofthe Comprnyand for prevendngand S'I',\L'EIIIN15 detectingfraud and other irregularities;and ln lccordlnce wirh the recuiremeoisof Accounting (iv) rhat Lhe Directors haveprepared the Standard(A5) 2 | on rhe consolidatedfinancial smr;rnents accounB for read che financialyear enderJHarch j l. 2007on ,going wtth AccounungSt:ndard (AS) 23 on accountingfor a Investment concern'basis. in associatesprescribed by The Insrituteof CharteledAccrrununts ol lndia.your Drrectorsprovide 'Ihe abovesutenten$ havebeen reviewed by the consolidatedfinancial sr:tcrnenr in the alrnualreDort the Audit Comrnitteeat its meetingheld on July30, 200/.

I9 (f) Duringthe /ear, the Companyhad set up a wholly SIGNIFI(l;\NI Dt'I ELOPI\IllN'llil)LiRlN(; owned subsidiary'GitanialiVentures DMCC' in Dubai, TIIE)]lAR UAE.The mainactivity of this wholly owned subsidiaryis (a) The Companyincreased its stakein Gili IndiaLimited, tradingin Diamonds,precious stones. diamonds iewellery thereby Gili IndiaLimited. an AssociateCompany and pearls. becamesubsidiarTof the Company Gili IndiaLimited 'GlLl' owns one of the India'sfirst recailiewellery brand (g) Duringthe the Companyacquired a maiority 'GlLl' lear, continuesto be highrecall iewelletT brand with stake in Tri-star Worldwide LLC (Tri-Star) a US based a commendableshare of the brandediewellery markeu Company through its newly formed wholfy owned 'Super It was accorded Brand'status by the Indian subsidiary,Gitaniali USA. Inc. Tri-Sur is engagedin the ConsumerSuoerbrands Council in 2004.lt wasfeatured businessof manuhcruringand global distribution of in country by the 'Canadia' among the top ten iewellery brands the branddiamonds and diamondlewellery GJEPCnragazine Solitaire International. With the increase in the soke, the Company has further consolidated its (h) Other SEZ hojecs on hand hold over bnnded iewellerymarket in India. With a view to capturint every point of value chain on (b) throughits subsidiaryFantasy Dianrond The Company Gems & JewellerySector, the core businesswhere the Curs PrivateLimited, alongwith Bangalore based Diadem companyis in, and havingthe enormousexperience Rankalnternational Private Limited (a RankaGroup gainedby the Company throuth Hfderabad SEZ the Company)formed a JointVenture CompanyDiadent Companyinitiared serdnt up variousSEZ proiecs RankaDesire Lifestyles Private Limited. engaged in the directlyand throughits wholly owned subsidiary'Gitaniali businessof gold and diamondiewellery. InfratechLtd.' - resultedin :-

1c)The Cornpanyhad raisedUS USD I l0 rnillions (i) Panvel SEZ - 10.21 hctrs - State(in-principle throuShan issueof I percentForeign Currency approvaldated 2719/2006) & Central(formal approval ConvertjbleBonds (FCCBs). The FCCBsare listed on daed 25i l0/2005)Governrnent Approvals for Gems& SingaporeExchange Securities Tnding Limited. JewellerySector.

(d) GitanialiInfratech Limited (GlL) was incorporated (ii) Aurangabad SEZ - 50 hctrs - State (in-principle as wholly owned subsidiarTof the Cornpanywith the approval dated 2719/2006)Government Approval for objectsof construction,designing and developingGem Gerns & JewellerySector. & JewelleryPark. developing exclusive SEZ for Gem andJewellery, designing and developingany technology (iii). Nandcd SEZ - 50 hctrs - State(in-principle relatingto manufacturingof Gems andJewellery etc. approvaldated 8i l/2007)& Central(in-principle approval dated 25/6/2007)for Gems & JewellerTSector. (c) The Companyacquired maiorit/ stakein Samuels Inc.,a US basedCompany engaged in the Jewelers, (iv) Besidesthe Gems & JewellerySector, the Company businessof rnerchandisingjewellery. This was one of rhe initiateddeveloping Special Economic Zones in the other first acquisidonsby an lndianjewellery Conrpany in the sectorsns well which resultedin Multi ServicesSector :- organizedUS iewellery markeq which constitutesa huge 35 per cent of globalicwelry markec This acquisiuonis Nashlk SEZ - | OOhctrs - Stare(in-principle approval a landrnark stepfor the industrTand a significrntstep dated8/l/2007) & Cenuzl (in-principleapproval dated towards nlovingup the industryvalue chrin By way of 761612007)Governnrent Applovals for Multi Services this acquisitionthe Companygot accessto a largeUs Sector consurnerbase and it offersa rangeof synergiesto the Company'sexisting operadons LeveragingSamuels' (v) In additionro the above,we haveapplied for approval existingrerail infrastructure gave the Conrpanycontrol on Gems& JewellerySEZ at Nagpur. over the entirevalue chain in the jewelry business Sanruels'seasoned mantg,ernent and expert employees haveallowed the Companf a smoother segueinto the US rnarkeL

:]0 DrR tic'f Olts' ttt.Pofft'

RECIIIISIGNIFIC;LYL prescribedunder secdon 224 (lB) of the CompaniesAcg 1956 lt is accordinglyproposed to appoint DEVI.IOI'ITIFNNJ M/s Ford, Rhodes,Parks & Co. as Statutory Auditors of (a) D'DamasJewellery (lndia) Privare Limited a ioint the Company for the year 2007-2008until rhe conclusion ventureCompany became a subsidiaryof the Company of the subsequentAnnual General Meeting of the on April l, 2007.tt is primarilyin the businessof Company. manufacturingplain and diamondstudded precious metal Jewellery.D'Damas is the llagshipbrand of D'Damas ln respect of the observationsmade by Auditors in their Jewellery(lndia) Private Limited and there are several report, your Directors wish ro state that thd respective particular sub-brandseach providing a occasionwear for notes to the Accounts are self explanatoryand therefore tJle consumef. do ncltcall for anyfurther comments.

(b) ln linewith its policyto diversiryits businessmodel. I NDU$I'RIALRILA'IIONS the Companyhas made a successfulforay into lifesty'es Employeerelations conUnued to be cordialduring the business.The Companyhas set up a wholly owned /ear. The Company continued its thrust on Human subsidiaryGitaniali Lifesryles Limited (GLL) on May 4. ResourceDevelopmen! The Board wishesto placeon 2007 as ir lifestylesarm. GLL is b€int posidonedto ti record its sincere appreciationto all the employeesin >l {acilitateand promote the growing Luxury Reuil Market the Companyfor their sustainedefforts and immense z in Indiavis-i-vis internadonal brands GLL also hasplans contribution [o [he high level of pedormance and growth of settingup luxurTmalls across the country which of the businessduling rhe year. would becomea desdnadonfor housingall globalbrznds rtl coveringworld classfashion stores. fine-dine restaurants, (a) spa's,international jewellery brands, connected wedding P,4.RTICI.JL{.ITS OI; IIMPLO}'EFS r: Informationin accordancewith rhe of Section - stores encompassingdesigner products finely bundled Drovisions 2 | 7(2A) of the CompaniesAcc 1956,read wirh the P with personalizedservices to suit the need of crenrede Companies(Particulan Employees) = la cream. of Rules,1975, as el arnended,regarding employees is givenin Annexure?' formingpart of this Reporc IIANACE$IL]\,jT DISCUSSI 0N ANI) tr ANrlLl'lSISRIl.P0Kt' s A deeiled ManagementDiscussion and Analysisis P providedin the AnnualReport \l CORPOR\TIIG0VHI[\ ANCE A Repon on Corporate Governancealong with rhe Auditor's Cenificateon irs compliance{orms pan of dris Annual Report

ALrl)l'IORS;\ND A tiDl l'0KS' RtsPOKI M/s Ford, Rhodes,Parks & Co., the Statutory Auditors, redre at rhe conclusionofthe ensuingAnnual General Meeting and being eligibleoffer themselvesfor re-appointmenc The Company has received a letter from M/s Ford, Rhodes,Park & Co. to the eftect that their appoinunentif made,would be within the lirnits INFORI{ATIONUNDIiIT SIIC'IlON .\CK\OV,LH)CIITEIYTS 217( I Xc)OF COIrlPi\t\lES i\C',f, t95(i The Board would like to placeon record its sincere RltlADWITH C0IUPANI appreciationfor the wholehearted suppon and I.lS conribution madeby Customers,Shareholders, il)l.sct.ostjRllot' PAR'flc Lrl,aRStN Auditors and all Employeesas well the various 'rHI'l as Banks, RliPOl{f0F'ft{E BOi\ItDOfi Distributors, Suppliersand other BusinessAssociates DIRECTOIIS)RULIiS. I 9BB towards the conduct of efficient and effective operadons of the Company.

,/. Consrrvationofenergp The Board thanksvarious Minisrig of the Government The Disclosureof paniculars with respect to of India Govemment of Maharashtra,Government of conservationof energy pursuanrto Section 2 I 7 ( | )(e) Guiant, Government of Andhra Pndesh, Dhmond Trading of the CompaniesAct, 1956 read with the Companies Company Ltd. (London), MinisuT ofCorporate Afiairs, (Disclosureof Particularsin the Repon of Board ReserveBank of Indn, BharatDiamond Bourse,Gems & of Directors) Rules, | 988 are not applicableto the Jewellery Expon komotion Council. Bankers, Customers, Company.However, the Company makes i$ best eforts Supy'len and Shareholders for their co-operation and for consenation of energy. valuablesuppon rendered from time to time.

a:. I'rchlolo.ql irbsorptionoarlnptetion & innovruion For andon behalfof the Board The Companyhas not carriedout any specificresearch lrlehul G. choksl and developmentactivities. Chairmarr& HanagingDirector

The Companyuses indigenous technologr for its Placel.lumbal Dated operatrons Accordingly the information related to luly 30, 2OO7 technoloryabsorption, edaptetion and innovationis leponed ro be NlL.

a.i.Iiorei.gn e.xchaugecarninF:ril(l otrtgo

Current Prevlous Year Year ForeignExchange Earnings: t283r.23

| | t74.t8

Expenditurein Foreign Exchange

)2 DIITL,CIORS'RIIPORT

ctaR'r'lFlcA'lI,loF colrlPl.li\N(iliwlllt I l.lllcoDli 0F'cONDUCI' l, MehulC. Choksi,Chairman & ManagingDirector of the Company,hereby declare that the ComPanyhas adopted a Code of Conduct lor its Board Membersand SeniorManagement as provided under Clause 49 of the LisdngAgreement with the StockExchanges. The Board Membersand Senior Management have confirmed compliance with the Code of Conductfor the year endedMarch 3 l, 2007.

For and on behalfof the Boaro

PlaceMumbai Mehul C. Choksl Datedfuly 30' 2OO7 Chairrnan& ManagingDirector

ANNEXURE'A'TO THE DIRECTORS' REPORT c) PARTfCULARSOF EMPLOYEESpURSUANT TO SECTTON2l7l2A) OF THE COMPANIES ACT, 1955,READ WITH .l THECOMPANTES (PARTICULARS OF ET.4PLOYEES)RULES, 1975: z ! Partlculars ii r.rr.t'tehul c. choksi li Mr. Adrlanus Voorn I Mr. Manlunath I I Jyothlnagar'l li E Designation ExecutjveDirector li PresPresident-BusinessDevelopment ( Manufacturing) Ch l- ii -l Remuneration Rs.2,834,088r ii ns.;Rs. 2,400.000/- perannum perannum li Per = Nature of i.ro^i.",io"rr Direcror' ll trtEmployee emplo;rment ; rlll Otler Terms and As applicable li nsAs IApplicable ti = Condidons .li t\ Nature of Duties lnchargeofmanufacturing ji Leadingr-"" the new business E operadons initiinitiatives for improving the s i! t\s ll busibusinessprofitability and s li uuilbuildingmanagement teams for \t 1li effeeffecdvelyrunning the business oneoperadonsand systems i! H.T.S(Mechanical Errgineer) B.E(Chemical) ii He is the 3rd Generationln ll t3I 3 1yerrs tlre diamondmanufacturing li activiryand hasspecialization i i in Finecut diamondand !i Belgiumcut diamond. li i 0l/08/1994 t7to4iless li oe/t t!

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'25 BRICHT.BRILLIANT ANDPROSPI.]ROUS. o ]\IA NA(; Iil| IJN'I''SDIS( ] t.JSSION AND A\ ALYSN inthstrr andmrnpally rtl'icrft'

INDUSTRYHICHLICHTS

Gemsand jewellerT have played a very importantrole in the tradition,culture, and history of civilizationThe intrinsicvalue of jewelleryhas always attracted people acrossgeogrephies, cultures and socialstrata

Consumerpreferences and reasonsfor buyingJewellery 'fashion"'bridal' startedgettjng segmented into and 'investment'. 'industry' Over time, an evolved,initially concentrutedaround specificgeographies and meeting specificneeds, but graduallyemerging as a globalindusry.

Today,the indusry is at a turning poinL lt is expected dratthe interplayof varioustrends suchas globalization, role of regulation,technological increesing advances, .J increasingconsumer sophistication. emergence of z. alternativeretril channelsand such Thesecould poteotiallychange the industr) structur'eand the way it l- functionsin nrLrltipleways FI (t l- MAJORINDUSTRY COMPONENTS .l = r// Diamonds: Diamondshave always cnjoyed a special = placeamong precious ternstones, contributinS about 47 per cent io the total industrysize, in valuete|ms In the The gemsand iewelleryindustry occupies a prominent pasqdiamond jewellery was limited to a veD/small elite posidonin lndianeconomy and is a leadingforeign \ segnrentof the globalpopulation. However over the past exchangeearner accounting for USD l7 billionof R 50 years.diamonds have seen increasing democratisation exports Outof this, USD l2 billionareprocessed \ diamondsand USD 5 billionare diamond R Dianrondiewellery has, therefore, ernergedas a segrnent iewellery. \l showingsignificant growth in some of the emer3ing markets The global market for gold is estimatedat 3300 tonnes. SouthAfrica is the world's largestproducer ofgold, followedby the USA andAustralia Together,these 1t.2.Gold: Gold hasalways been the iewellers'favourite countriesaccouni for 45 per cent of the world's total metal,tiyen its intrinsicluster and easeof fabrication Gold jewelleryenioys rhe leadingposition in nlosr gold production.lndia is the largestconsumer of gold, rnarke$across the world, and in manyways forms the followedby the USA andChina backtroneof the preciouslewellery industry Given the factthat gold is alsoone of the traded rnemls,gold Indiaand Chinatogether are expectedco emergeas a markei.equivalenc marker lewelleryconsumption is also impactedby goldprice to U,S by 2015 With collectjve 'fhis movements segrnentroday forms about42 per cent action,the industryhas the potentialto grow to USD 280 of the total industr),in valueterms billionby 2015 at a CAGR of 67 per cenr lndia'sshare of the diarnondprocessirrt industD/ pie may drop ft'om 57 per cent today to around49 per cent (in valueterms) Gklbrrl(jcrts irnd ltrdrrsln, Jnvcllcn by 2015 and China mayenrerge as a strongplayer with Globaljewellery sales is expectedto grow at 4.6 per cent 21,3per cent of the diamondprocessing share by 2015. year-on-yearto touch USD 185billion In 2010and USD Currenrly.the inrportantplayers on the manufacruring 230billion in 2015. sideare India,China, Hong Kong,Thailand and ltaly.

27 Grouing shartrof jewellervbusiness The last five years have been seen the consolidation of another process,which beganearlier - the move ro polish large stones ofbecer qualry There has also been a concefted attempt to innovate and develop new cuts by yarious Indian companles.The Indlan diamond indusuy's commitrnent to technologicaladvancement and excellenceis clear from the fact that India hasthe largest number of laser machlnesas compared with any othr diamond manuhcturlnScentre.

Thus India,which beganas a manulacturer of small diamonds,is today in producingcut and polished diamondsof vlnually every size, shape and colour thus improving businessmargins.

hrdinnJnr't llera Dcnlarrd Apan from its relitious and social significance,gold is valued as an imponant savingsand investmentvehicle in preferred investmentbeiind bank Some Thc 2001-2008 World Out ook b. Fwd:ry-hof. fhllp l'i hrirr, hrod India,and is the second deposits. 'l}r Irrrli:rnCcnts :utd Jt'vdlrn' lndustn Indianconsumen havebecome more exposed to western The Indiangems and iewelleryindusrT is comPetirive preference products in the world marketdue to iu low cost of production lifestylesleading to the increased for popular and availabilityof skilledlabour. ln addition,the industq/ and designsthat are abroad. Egr example,there has a worldwide distribudon network. which has been is a shift towards preferencefor machinemade iewellery over the tradiEonal handcrafted Demand for establishedover a period of time for Prornotionand lorellery. quality, marketingof Indiandiamonds The Indiandiamond bnnded iewellerT hasalso been increasint, as the industryhas acquired leadership posidon in cutting reliability and wearabilityof the iewdlery is becoming and polishingof rough diarnondsIndia is thereforea importinL significantplayer in the world gemsand lewellcryrnarket both as a sourceol processeddiamonds as well as a large Given these emergingtlends. the demandfor branded consumingmarket. jewellery is further expectd to irrcrease.There is also an lncreasingdemand for diamonds.coloured gems, gems. The growing awareness lndusln I )tvdoprttutls synthetic stones and other and influenceof the west are causintIndian consumetr The two malor segmentsof the sector in Indiaar e gold ro become highly demandingand sophisticaed, requiring jewellery& diamonds becer quality of producs and sewices. This puts pressure on the playersto consistentlyimprove their product Gold Jewelleryforms around80 per cent of rhe Indian and service qualiy levels.thereby improving the overall iewellerymarkeL with the balancecomprising fabricated comDetitivenessof the indusw. studdediewellery that includcsdiamond studdcd as well as gemstonestudded jewellery. A predominantportion of gold jewellerymanufactured in Indiais consumedin the domesticmarkec

A malor ponion of rough,uncut diamondsprocessed in Indiais exported,either in tlre fornr of polisheddianronds or finisheddiamond lewellery.

38 trlA \ i\(il,iNl liNl'S DlSCI- SSI ()\ A\ D A\,\LYSIS i nclttsuu n(l c0mPanv relic\{

In the recentlyannounced Union Eudget(2007 - 2008)' Ilrandctl l'l arkct Jottllcrr customduty on cut and polisheddianronds was reduced The demandfor brandedlewellery in Indiahas grown to 3 per cent ft-om5 per cent and strbsequently considerablyin the last 3 years.Retail malls will playa exemptedtoully The exemPtionwill boost the further maior role in pushingthe salesof brandediewellery in growth of IndianGem andlewellerT Industr;r and bring lndia At present,only 3 per cent ofJewellerysales are the industryin line with the comPetition donevia organizedretailing But with the rapid exParlsion renil in India.there is irnmense for of organized Potential Colporatc Ovtniov the lewellerytrade. GitanialiGems Limited (GGL), a leadingintegrated

Increasingly shlfting lts buslness mix from Ar present.watches and iewelleryconribute l7 per .t ' mere processin8 of diamond to manufacturln8 centof salesin retail malls.Around 65 per cent of of gold and diamond rewelleiY. populationis below the ageof 35 and thisyoung India's -l consumerbase is willingto spend,not iust on bare The Company'soPerations rnclude sourcing rough z essentrals.buc also on lifestyleproducts and servicesIn diamondsfr orn primaryand secondarysuPPliers in additionto the localfocus on brandingand retailing,India t- rhc internationalmarket, cuRing and polishingrough hasan equllly largepoterntial in the intet'nationalmar'ket dramondsfor export and ntanufacturitrgand selling E (h diamondand other brandedrnd unbrandedjewellery. ( brrrpclilivc .\dviurtagt Thc Companyexports cut and polisheddiamonds and The factorsleading to the Indiangems and iewellery jewelle|yproducts !o vario(lsinternational Inarkets = inCustry'sSrowth are many.A neardonrinance In includingBelgiurn, ltaly, the Unitcd Stacesand the Middle = diamondsand colour6J slones,manufacturing excellence. Eastas well as to severaldiamond and iewellerymarkes : forwardlooking entreprerteurs, liberalised tovernme0t in Asraincluding Japan, China, Hong Kong and Thailand

policiesand an extensiveinternadonal marketing network \! of the leading hashelped India esublish itself as one ,t' Developing a 2O0 acres Special Economic Zone s - F jewellecy its (\g centres in the world Moreover, high (SEZ) in Hyderabad excluslvely for the Gems s growing s consumptionof gold,steady inflow of silveralrd and Jewellery sector. .\| interestin pladnumenable India to developthe entire rangeof iewellery,in plainmetal and srudded,that caters RaiivGems Park,a sprawling200 acle compoundis slated to the desiresof everymarket to beconteone of rhe largestGems & JewellerySEZs in lndia Locatedat the Shamshabadarea near Hyderabad Ottlook - it is to be developedby the Companyin a phased mannerthrough iu wholly owned subsidiary,Hyderabad The future of the induscryis quite Promising.More and is expectedto housenrore more buyersacross tie world are turningto Indiaas GemsSEZ Ltd The proiect than75-100 diamonds. plain & studdedgold jewellery and their preferred source {or qualrtyiewellery. watchesmanu{acturing units The Companyhas already buil'!a TrainingInstrtute which is fully ftrnctionaland has The Gemsand Jewellery Export Promotion Council people. (GjEPC)is lookirrgat exploringnew markets.silch as lesultedin the strccessfultt at:ingof over 1000 LadnAmerican countries. The industryalso plans to make wirh in settingup the H/derabad Indiaa tradingcentre for cut andpolished diamonds' Arrned the experience hasinitiated setting up variousSEZ and is closelyworking with the Govertrmentof Indir in SEZ,the Company projecs directlyand icswholly owned subsidiatT tlis regard.The longterm looks g<;odwith through Prospects 'Giuniali yewelleryexports aloneexpected to touch USD l6 billion InfratechLtd' in 20 l0 accordingto industtTestimaies

29 Theseinclude gems and iewellerySF7< in Panvel, Aurangabad,Nanded and a multi servicesSEZ in Nashik.

ln addidonto the above,we havealready applied for approval on Gems & Jewellery SEZ at Nagpur.

t Expandlng branded retall presence wlthln the country from the current I IOO outlets to | 5O0 or.ttlets ovcr the next two yearc.

The companyhas five brandsunder its umbrellanamely "GlLl", "Nakshatra","D'Damas". "Asmi" and "Sangini". It hasexpanded ia branded retail presence by being availablecurrendy in | 100outlets.

The companyhas a nruld-channeldistribution network About 40-45per cent of salesoccur through exclusive disuibutorswhich sellthe productsthrough local lewellers.About 30-35per cent of salesoccur through variousdeoarument stores and Malls Resto{ the sales happenthrough compan/ owned or franchiseestores

F Enpandlng global presence through strateglc acqulsltlon wlth a vlew to reach consumers worldwlde.

The companyacquired Samuels Jewelers, Inc. and acquired a malority stake in Tri-Star worldwide LLC Theseventures cemented the company'sstrategy to enter and esublisha foothold in the world's largest jewellery market.

With its presencefrom procuring lough diamondsto manufacturingpolished diamonds and gold & dianrond lewellery,to exporc and domesticdistribuuon and retail of gold & diamondiewellery - GGL is a fully integrated playerin the diamond& iewelleryindustry. with a phenomenallyscaleable business model

30 i\tA\ ACEitlh,\' l "S DlSC USSI 0 N A\ D .,\\ALYSI S irttlusuryand ulntpury rcliov

RECENTDEVELOPMENTS

The Companyincreased its stakein Gili IndiaLirnited .g I due ro which,Gili IndiaLimited. from beingrn fusociate becamea subsidiaryGili lndia Ltd owns one o{ the India's 'GlLl'. first retailieweller/ brand Which continrtesto be a highrecall jewellery brand with a conrmendableshare of the brandedjewellery market lt was accordedtlre 'Super Brand'sutus by the IndianConsumer Superbrands Council,in 2004.lt wasfeatured among the rcp ten jewellerybrands in the countrl by the GJEPCmagazine SolitrireInrernational. With the increasein the suke, the group hasfurther consolidatedits hold over branded jewellerymarket in India.

.-8) Fanasy DianrondCuts Private Limited. subsidiaryof the t joint 28, Company,formed a 50:50 ventureon October z. 2006with Bangalorebased Diadem RankaInternadonal g PrivateLimited (a RankaGroup CompanT).The ioint venrurecornpany, Diadem Ranka Desire Lifescyles Plivate = Limitedis engagedin the businessofgold and diamond C4 t- jewellery. .l = / Th. Corpony on November 24,2006,successfully raised ' = USD.ll0 millionthrough an issueo{ | percentForeign CurrencyConvertible Bonds (FCCBs) The FCCBsare lisredon SingaporeExchange Securities Trading Limited. \ I \' Ciunjali lnfratechLirnited (GlL) was incorporatedas a ( whollyowned subsidiaryof the Companyon December '\s l, 2006, Wirh this the Company has taken a step aheid in linewith is policyof diversifyingits businessmodel and forayedinto the Infratechsector GIL is in the business of consvucdon,designing and developingthe Gem and JewelleryPark, developing exclusive SEZs for Gems andJewellery indusry and designingand developing anytechnology related to manufacturingof gemsand iewellery.

) The Companyacquired maiority stakein Samuels " Jewelers.lnc., a US-basedcompany engaged in the businessof merchandisinglewellerT on December19, 2006 This was one of the fitst acquisitionsby an Indian jewellerTCompany in the organizedUS jewellerymarket, whichconstitutes a huge35 per cent of globallewelry markel makingit a landmarkstep for the industryand a significantttep towardsmoving up the industryvalue chainand it offersa rangeof synergiesto the Company's

3I exisdntoperadons. By way of this acquisitionthe llulrtan rtsorrrccs Companygot Jccessto a largeUS consumerbase, and GitanlaliGems' hunranresources philosophy is based leveragingSamuels' existing reoil infrastructure gave on dignit/ of work fosteringa culture of learning the Compan/ conuol over the entire valuechain in the meritocracysans bias of anykind and commitmentto iewelrybusiness. Samuels seitsoned management and higheststandards of safetyat the workplace. expert employeeshave allowed the Companya smoother segueinto the US market The company invesB in people and believesin creating an environment where people are valued as individuals .e* During the year, the Company had set up a wholly owned and are given equal opponunides for achieving subsidiary'GiunjaliVentures DMCC'in Dubai,UAE. The professionalsand personaltoals. Consisteflt and clear mainactivit/ of this wholly owned subsidiaryis tradint in HR pracdces,participative management, excellent welhre Diamonds,precious stones, diamond iewellery and pearls. acdvitieshave made the companyone of the most preferred employers.To do so, comPanystrives to make Duringthe year,the Companymade acguisiuonof a the workplacea sourceof creativity,innovation and one I', maioritystake in Tri-StarWorldwide LLC (Tri'Star)a of that makeswork meaningful. US basedCompany through its newly formed subsidiary, 'Change GitanialiUSd Inc.Tri-Snr is engagedin the businessof The role of HR in the companyis to be a Agent' manufacturingand globaldistribution of Canadiabrand of the orSanizetionin order to align people & processes diamondsand diamondiewellerY to the Company'ssrategic objecuves

'\, D'DamasJewellerT (lndia) Private Limited a ioint venture The company'sfocus is to makechange seamless and to Companybecame a subsidiar;rof the Conrpanyon April ensure"CHANGE, BEFORE CHANGE CHANGES YOU' l, 2007.lt is primarilyin the businessof mrrufacturing (a succinctslogan in an internalcompetition on change plainand diamondstudded precious metal JewellerT. Awareness). D'Damasis the flagshipbrand of D'DamasJewellery (lndia) Prirate Limited and there are severalsub-brands Conrprtitivt Strtngt}s each providing a particular occasion wears for the Larte, intetrated diamondand iewellery companywith consumer. I srong international credentids. Broad product range,strong brand equity and significant Movingforward in line with its policy lo diversif),its I ,/ retail ooerations. businessmodel, the Compan/ made a successfulforay .l Strongmarkedng and distributionnetwork. into lifesrylesbusiness. The Companyset up a wholly ,J Sightholdershtus with DTC and accessto otier primary owned subsidiaryGitaniali Lifest/les Limited (GLL) on sourcediamond suppliers. May4, 2007 as its lifestylesarnt. GLL is beinSposidoned t Well-developedmanufacturing capabilities. to faciliuteand promote the growing Luxury Reuil 't Provenmanagement team Marketin lndiavis-i-vis international brands. GLL alsohas plansof settrngup hrxurymalls across the countrywhich would becomea destinadonfor housingall globalbrands Poturtialltisks Executionof retail expansionplans. coveringworld classfashion stores, fine-dine restaurdnts, , Timelycornpletion and commencement of SEZ spa's.international jewellery brands. connected wedding I oPerauons, storesencompassing designer products finelybundled Partialownership of few key brandslike with personalizedservices to suit the need of cremede .f iewellery N:rkshaua la cream. 't:l Substantialcurrency appreciation, and Profitability of its overseasopentions. With a view to captttringever) point of valuechain on t Gold PriceFluctuations Gerns& JewellerySector, the core businesswhere the il'r LifestyleChanges companyis in, Companyinitiated setting up varioussEZ projectsdirectly and through ia wholly owned subsidiary 'Gitanjali InfratechLtd.'

32 \L{\{GIINTTiYI''SDISCLJSSION AND A}iALYS]S indtrsnryand c0mPanY revierv

nrs& Li Jen'ellew -t z

l-

= U) t. a StrrtclX, Ilusirt'ss throughsmaller stores and oudetsin order to benefit = The Company'sstrategic obiective is to conlinueto = from increasedstore densit/ wrth a lower capital ouda/. buildon iu positiouas a leadingintegrated diarnond and Thesesmaller oudets will bener equipthe Companyto nranufacturingand reuiling companyGicrniali iewellery offer jewellery airnedat the custonrer denrographyof the intendsto achievethis by implemencingche following t\ specificoutlet s strategtes: F i\ ./ Expand branded jewellery llnes. and tar8et s il Increase market share in India The Companyintends to continueto exPandits \ other 3tront Internatlonal markets. exisringrange of product offeringsto cater to different diarnond The Companyintends to leverageits significant customer and price seS,ments.The Company will seek rnanufacturing processintand lewellerydesign and to continueto work closelywith suppliers,disribuors its abilit/ to providea wide rangeof brarrded capabiliues, and customersand to participatein iewellery fairs, trade and its andunbranded diamond and iewellery Products shows and other industr) forunrs to introduce new marketshare retailand distributioncaDacities to increase designs in the Indiandiamonds and iewellety business. ,' Increase productlon capacltles and develop t Continue to Srow retall oPerations. productlon Infrastructure. its retail The Company intends to further grow The Companyintends to expandexisting diamond distribudon ope|ationsby leveragingits existingsales and and jewellerymanuhcturing facilities in SEEPZand set networkand developinginnovadve retail nrarketing up additionalfacilities at Mumbaiand at the ProPosed jewellery in India initiatiyesfor dianrondand Products HyderabadSEZ. The Company seeksto further integrate Indiancities' By introducingretail stotes in the larger its operationsthat includesourcing rough dianronds. and other the companyoffers a wide rangeof diamond manufacturingcapabilities and marketingand distribution and price iewellery products rartetinB different custonrer to reduceoperating costs and more quicklyservice its increaseits brand segqentsThe Companyalso plans to salcsand distributionnetwork. .rndproduct visibility and salesand distributionnetwot'k

33 MiL\AGHNIENI"SDI SCLISSI 0 N Ai\ D ;L\ALYSIS industn'nn(l c0flU)an\ rcvi('rr

I Purcue strateglc ecguisltlons end alllances. The Companyis pursuingstreredc acquisirionand alliance more competitively.The acquisitionsrategl of the opportunides to enhance lts capabilities,address specific Company is closelt Interturinedwirh its srrte&/ to grow industry opponunities, develop technical expertise, and develop hrte internationalmarkets, and paniculady. expand oper:tions geographicallyand price products its retail operations in these markets.

34

ivlr\,\ AC Ii \ t L,\1''S D I SC Lr SSI () i\,,\N D A\ I\LYSIS finirnr:ialrcvic\.\,

GltanlaliGems consolidatedresults of operattonslor the ,d The companyalso recorded other expenditurcof tear endedMarch 3 | , 2007 reflect additionalbusiness Rs 738.44millions (previous year Rs 293.58million$ andoperations of the varioussubsidiaries/joint ventures/ Advertisement/Selling/ Business Pronrotion expenses assoctates. for the year were alsosignificantly high. prinrarily due to expansionof businessthrough acquisitions and The companyhas achieved sales growth for the year consolidationof the existingbusiness. The companyhas endedMarch 3 l, 2007ofabout 44 per cenccompared incurredadvertisemend selling/ business promotion to lasryear The net profit hasjumped fronr Rs.S14.44 expensesrelating to the brandediewellery lines rnillionsto Rs 917.51 millionswhich is about 78 per cenl aggregatingto Rs.| 8 l. | 6 millions(previous year Rs.48.43 growth The highergrowrh and the net profit is rnainlyon millions). accountof changein salesnrix from diamondto jewellery, whichhas higher margrn. The ratio of diamondand | )eprccirtion & ;\ntortization jewelleryin the salesmix haschanged to 68:32for the For the year endedMarch 3 l. 2007,the compan),has yearended March 3 l, 2007which was at 85:l5 lastyear incurredsignificent depreciation charjes of Rs.70.37 millions(previous year Rs 26.92millions) primarily due PERFORMANCE to exDansionof businessas well as consolidadonof the exisringbusiness t z Illulrrtt: I lrltrt:st r The conrpanyhas recorded a tot'alincome ot For the year endedMar ch 3 | , 2007,the cornpan/has Rs 14,7f5.27 millions (previous year Rs24,047 19 incurredinterest costs of Rs.496.4 | millions(orevious million)for the /ear endedMarch 3 | , 7007, primarily V) year Rs 409.37millions) paid to banksand financial l. dueto incomefrom salesof our diamondand jewellery -l institutionstowards the workingcapital facilities primarily oroductswhich amountedto Rs.34,674.44 millions consistingof packingcredit and post shiprnentcr edit (previousyear Rs.24,033.21 rnillions). The cornpanyalso = receivedother inconreof Rs40 83 millions(Previous Year ; Nrt profit lrclbrc ft t\(rs Rs l3 98 millions)primarily from dividends,management a Due to the reasonsdiscussed above, the companyhas fees,labour / job work chargesand miscellaneousother \ Income recordeda net profit beforetaxes and extraordinary s itemsof Rs I l5258millions (previousyear Rs 53133 ts t)rpcnrliturc millions)for the yearended March 31. 2007 which s indicates82 per centgrowth \ The conrpanyhas recorded a total expenditrrre(excluding depreciation/ anrorrizationand interest)of Rs 32,995.9| 'l'rtxcS millions(previous year Rs72.979.51 millions) for the year endedMarch 31,2007 Plovisionfor taxes incltrdescurrenc tax liabilities.fringe benefittax liabilitiesand deferred tax liabiliriesFor the Majorexpendirure can further be subdividedinto : year endedMarch 3 1.2007,the companyhad current tax liabilitiesof Rs 13587 millions(previous year Rs 94 05 tt Costof goodssold of Rs.3 1,70609 millions(previous millions),fringe benefit tax of Rs.4.01 millions(previous vearRs 22,522 l3 millions) year Rs.2 36 millions)and deferred tax liabilityof Rs.3.55 millions(previous year fu. (4 58) millions).

l;, Due to the increasednurnber of employeeson account of expansionof businessthrough acquisitionsand Nct.plolit consolidationof the existingbusiness, the compant As discussedrbove andon accountof adiustmentin recordedstaff costs of Rs370 22 millions(Previous Year r espectof minoritl interestand shareof profitsfrom Rs88.95 millions) prirnarily comprising of salary,bonus associatesof Rs.97.87 millions (previous year Rs.3 | 53 and allowancespaid to employeesas well costs incurred millions)and Rs. 5 23 millions(previous year Rs 6.48 in connectionwith staffwelfare millions)respectively, for cheyear endedMarch 3 l. 2007 the companyrecorded a net profit of Rs.9 I 7.5| millions

.Jt \'l..\\ A( il:ltf I*iT'S DiSC;i.iSSIOli,$ D i\lirli- i'SiS ['inaricirrlrer,icw

(previousyear Rs, 114,44 rhlllions). The companyhas transferredfu. 90.00millions (previous year Rs. 12.00 nrillions)to generalreserve.

ShrrcCrpitrl At present,the complnyhai gnfyone classof sharesi.e. E{u.igySha-es of lcerattre-ofRs. l0/- each.As on March .31,2007 the issued,subscr:ibed and paid up cap'retwas Rs,589.98 rnitlion!

The authcrizedshare cap4alof.the cgr1p3ny as on March 31;2906 qas Rs,1750pillitinsrdomprisdd of.70,0Q0,0@ equityshaies of Rs,l[-e1c.lrind 500,000;ri:deenable prefErehce.shar;e9,of$s, t0opach . , " Consequentto thd resoltitlonpassed b/ the shareholders in theannual general meeting held on'September 2 l, 2006,the authorizedshare capial was re-classified into 75.000,000equit/ shares of Rs.l0 each.Subsequently, the auttrorizedshare capital was increased frorn Rs.750 millionsto Rs.1200 millions divided ino 120.000.000 equiryshares of Rs.l0 eachpursuant to theshareholders' approvalthrough postal ballot on March9. 2007. \ Shnrehoklm;'vulue Thebasic earningper $hare reported by the company for theyear is Rs. 15,55 (previous year Rs. 12,23) which indicates27. l5 per centlrowth. The dilutedearnings per sharerepor:ted by the companyfor the yearis Rs.l4:13 (plevious y.eer;-N.,|)ifhe Board of Directors ForciglrCurrcncrv hasproposed a diyidertdof,Rr. 1,50p,er equhy share Colr:cniblc Bonds (tfccB) (previousiear Re.i per equitrshrre).on the facevalue of Rs.l0 each. The Companyraiied USD I10.00 millionson November 24, 2006 through (l pir aent) Foreign Currdncy Converuble Bonds (FCCBs)with the object of strategic overseasacquisitions and infrastructure proiects including developmentof 5pecialEconomic Zones. The FCCBsgot listed on the SingaporeStock Exchange.

The FCCBswill havea maurity of five years and one day i.e.due on November25, 201| and will be convertible rnro equityshares of the Comprny ar an initialconversion priceof Rs.275 oer share.The bondswill be redeemed at the oprionof the Companyat an/ tirne on or after November25. 2009 andprior to November25,201 L The underlyingequiry shares on conyersionwill be listed on the BornbayStock Exchange (BSE) and NationalStock Exchange(NSE) 6) Fil Pz

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o : s\ $ \ REPORTON CORPORATE :i

COTTPOK{TH(I()V IJR\A\CE IiEPOKI

///. Orxlrp:rnv'sphilosoplrv otr corpo}illt go\tlrlirlnct: value.The GitanjaliGems Limi;d (GGL) is cofirmitledto good corporategovernance in order to enhanceshareholder's maximizatjon Companybelieves that Corporate Governanceis not an end in itselfbut a catalystin dte processtowards highest of shareholder'svalue. The Crrmpany'sphilosophy on CorporateGovernance enshrines the goalof achievingthe levelsof transparency,accounubility and equityin all spheresof its operationsand in allits dcalingswith the Shareholders, Enrployees,Govet'nntent and other pal'ties

has tn so far as complianceof Clause49 ol the ListingAgreenrent with rhe StockExchanges is concerrred,the Company compliedin all materialrespecE with $e requirementsof CorporareGovernance specified in the ListingAgreement'.iith BombaTStock Exchange Limited and NailonalStock Exchange of IndiaLimited'

(//- llourtl of tl ircctors Conlpositionof the Board non- As of March 31,2007the Boardconsisted of ninemenrbers The Board hadan optimumcombination of executiveand executiveDirectors which complieswich the requirementof clause49 of the ListingAgreenrent with rhe StockExchanges. of Directors on tlre Boardof the Companywere asunder: The composiUonof and the categor/ .l ii Desiqnation z it - - Chairman& ManagingDirecor ii l- i I E*".uti"uDirector ' il E*".u,i""Director (t li;j Dir".,ur.Director t- i I 'J Norr-lndep,,endentDiyeltgr ii oii"tit lrrdependentDirectors li m., s. Krishnan ii t

=a

The IndependentNon-Executive Directors are eminentprofessionals with wide rangeof knowledgeand experiencein various spheresof business,industry, finance and law s \l

Conduct of Board Proceedlngs The dayto daymatters concerningrhe businessis conducredby cheExecutives ofthe Companyunder the directionof Whole Time Directors with the supervisionof the Board.The Board holdsits meetingsat regularintervals to review and discussthe performanceof the Company,its furureplans, strategies and other Peninentissues relating to the ComPany

Board Meetings during the year 2006-2007 2007.and 23' 2007 The Boardheld five meetingson June | 2, 2006.July 3 | . 2006,October 3 | , 2006,January 5. January respectively.The meetingsof rhe Boardof Directorsare scheduledwell in advance.The interveningperiod between Nvo Boardmeetilrgs was well wirhin tle rnaximumperiod of four nronlhspr escribed under Cause 49 of the ListingAgreement

The Boardin additionto the reviewof the corporateplans, strategies and t]nancials,also takes periodical review of compliancerepors of all lawsapplicable to the Company

Board Agenda Meetingsare governedby a structuredagenda. All agendaiterns are backedby comprehensivebackground inforrnation to enablethe Boardto take informeddecisions The BoardMembers are presentedin advancewith the detailedagenda in respcctof all Board meetings.

43 Attendance of the Dlrectors .t Board Meetlngl and at prevlous AGM

Namc of the Dlrector Status No of Board MeetlnSs at last attended AGI'l

l'lr. MehulC. Choki C,M.D, ) Yes Mr.G. K. Nair E.D. Yes l,tr. Aa.i*rr g. Vooin E.D. 4 Yes Mr. DhaneshV. She$t N.E.D. 5 Yes Mr. PrakashD. Shah l. N.E.D. a Yes Yes Mr. SuPlA Shah l. N.E.D. ls Ml viilt Kg13-i"J19iq l. N.E.D. [5 I No Yes Mr. S.Krishnan I N.E.D, ls 2 Mr. SureshChukkaPalli l. N.E.D. ll No

C.lrl,D. Chairman & HanagingDirector E.D. ExecutiveDirector N.E,D. Non Executive Director l. N.E.D. Independent Non ExecutiveDirector

Notes: a. None of the Directors is related to any other Director. b. None of the Director re€eivedanl loans and advancesfrom the company during the year.

Other DlrectorshlPt and Commlttee Membershlp None of the Director holds Directorships in more than fifteen Public Umited Companiesnor is any Director' Chairman of more rhan 5 Committees. The detailsof Directorship and Committee Membership& Chairmanshipheld by the Directors as on March 3 |, 2007 are as follows: No. of Commlttee Dlr€ctorshlps (lncludlng GGL) (lncludlng GGL) Member Chairman 6 I I 4 0 2 0 0 I I 0 5 2 ti 2 I I 7 ? 0 4 3 5 0 0

Notes: d/.The Directorshipsheld by Directors as mentionedabove, do not includeAlternate Directorships, Directorships of ForeignCompanies, Section 25 Companiesand Private Limited comPanies'

r)?.ln accordancewith Clause49 of the ListingAgreenrenL Membenhip/ Chairmanshipof only the Audit Committees and Shareholders'/Investors' Grievance Commirrees of atl PubticLimited Companies have been considered.

44 COITPT)K.\ I}i GOYERNANCEITLPORII'

Details of shares held by the Dire

Number o{ shareshglds i N.-. of the Dlrectot ii I Mr.M"hrt C. choksi ll 29,879,297 i;;' ;-";;" il ",, i Mr. AdrianusB. Voorn li nlr I ii i Mr.Dhanesh v. She.th Ii I'aze t i' 2,872 2,839 500 Nll

//.1.Audit corttutittct internal The Audit Commiftee of rhe Board, inter alia,provides reassuranceto tie Eoard on the existenceof an effective Fl control environmcntthat ensures: z

-i Efficiencyand effecdvenessof operations'both domesdcand overseasi l- '$ Safeguardingof asses and adequacyof Provisions{or all liabiliries: '\ managementinfor'mation and adequacy of disclosures;and Reliabilityof financialan

with the The terms of referenceof rhe committee are 3s per dle guidelinesset out in clause 49 of the lisdngagreement Act, 1955and inter aliait brieflyincludes the following StockExchanges an

a) to reviewcompliance with internalcontrol systemsi 2 b) to hold periodicdiscussions with cheStamrory Auditors of the Companyconcerning the accountsof the Company' N d internalconuol systerns,scope of auditand observalionsof the Auditors; t! c) to revie\i t;e quarterly,half-yearly and annualfirrancial results of the Companybefore submission to the Board; I d) to makerecornnrendations ro the Boardon anymatter relatingto the financialmanagement of the CompanF \ e) Recomnrendingto the Board, t}re appoinrment,re-appoinfirent and if required, the rey'acementand remoral of StatutoryAuditors and fixationof Audit fees.

ComPosltlon and The Autjit Commitreecomprises of Mr. SuialA. Shah,Mr. S.Krishnan, Mr. Viiay KunrarJatia#,all IndependentDirectors Mr. G. K Nair, ExecudveDirector'

Mr SuialA Shahis the Chairmarrof Conrmit[ee.Ms Pankhu|iWarange, Company Secreory is Secretaryof the Act' Comnrittee.The Compositionof rhe Audit Cornnritteemeets the reqtliremen6of Section292A of the Companies t956 and Clause49 of the ListingAgreemenr with the StockExchanges. All the memben of the Audit Comnlitteeare financiallyliterate

., M3y 14, 2007 Hr Pnkr5h D ShahEs inqodKed as de rorbet of dre Audir Commiuee w e I Mr VFy Kumar Jariaresryned from Audir Conlnlilree w e I

lqe 26.2007

45 Itlcetlngs and Attendance During the financialyear ended March 3 |, 2007, four meetingsof the committee were held.The acendance of committee members at the meetingswas as follows :

No. of Meetlngs No. of Meetlngs Clther Held Attended lnforrnatlon

4 4 4 4 4 4 I Resignedas a memberw e f l4 05.2007

t/ r. Slran'holdt'rs' / irvestorso gi('yimte (onrnrilte(: The Commiftee looks into the redressal of shareholders'/investors'complaints, issue of duplicate/consolldatedshare certificares,allotment and listing of securidesand review of casesfor refusalof transfer/ Eansmissionof sharesand debentures and reference to sotutor/ and regulatory aurhorides.The Committee ovenees the performance of the Registrarsand Transfer Agents of the Company and recommendsmeasures for overall improvernent in the qualityof Investot' seFflces.

Composltlon The Shareholders'/lnvestors' Grievance Committee comprisesof Mr. PrakashD. Shah,Independent Director, Mr. G .K. Nair, ExecutlveDirector, and Mr. DhaneshV. Sheth,Non-Executive Director.

Mr. PrakashD. Shahis Chairman of the Committee. Ms. PankhuriWannge, Company Setretary is Secreary of the Committee

Meetlngs and Attendanc€ During the financialyear ended March 3 l, 2007, twenry six nreednts of the committee were held. The attendanceof

Name of Member Statu3 No, of Meetlngs Held Mr.Prakash D Shah Chairman 76 Member t6 Member 26

-16 CORPOH{lE GOVIIR:\ANCEIIEPORT

Status of Shareholders'/lnyestors' Complaints

Partlculars No. of Complalnts Complaintspending as on April l, 2006 5 Complainsreceived during the period April 1.2006to March3 l, 2007 644 Conrplaintsdisposed offduringthe period April 1,2006to March31,2007 645 Compfaints outsonding as on March 31,2007 3

Name & Designation of the Compllance Officer Ms. PankhuriWarange. CornpanySecretary

(/:i. 6.ntutr"mtion cuntnlil tcc The RemunerationCommittee hasbeen constitutedon July3l, 2006.The Committeeshall determine rhe remunerationpayable to managerialpersonnel in accordancewith the provisionsofSchedule Xlll ofthe Companies Act 1956and any increments thereof. 6) -'l P Composltlon z The RemunerationCommittee comprisesof Mr. SuialA Shahand Mr. PrakashD. Shah,both lndependent Directors

ct) Mr SuialA.ShahisChairnranof theComnri$ee.Ms Pankhuri Warange,ConrpanySecretaryisSecretaryof the Commiuee- = Meetlngs and Attendance E - Sincethe formationof the Cornmittee,only one flreetingwas held.The attendanceof Commltreernembers ar tie ! meetingwas as follows: ---]--sd;- t! -b"' N".TlM;F;c'- ;F";'"s" d l s. li- Held li-N-Attend"d i it ti ii I ts t'tr.su1.te. sr,rt , I I i ii in.i.non ii il I \l Lry4slg - ii "q1..-li--- r--- il- --__J- i 0fi.Nantc. dcsignation, addlcss ol'rhr courpli:rrm olfi<'er Nome Ms.Pankhuri Warange Designotlon Company Secretary Address 6, BackbayView, MamaParmanand Road, Opera House, Mumbai - 400 004. 721 +91-022 - 40162200 fax +91-022 - 23696805 Ernoll investors@gitanlaligoup com

1/irGtutrnl txxlv nrcr:tirlE; Locadon,dme and date where the three imnrediatelypreceding Annual General Meeunts ofthe Companywere heldare givenbelow: Flnanclal D.y & Date Yenue Speclal Regolutlons passed Year 200344 September30, 2004 80l/802,Prasad Chambers, OperaHouse,

200445 July8. 2@5 Open House. Mumbai'4000O4. 2005-06 September2 l, 2006 M.C.GhiaHall. 2nd Floor. l. Authorivtothe Boardof BhogilalHargovindu Building, Directors to cr6te/ offer/ 18/20,K. DubhashMarg, issue/allot FCCBs,GDRs, KalaGhoda. ADRsconvenible into eguit/ Mumbai4OO001 sharesat the optlonof dre Company. 2. Remuneratlonpapble to l'tanaglngDircctor/ \rvhole TimeDirectors/ Executive Directors.

//5i.Post:rl b:rllot Resoludonsin reladon to following irems were passedon March 9, 2007, through postal ballot in accordancewith rhe provisionsof the CompaniesAcL 1956 and Companies(Passing of the Resolution by Posul Ballot) Rules,200 l:

r//. lncreasein the Authorised Share Capiul and Alteration of the Memorandum of Associationof tlre Company' 0i. Increasein Borrowing Umits. d/. Creation of Charge. l,lr. Loans/lnvestments/CorporateGuarantees. irl'i- Further lssueof Equity Sharesthrough PreferentialAllotmenr

Mr. MarrishL.Ghia. Pncticising Company Secretary. was appointedas the scrutinizer for ensuringconduct of the PostalBallot processin a fair and Fansparent manner. The resolmions in resPectof the above said items have been passedwith the requisite maiority as per the following details:

Particularsof resolutions

Increasein the AuthorisedShare Capinl andAlteration the Memorandumof Associadonof the Contpany Increasein Borrowint Limits Creadon of Charge Loans/lnvestments/CorporateG uanntees Furtherlssue of EquityShares through PreferentialAllo

18 C()lip0R,,\ I.li ( j0\j EturArjCH RL,pORl'

1/.9.IXsclomrts (i) R€lated Party Transactlons Board regularly The Register of Contracts containinglhe transacdonsin which Directors are interested is placedbefore the the interest for its approval.There are no materially significantrelated party transactionswhich havepotential conflict with to Accounts of the Company at large.Transactions 'rvith related parties are disclosedseparately as Annexure in the Notes in the Annual Report

(ii) No Penaltles or Stricturel Sututory No penalttesor sriftures havebeen imposed on rhe Compan/ by the StockExchanges or SEBIor any odrer Authority on anl matter relatedto capitalmarkec duringthe lastthree years'

(iii) Whastle Blower PollcY personnelto The Company has not adopted Whistle Blower Policy. However, the Company hasnot denied accessto any approachthe Managementon any issue

Slerutsol'comrluuicirliotr /dl. 'The t The resuls of the Companyfor the financialyear endedMarch 3l. 2@7 were publishedin Free PressJournal" 'The z 'Navshakti' and EconomicTimes'. The financialresuls and other informa6on are displayedon the Company'swebsite www.gitanjaligroupcom. o r'' The Company does not have rhe system of intimating shareholdersindividually of its quanerly/hall-yearly results.However, (o investors/shareholdersdesirorrs of gening the quarterly/halflearly unauditedr esuls are given copies thereof after consideradonof resultsby the Boardandpublication in newspaPers = The Companyhas designated an e-mailfor registeringinvestor complaints in the nameof [email protected]. ; a a EDIFAR fu per the requirementsof Clause5 t of the ListingAgreernent with the StockExchanges. all the datarelrting to the quarterlyfinancial results, shareholding pittern. etc are beingelectronically filed on the ElectronicData InformationFiling ? in this regard The samehas & Retrieval(EDIFAR) website of SEBI(www.sebiedifar.nic in) withinthe timeframePrescribed I^{ also been rrploadedon ilre Company'swebsite Yiz.www.gibnialiSrouP-com.

/ /. Conrpliancc $ith othtr ttlandalora requilt:llt(xlls (a) Management Dlecusslon and Analysls A managementdiscussion and analysisrepoft forms pan ofthe AnnualRepon and includesdisctrssion on variousmatters specifiedunder clause 49(lV)(F) of the ListingAgreement'

(b) Subsldlarles All the SubsidiaryCompanies are Board managedwith their Boardshaving the riShtsand obligationsto managethe Company in the best inrerest of the sakeholders. As a maiority stakeholder,the Company monitors the performanceof suchcompanies, inter alia,by the followingmeans:-

a) Financialstatements, in particularthe invesrmentsmade by the subsidiarycomPanies, are reviewedby the Audit committeeof the Company-

b) A[ nrinutesof the meetingsof subsidiarycompanies are placedbefore the Company'sBoard regularly.

c) A statementconuining all significanttransactions entered into by the subsldiarycompanies is placedbefore tie Company'sBoard.

49 Mr. PrakashD. Shah,an IndependentDirector, was appointedas a Director on cheBoard of GitanialiExpofts Corporation Limited(GECL), w.e I Hay 25. 2006.He continuesto be on the Board of GECL,a materialsubsidiary of the Companyin terms of Clause49 of the LisringAgreement wirh rhe Stock Exchanges.

1c)Secretarlal Audlt for reconclliatlon ot capltal A qualifiedPracticing Company Secretary has carried out secretarialaudit for everyquarter to reconcilethe total admittedcapital with borh the depositories,viz. NationalSecurities Deposltory Umited (NSDL)and Central Deposirory Services(lndia) Limited (CDSL) and the totrl issuedand lisred capital.The audit confirms that the tool issued/paidup capitalis in atreement with the rggregatetotal number of sharesin physicalform, sharesalloned & advisedfor dematcredit but pendingexecuoon and the total numberof dematerializedshares held with NSDL and CDSL The Companyhad submined the secretarialaudir repoft to BSEand NSEwithin 30 daysfrom the end of eachquarter in accordancewith rhe SEB|requirements

(d) Code for preventlon of Inslder Tradlng The Company hasa comprehensive code on preyention of insider rading. The Code is in compliancewith the provisionsof SEBI(Prohibition of InsiderTrading) Regulations. 1992.

(e) CEO/CFO Certlflcation A cenificatefrom Chairman& ManagingDirccror and ExecutiveDirector, was placedbefore the Board

(f) Rl3k Management The Companyhas laid down procedulesto inform the rnembersof the Boardabout the risk assessmenrrnd minimizationprocedures. The Company hasframed the risk assessrnentand minimizationprocedure which is periodicallyreviewed by the Board.

€) Cod€ of Conduct As providedunder Clause 49 of the ListingAgreement and in line with the Company'sobiective of followingthe best CorporateGovernance Standards the Boardof Directorshas laid down a Code of Conductfor all Board Membersand SeniorManagement of the CornpanyThe code hasbeen circulated ro all the nrembersof the Board and SeniorManagement and the samehad beenput on the Company'swebsite www.gitanjaligroup.com The Board Membersand the SeniorManagement personnel have affirmed their complirncewith the Code of Conduct for the year endedMarch 3 l, 2007.

//. Ctner:rlsharcholdt:m irrlbnrratiorr a) Annual Generel Meetlng Date A Tlme September20,7007 ar 3.00 p.nl Venue M C GhiaHall, 2nd Floor, Bhogilal Hargovindas Building, l8/20, K DubashMarg, Kala Ghoda, Mumbai- 400 001.

b) Flnancial Year: Apr il I to March 3 I

c) Dates of Book Closure Our regster of membersand sharetransfer books will renrainclosed f r onr September'8, 2007to Septenrber20, 2007 (both daysinclusive) to determinethe entidemenrof shareholdersto receivethe fioaldividend as maybe declaredat the ensuingAnnual General Meeting

5{) (;0RP0R.,\I'EGOV IiR.\,{\CE IU'PORI'

d) Dlvidend payment date payable The proposedDividend, if approvedby shareholdersat the ensuingAnnual General Meeting will be made on or after September25,2007. e) Llsting on Stock Exchanges

(//.The equiryShares of the Companygor lisredon March 10,2006 and continueto be listedat the followingStock Exchanges:- - (a) BombayStock ExchangeLtd., Mumbai, Phiroze Jeeieebhoy Towers, DalalStreet Mumbai 400 001. - (tr) NationalStock Exchangeof lndiaLtd, ExchangePlaza, Bandra Ktrrla Complex, Bandr: (E), Mumbai 400 051'

12l The FCCBsof the Cornpanygor listedon Novernber24,2006 on Sin$PoreStock Exchange,2, Shenton Way, #19-00 SGX Centre I Singapore068804 f) Llstlng Fees Listingfees for the financialyear 2007-O8 have been paiclto both the stock exchangesi.e. Bombay Srock Exchange Lrd.and NationalStock Exchangeof IndiaLtd' I z g) Stock Code r

Physlcal F 532715 (aE c GTTANJALI -

= h) Market Prlce Data - BombayStock ExchangeLtd. and NationalStock Exchangeof India The sharesof the Companyare listedon rhe ? highlow of the Cornpany'sprice is asfollows: t\ Ltd. The rnonthly I ? -l t! i-E;;k ei;ci;s" ir'. e"-u"fst*r. I The National Stock BSESensex I i i ExchangeLlmited i Exchange of Indla Llmlted \l i ! ------Month ii-Hich li- L;--l High Low High Low Rs. i! Rs. Rs. Rs. : il t7I .00 t2,I 02.00 I t,008.43 April2006 ii 204?0ii 171.00 206.90 r2,671.1I 9,826.9t May2oo6May2006 jiii pz;o267.60 ]l 160.00 267.00 160.00 2t380 t08t0 t0.526.84 8.799.0| June2006fulfc.vvu jiti zls0o-'. ji 10800 ii. ii t+ozo il 10865 t46.90 108.20 t0,940.45 9,875.15 July2o06luty2oo6 '''l+ozo iiil- il 209.20 il2 50 I |,794.41 t0,64599 AusustAugust2006 ii 29e_:e0299_:e0jl | 12.10

lvvv '-"-- 223.85 t89.00 r2,485.l7 il,444.t8 septemberrgP!u,,,es' 2006 ji!t li --''---ltp:rq" - -11 !se:90 it t2.t78.83 oao_bet2m6October2fi)6 ii 21.J.:9233.90 ji !?s:00 235.00 195.05 r3.075.85 November2006 il zsl.eo ii Zor.to 257.10 203.00 I 3.7ee.08 t2,937.30 December2oo6 ii iir oo li tgl.os 246.70 I78.65 r4,035.30 t2.80| .65 263.70 2t3.t0 14375.92 r3,301.22 758.70 | 88.00 r4.72388 t2,800.9| 2t8.00 t77.l0 t3.386.95 |2,t | 6.t0

I Source - Respecuve reisrtes of BSE& NSF

5I i) Reglstrars & Share Transter Agents KarvyConrputershare Private Linlited Karvy House.46. Avenue 4. Street No'l BanjaraHills, HYderabad- 500 034 Tel: +9 | -040-234208| 5-820 Fox: +9 l-0,{0-23420814 e - mo tt t [email protected] WeEslte: www.karisma.kawY'com

i) Share Transfer SYstem no involvementofthe Transferofthe sharesheld in the dematerializedfornr is donethrough the Depositorieswith Company

& ShareTransfer As regardstransfer of shares in ph/sical form, rhe transfer documents can be lodged with Registnrs Transfer of sharesin Agenu of the Company, Karvy Computershare Private Limited at the addressmentioned above. in respecs. physicalform is normallyprocessed within I 5 daysfrom the date of receipt,if the documentsare complete all

k) Dlstrlbutlon of Shareholdlng - - 3i,2o0? At t"t'"*t 3t' zooo I I la-;;"" ttl-"t"h il --- : I L---=-- --- I F- "" snarerroloers shareholdlnf I No.orsr,.r.r ll- srt"r.rtola* If sh"t.h"lditi i[ || i i lill x"'.not. Perp"' liii Nos. P".Per ii Nos' P" ll Nos' P'1Per i cent cent ! ll .."t il cent il -lll ------11- - -- i ,------l L----_---,1l------l--- - 67e804sil I r.s2 i 001 to 500 57664 9797 l4ee68olls93ii l372sl 630 t07 sol887ll 0.86 5t9595Il 088 285 0.48 98 0.t7 36 006 28 0.05 48 0.08 67 0.l2 58856 to0

l) Dematerlallzatlon of equlty shares in fu on MarchI l. 2007. 37,999,544Equrty shares of the Companyconstitwing 64.4 | per cern ol rhe sharec.lpftel were held form. physicalform andthe balance20,998,95 | sharesconstitudng 35.59 per cent of the sharecapiul were held in dematerialized

m) LlquldltY Ltd The equiryshares ofthe Conrpanyare activelytraded on BombayStock Exchange Ltd andNarional Stock Exchange of India

n) Outstandlng GDRs /ADR3 / Warrants or any Gonvertlble lnstruments As on March3 l, 2OO7the Companydid not haveany oustanding GDRs /ADRs / W:rrrJnb But duringthe lear. tlre Company raisedUSUSD I l0 nrillionsthrough I per cent ForeignCurrency Convenrble Bonds (FCCBs) with the oblectof strategtc overseasacqursidons and infrastructureproiects including development of SpecialEconomic Zones The FCCBsgot listedon the SingaporeExchangeSecuritiesTradingLimitedTheFCCBswill haveamaturityof fiveyearsandonedayi.e dueonNovember 2S,201 | andwill be convenibleinto equiryshares of the Cornpanyat an initialconversiorl price of Rs 275per share The bonds will be redeerne{ar rhe oprionof dre Companyat anytinre on or afterNovember 25, 2009 and prior to Novernber25. 20ll The underlyingequiry shares on conversionwill be listedon the BombayStock Exchange Limited (BSE) and Narional Stock Exchangeof IndiaUmited (NSE).

.t2 (lOltPi)ll\ I'ECOV tilt\ANCE IU:POR'I'

o) Gorporate ldentlflcatlon Number (ClN) Affairs,Government of lndiais our corporate ldentificarionNumber (clN) allonedby Ministryof corporate Our Companyis resisteredin the stateof L35g| | MH 19g6p1c040589and our company fegistfarionnumber is 040589 Maharashtrawith Registrarof Companies,Maharashua, Mumbai'

p) Plant Locations

ADDRESS L Dattapa

53 r) Addre3s for Correspondence

Shareholdlng related que?lej Karvy Computershare Private Limited Karvy House. 46, Avenue 4, Street No. I BanjaraHills, Hyderabad- 500 034 Tel: +9 l-040-23420815420 foxr +91-fi0-23420814 e- msll: maifinanaga'@karvy corn WeDslte: www. karisma.karvy.com

General correspond€nce 6, BackbayView, ManraParnranand Road. Opera House Mumbai-400 O04. 7er: +91-022-{0352200 for: +9 l{22-23696805 Emolf : [email protected]

Deposltory

National SecuritiesDepositor) Limited, Trade World. A Wing.

54 CoRPoltAIlli H)VFiRNi\\CEITEPOKI

( FI C A'l'H Oli C0 liP0lt;\' l'ti ( ; OV liRN lli Atj Dl' f Olt' S C FlKl'l "\N To tlrt munbtrs ofGitanjaliGtms Limitcd

Governanceby GitanialiGems Limitedfor the year 0/. We haveexamined the comPlianceof conditionsof Corporate Agreementof the saidCompany with Stock Exchanges' endedon March3 |, 2007,as stipulatedin clause49 of the Listing

is the responsibilityof the manatemenLour examination tlZ The Complianceof conditions of corporate Governance the Company for ensuringthe complianceof the was limited to procedures and implementadonthereof, adopted by noi an exPressionof opinion on the financialstatements of conditions of the Corporate Governance. lt is neither an audit the CompanY.

the explanationgiven to us and the rePresentations (irr. In our opinion and to the best of our information and accordingto has complied with rhe conditions of corporate made b/ the Directors and managemenl we cerdfr that the company Governanceas s6pulatedin the abovenrentioned Lisdng AgreemenL a) is an assufanceas to the future viabiliryof the Company nor the /il We funher state that such compliance neither Fl which the rnaneSetnenthas conducted the aftairsof the company' efficiencyor effecdvenesswith z.

For Ford,Rhodes. Parks & Co. t- ChaneredAccountants

v) A D.SHENOY C Partner Place: Mumbai MembershiPNo': 11549 = Date:July30, 2007r

-

CERTIFICATBUNDER CLAUSE 49(V) t\

Director of GitanialiGems Limited.to the ?. We, MehulC. Choksi,Chairman & ManagingDirector and G K' Nair"Execudve \ best of our knowtedgeand belief, certify that: for the year and that to the best of their knowledge s\ (a) we havereviewed financialstatements and rhe cashflow statement and belief: any matet'ialfact or contain scatements (i) these statenrenB do noc contain any materiallyuntrue sktenren[ or omit thal might be misleading Conrpany'saffairs and are in cornPliancewith existint (ii) thesestatemen$ together Presenta ffue andfair view of the accountingsundards' applicable laws and regulations' into by the Companyduring the year (b) There are,tlo the bestof their knowledgeancl belief, no transactionsentered which are fraudulent"itlegal or violative of the Company'scode o{ conduct' for financialrePorting and that they have (c) We acceptresponsibility for establishingand rnaintaining intet nal ccntrols to financialrePorting' e"aluatedthe effecdvenessof internal control systemsol the CornpanyPerraining (d) We furrher certifY that : year: (i) There was no siSnificantchange in internalcontrol systemduring the policiesduring the year;and iii) tttutu n tt no sqnificantchange in accoundnt (iii) There was no insbnce of sigificant fraudduring the year'

Gems Limite

Nair MehulC. Choksi G. K. Directot Chairman& ManagingDirector Executive

Place:Mumbai Date : Juty 30, 2007

t;,5

AUDITORS'REPORT To the members,

We have auditedthe attachedBalance Sheet of GitanjaliGems Limited havingtheir registeredoffice at 801/802,Prasad Chambers, Opera House, Mumbai- 400 004 as at 31st March2007 and also the Profitand Loss Accountand the CashFlow Statement of the Companyfor the yearended on that date annexed thereto. These financialStatements are the responsibilityof the Company'smanagement. Our responsibilityis to expressan opinionon thesefinancial statements based on our audit.

We conductedour audit in accordancewith the auditing standards generallyaccepted in India. Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financialstatements are free from material misstatements.An audit includesexamining, on a test basis,evidence suppofting the amountsand disclosuresin the financialstatements. An audit also includesassessing the accountingprinciples used and significantestimates made by the Management,as well as evaluatingthe overall financial statement presentation.We believethat our audit providesa reasonablebasis for our opinion

L As required by the Companies(Auditor's report) Order, 2003 ( as amended) issuedby the CentralGovernment in terms of Section 227(4A)of the CompaniesAct, 1956 (the Act), and on the basisof such checks as we consideredappropriate and accordingto the informationand explanationsgiven to us duringthe courseof the audit, we annex hereto a statement on the matters specifiedin paragraphs4 and 5 of the saidOrder :

II. Furtherto our commentsin the Annexurereferred to above,we reportthat:

a) We have obtainedall the informationand explanationswhich to the best of our knowledgeand beliefwere necessaryfor the purposeof our audit;

b) In our opinion,proper booksof accountsas requiredby Law have been kept by the Companyso far as appearsfrom our examinationof thosebooks of the Company,

c) The BalanceSheet, Profit and LossAccount and the CashFlow Statement dealt with by this report are in agreementwith the booksof accountof the Company. d) In our opinion, the BalanceSheet, Profit and LossAccount and the Cash Flow Statementdealt with by this report comply with the Accounting Standardsreferred to in sub-section(3C) of section2lL of the CompaniesAct, 1956. e) On the basis of the written representationsreceived from the directorsof the Companyas on 31st March2007, and taken on record by the Board of Directorsof the Company,we report that none of the directorsis disqualifiedas on 31st March,2007 from being appointed as a director in terms of clause (g) of sub- section(1) of Section274 of the CompaniesAct, 1956. f) In our opinionand to the best of our informationand according to the explanationsgiven to us, the said BalanceSheet and the Profit and Loss Account read together with notes thereon appearing in schedule17 give the informationrequired by the CompaniesAct, 1956 in the mannerso required,and give a true and fair view in conformity with the accounting principles generallyaccepted in India ;

(i) in the cpseof the BalanceSheet, of the state of the affairsof the Companyas at 31st March,2007,

(ii) in the caseof the Profitand LossAccount, of the profit of the Companyfor the year endedon that date and

(iii) in the caseof the CashFlow Statement , of the cashflows of the Companyfor the year endedon that date.

For Ford , Rhodes, Parks& Co. CharteredAccountants

Place : Mumbai A.D.SHENOY Dated : 26th June, 2oo7 Paltner MembershipNo. 11549 Annexure to the Auditors' RePort (Referredto in paragraphI of our report of even date)

1(a)TheCompanyhasmaintainedproperrecordsshowingfu|| particulars,inituding quantitative details and situationof its fixed assets. by (b) The fixedassets of the companyhave been. physically verified the managementat reasonableintervals d0ring the year which, in our opinion is reasonablehaving regard to the sizeof the Companyandthenatureofitsassetsandnomaterial discrepancieswere noticedon suchverification'

(c) Duringthe year, the Company has not disposed off any substantialPart of fixed assets'

2 (a) The inventoryhas been physically verified by the management duringthe year andalso at the yearend'

(b) The proceduresof physicalverification of inventoryfollowed by the managementis'reasonable and adequate in relationto the sizeof the Companyand the natureof its business' lfo (c) The company is maintaining proper records.of inventory. materialdiscrepancies were noticedon physicalverification. its 3 (a) The company has grantedunsecured loans I Advancesto companies,firms or other partiescovered in the register maintainedunder section 301 of the Act' The numberof parties are Fourand amountoutstanding as at 31't March2007 is Rs. 861.70Millions (Previous year Nil)

(b) The companyhas taken unsecuredloans from companies,firms and other purti"r covered under section 301 of the Act, The numberof partiesare three and the amountsoutstanding as at 3lst March2oo7 is Rs. 73.85 Millions(Previous Year Rs. L2'37 Millionsand Numbersof parties: Three)'

(c) The above loan is interestfree loan and no conditionsas to repaymentof principalamount have been stipulated'

(d) As no installmentsof repaymentof principalamounts have been stipulatedthe questionof repaymentbeing regular does not arise.

4 (a) In our opinionand accordingto the informationand explanations given to uS, there are adequate internal control procedures commensuraiewith the sizeof the Companyand the natureof its business,for the purchaseof inventory,fixed assets and for the saleof goodsand services'

(b) During the course of our audit, no major weaknesshas been noticedin the internalcontrol system in respectof theseareas.

5. Accordingto the informationand explanationsprovided by the management,we are of the opinionthat the pafticularsof contracts or arrangementsreferred to in Section301 of the Act that need to be entered into the registermaintained under Section301 have been so entered in respectof certaintransactions have been made in pursuanceof suchcontracts or arrangementsexceeding value of RupeesFive Lakhsentered into duringthe financialyear, and the transactionshave been made at prevailingmarket price at the relevanttime.

6. The Companyhas not acceptedany depositsfrom the public.

7. The Companyhas engagedan independentinternal auditor to carry out the internalaudit of the company.In our opinion,the internal audit system is commensuratewith its size and nature of its business.

B. The Central Governmenthas not prescribedmaintenance of cost recordsunder section 209(1Xd) of the companiesAct, 1956 for any of the productsof the ComPanY.

9 (a) Undisputed statutory dues including provident fund, investor educationand protectionfund, employees'state insurance, income tax, sales tax, servicetax, custom duty, cessand other statutory dues have generallybeen regularlydeposited with the appropriate authoritythough there havebeen delays in a few casesof salestax and taxes deducted at source payments. According to the informationand explanationsgiven to us, no undisputedamounts payable in respect of provident fund, investor educationand protectionfund, employees'stateinsurance, income tax, salestax, service tax, custom duty, cess and other statutory dues were outstandingat the year end for a periodof more than six months from the date they becamePaYable.

Accordingto the informationand explanationsgiven to us by Managementand the recordsof the Companyexamined by us there were no disputeddues in respectof Custom Duty,IncomeTax, Wealth-tax,Excise Duty and Cessnot depositedas at 31st March 2007.

10. The Companyhas no accumulatedlosses at the end of the financial year and it has not incurredany cash lossesin the current and immediatelypreceeding finacial year. ll.Basedonourauditproceduresandaspertheinformationand explanationsgiventousbythemanagement,Weareoftheopinion duesto any that the Comianyhas not defaultedin repaymentof its financialinstitution or bankduring the year'

12'TheCompanyhasnotgrantedloansandadvancesonthebasisof securityof pledgeof shires,debentures and othersecurities.

13. TheprovisionsofC|ause4(xiii)oftheorder(asamended)arenot or applicableas the Company is not a company nidhi/mutual benefit fund/society' securities, L4. The company has not dealt or traded in shares, provisions debenturesoi other investmentsduring the year' Hence oicturr" 4 (xiv) of the order (asamended) are not applicable.

15. Accordingto the informationgiven to us and managements' Rs' 360 l."jrer"niution, the Company has given guarantees-of rillion, for the loanstaken by subiidiarycompanies from banks/ financiaI institutions. year' 16. The Companydid not availany term loansduring the given to us and L7. Accordingto the informationand explanations .overallexamination of the Balancesheet and cash Flowstatement oftheCompanywereportthatnofundsraisedonshorttermbasis havebeen used for longterm investments'

18.

19.

2I,

For Ford, Rhodes, Parks & Co' - Chartered Accountants

Place : Mumbai A.D.ShenoY Dated : 26th June, 2oo7 Partner MembershiPNo. 11549 GITANJALI GEMS LTD. Reod,Office : 801/802,Prasad Cha BALANCESHEET as at March 31' r Kuoees tn Mililonsl 2o,{J7 2006 SOURCESOF FUNDS :

Shareholders'Funds a. ShareCapital I 589.98 589.98 b. Reservesand SurPlus 2 6,999.44 6,494.60 c. ShareSuspense 450-68 8,O4O.1O 7,084.58

Loan Funds a. SecuredLoans 3 5,967.45 4,798.43 b. UnsecuredLoans 4 4 n66-55 1).47 1O,834,00 4,810.80

Deferred Tax Liability (Net) 4.63

r8,E78.75 1.895.38

5 433.22 324.69 r ?n-5? I 18.61 294.69 206.08

fnvestments 5 1,47O.84 235.43

3 Deffered Tax Asset 0.87

4 Current Ass€ts, Loans I Advances a. Inventorles 7 3,743.13 1,607.95 b. Sundrydebto6 I 10 119.10 8,308.57 c. Cashand bank balances 9 5,O12.46 3,821.85 d, Loansand advances 10 a_26q-10 r.0?2-30 23,143.79 14,770.67 Less : Curr€nt Liabilities and Provlslons a. Currentllabilities 11 5,650,21 3,067.67 tqn no b. Provislons t2 34o.35 6,O30.57 3.317.67 Net Current Assets 17,t13.22 r 1,453.00

TOTAL 1A.474.75 11.895.38 SlgnificantAccounting Policies and NotesTo Accounts l7

Schedules I To 17 annexed hereto form Dart of the Balance Sheet and D6fit & l^c< Aacolrnt As per our report of even date. For FORD, RHODES, PARKS & CO' For and on behalf of the Board Chartered Accountants

A. D. SHENOY MEHULC. CHOKSI G. K. NAIR PANKHURIWARANGE Partner ManagingDirector Director CompanySecretary M. No. 11549 Place: Mumbai & LOSS ACCOUNT for the

INCOME: 75,212.42 Sales Other Income 22,206.97 76,223.72

EXPENDTTURE: 20,556,19 15,1r2.69 cost of TradingGoods/Materials Consumed 348,66 261.98 OperatingExPenses 265.72 287.44 Interest (net) DePreciat'on

916,48 543.18 PROFIT BEFORETAXATION

ProvisionFor Taxation 91.OO 56.00 - CurrentTax o.96 0.96 - FringeBenefitTax r.55 -Tax Adjustment for the prior years 5.52 (3.3s - DeferredTax expense/ (benefit)

478.02 PROFTTAFTER TAXATION

2,938.96 2,166.46 BALANCEBROUGHT FORWARD FROM LAST YEAR 373.78 BALANCEBROUGHT FORWARD FROM LESS: LOSS ON AMALGAT'TATION 2,938.96 2,540.2L

3t757,96 3,018.23 Amount available for appropriation APPROPRIATIONS 12.00 GeneralReserve 59.00 ProposedDividend Tax on Dividend

Balance carried to Balance Sheet

11.37 Earnings Per Share of Rs 10 Each Basic 11.37 Diluted Ealnings Per Share of Rs 10 Each (ReferNote no 2.13 - Schedule17) SignificantAccounting Policies and NotesTo Accounts

SchedulesI To 17 annexedhereto form part of the BalanceSheet and

As per our report of even date. For and on behalfof the Boarcl For FORD, RHODES,PARKS & CO' CharteredAccountants

ITIEHULC. CHOKST G' K. NAIR PANKHURIWARANGE A. D. SHENOY ManagingDirector Oirector CompanySecretary Partner M. No.11549 Place: Mumbai the vear ended Harch 31' CASH FLoW STATEMEilTtor (Rupeesin ttlillions) 2007 2006 Partidllars

9r6.48 543.r8 Net protit beforeTax

Adiustment for : 19.92 r8.43 Depreciation 265.72 287.44 Inter€st (net) (0.76) Provlsionfor FBT (100.23) ArnalgamatlonAdJ' Ay'c (2.00) DlvldendRecd. (1.ss) Excess/ (Short) Provision (3.65) Profiton sale of FlxedAssets 285.64 r97.67 Chano6 ln Worklno CaDltal : (2,135.18) (381.0r) (Increase)/Decreasein Inventorles (1,810.53) (r,023.58) (lncrease)/DecreaseIn Sundry Debtors (870.17) (s78.2s) (Increase)/Decreasein Loans& Advances 3.583.54 1,388.71 Increase/(Decrease)in Current Liabllldes 32.88 s'57 Increase/(Decrease)in Provisions (1,r99.46) (s88.s5)

(92.01) (1,00s.83)____-..3!g (3s8.9s) IncomeTax Paid

ACTMTIES : CASHFLOWFROtrl INVESTING (1s4.68) (Net) (1,235.41) Purchaseof Investments 2.00 Receiptof Dividend (t,394.79) Advanceto Subsidiaries/ Jolnt Ventures (879.83) ShareApplication Money / Advancefor Share ApplicationMoney (108.54) (3,618.s7) Purchaseof FixedAssets ____g:!3I _ FROH FINAilCUIG ACTIVITIES : CASHFLOW 289.88 Issue of Share CaPital 450.58 SuspenseAccount Share 3,543.02 Increasein Share Premium (207.89) FCCBExpenses adjusted in SharePremlum 4,854.18 (58.79) Changesin UnsecuredLoans (including FCCB) 59.00 DlvldendPald 8.27 DlvldendTax Paid Interest pald (net) 1,190.60 3,501.08 Net tncrease/(decrease)In cash and cash equlvalents 3,821.85 Cashand cash equivalentsat the beglnnlngof the year Cashand cash equivalentsat the end of the year -----5p12.4r-

and on behalf of the Board For Ford, Rhodet, Ptrkt I co. For Chartcrcd Accountantl

xEHUL C. CHOXST G. X. t{AtR PAXrI|URI W Rlracl r Mumbai A.D.Shenoy Managhg Director Director ComPanY SecretarY : 26th June' 2Oo7 Partner M.No.11549 GITANJALIGEMS LTD. SCHEDULESFORI'IING PART OF THE BALANCESHEET AS AT MARCH31, Rupeesin Millions)

2|)|J7 2006

SCHEDULE1 - SHARECAPITAL

Authorised :

(i) 12,00,00,000 EquityShares of Rs. l0/- each 1,200.oo 700.oo

(Previousyear 70,000,000Equity shares of Rs lo/-each ) (ii) RedeemablePreference Shares - CurrentYear NIL so.oo

(Previousyear 500,000Redeemable Preference Shares of Rs.100/-each) 1,200,oo 750,OO

Issued, Subscribed & Paid up 3 *58,998,495 (PreviousYear 39,998,495)EquityShares of Rs. 10/- -.achfully paid up 589.94 549.94

TOTAL s89.98 589.98

* Note:

The above sharesincludes 29,250,000 fully paid up equity sharesallotted as bonusshares by capitalisationof profits & General

Reserveover a periodof time and 1,598,095fully paid up equity sharesallotted as bonusshares by capitalisationof profits and General

Reservebv erstwhileGemolus Jewellerv India Ltd as meroed with the comoanv.

SCHEDULE2 - RESERVES& SURPLUS

(A) Share PremiumAccount

Opening Balance 3,543.64

Less : FCCB issue expenses 207.89 3,335,75 3,543,54

(B) Profit& LossAccount Balance 3,561.69 2,938.96

(C)GeneralReserve I O2-OO 12,OO

TOTAL 6,999.4 6.494.60

SCHEDULE3 - SECUREDLOANS

WorkingCapital Loans From Banks/ FinancialInstitutions 5,967.45 4,798.43

TOTAL 5.967.45 4.79A.43

SCHEDULE4. UNSECUREDLOANS

From a Director 65.72 4.24

From a Shareholder 8.O3 8.O2

From a Company o.10 o.11

Others to, an TOTAL 4,866.5s 12,37 Fo-O{F-@(O 6 (ft@@sF-o|r)(o c N-r-c.idrtdd : @ (r)r E c o It, c) o f tr tNF(\IC.)(7)r)(\lC, NNFF-tJ)NO(('S d--riridd-F $(O cDF

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qqqac?\q\tFt'rtloq)|r)- orooF-toro(o(o (\l tr)F

+F$OFl\(\l c?.cqqq\s? t-(\lF(O$l(.)V O) O)(.)r-

F o o N

ao I o t . F rO(D OTONO)r Fo 'ri<.i-tdcit@lOO)@F o cid @ F l! lu :E o ul |rrF$tO)U)(') () [email protected]@(o z @c\iFo;;((;ri O) @clF J El ut I F oIt 'eFLO _= lll cl: ut o tr(j, =z o == ul -_= x to tr illl oo u) -ut ut JJ J

t) Subsidiarv ComDanies fully paid up of MehulImpex Limited EquityShares of Rs.1O0/-each 9,90 Year : 99,000 EquityShares) fully paid up of CRIAlewellery PrivateLimited' 9,980 EquityShares of Rs.10/-each o.10 Year : 9,980 EquityShares)

1O/-each fully paid up of GitanjaliExports Corporation 5,f00,000 EquityShares of Rs' 66,45 Limited(Previous Year 5,100,000Equity Shares)

of FantasyDiamond Cuts PrivateLimited' 4,990,000Equity Shares of Rs. 10/- each 49.90 (PrevlousYear 1,040,000Equity Shares)

Eachof HyderabadGems SEZ Ltd' (PreviousYear : 50,000 EquityShares of Rs' 10/- o.50 50,000 EquityShares)

(PreviousYear NIL) o,10 10,000Equity Shares of Rs. 1O/-Each of DesireLifestyle Pvt Ltd'

IndiaLtd - Formerlv 3,000,000Equity Shares of Rs'10/-each fully paidup of GILI Shares)* 140.00 Knownas Gitanja|iJewe|s Limited (Previous Year : 2,000,000Equity

Eachof Shubalavanyalewel Craft PrivateLimited' 2,550 EquityShares of Rs. 10/- o.27 YearNIL)

Ltd (PreviousYear NIL) o,50 50,000 EquityShares of Rs' 10/- Eachof GitanjaliInfratech

tffi-ffiiuch of Samuellewellers Inc'USA (Previous Year : NIL) ( Year : NIL 200 Sharesof AED looo eachof GitanjaliVenture DMcc Previous ) iOo iotrnon Sharesof GitanjaliUSA Inc' ( PreviousYear : NIL )

2) Associate ComDanies paid India Ltd - Formerly * 2,000,000Equity Shares of Rs.10/-each fully up of GILI Year :,?{,9q,!9^q.lt:'lY:lullt] rrilwn as Gitanjalilewels Limited(Previous pvt' (, lij;;;6'ril:il'6ha;;;i R;:'iOi-'eiln6i-e'ieht"st circrb Jewerrery Ltd Year : 166,668 EquitYShares)

166,666.4oloNon-cumu|ativeReedeemab|ePreferenceSharesofRs.l0/.eachof PreferenceShares) BriohtestCircle lewellery pvt. Ltd (PreviousYear : 166'666

paid of D,DamasJeweilery rndia pvt ldbffiffity snuresof Rs.10/_ each fuily up Ltd. (PreviousYear 2,500,000Equitv Shares) of Rs' 100/- eachof 10,000- 4% Non - CumulativeReedeemable Preference Shares Shares 'damasJewellery India Pvt. Ltd ( PreviousYear : 810,000 Preference ) Rs.10/- Each of Modali PvtLtd (PreviousYear NIL) 325,000Equity Shares of lewels (PreviousYear 3t5:000E;;iii sh;t"a or ns. io7- Ejchof ModaliDistributors Pvt Ltd NIL) Private Limited' i6l6OO rquitv Shares of Rs' 10/- Each of Spectrum Jewellery YearNIL) 4) Others (PreviousYearj''lll 1,000,000Equity Shares of Rs. 1/- eachof DiamondIndia Limited ( As Certlfied bv the lilanagement) SCHEDULE7'INVENTORIES 2,735.83 981.48 a. RawMaterials 133.O7 72.39 b. Work In Process 3s2.Ol 327.46 c. ManufacturedGoods 516.16 220.39 d. TradingGoods Stores& Tools e. Consumables, TOTAL

SCHEDULE8 - SUNDRYDEBTOR'S and otherwise stated) irii"-"*i"a' Consldered Good unless

Outstandingfor more than slx months o;G;ild for more than six monthsconsidered doubtful

Others

Less: Provlslonfor doubtfuldebts

SCHEDUTE9 - CASHAND BAI{K BAIINCES o.34 o.29 Cashon hand Banks: Balancewith Scheduled 485.14 374.5r in CurrentAccounts 4,526.75 3,446.82 in FixedDeposits in EEFCAccount GITAIiI]ALI GEMS LTD,

SCHEDULESFORilTNG PART OF THE BALANCESHEET AS AT }IARCII 3T, (Ruppesin Mllllons)

2|J|J7 2006

SCHEDULE10 - LOANS & ADVANCES

(Unsecured,Consldered Good)

Advances recoverable in cash or in kind or fot value to be recelved 2,347,45 773.76

Advancesto SubsidiaryCompanies L,052.97

Deposits 9.s4 7.62

Service Tax Receivable 3.O0

SalesTax RefundReceivable 4.O6

Income Tax - Tax deducted at source 267.46 153.75

Staff Advances 4,66 4.10

PrepaidExpenses 56,94 41,95

Other Receivables 5.25

Advancesto SuPPllers/ Labourer 253,1E 43.L2 ,ra aa )-41 Share ApplicationMoney

4.269.tO 1.O32.30

SCHEDULEI1 . CURRENTLIABIUTIES

Sundry Creditors *

For Goods/ Labour 5,337.15 2,61O.11

For Expenses 160,74 95.40

For Other liabllities 25,M 161.14

Advance received from customers 79,53 53.40

Due to SubsidiaryCompanles r33.27

Interest accruedbut not due on bank loans 38.80 ,,70

RAE s-2s Statutory Liabllities

5.65|'-21 3.067.67

t( there is no amount due and outstanding to Investor Educatlon and

o6tA.ri^n F"h.l end qmrll q.alp lndrctdal lJndertaklnos)

SCHEDULE12 - PROVISIONS

Provisionfor -

Taxatlon 267,95 176.95

Fringe B€nefit Tax 1.O8 o.aa

ProposedDividend 90,43 s9.00

Dividend Tax 15,44 a,27

En6 a_so Retirement Beneflts 340.36 250.OO Exports (lncluding Deemed Exports) Dlamonds Jewellery

Local Diamonds Bullionand lewellery Others

SCHEDULE14' OTHERINCOI'IE o.13 Received Commlssion 2.OO Recelved z.oo Dlvldend 4,OO ProfesslonalCharges Recelved 4.52 o.53 t.52 o.43 5.78 r.ro

SCHEDULE15 - cosT oF TRADII{GGooDs/ I,IATERIALCONSUI4ED

Opening Stock Dlamonds Bullion/Jewellery

Add: Purchases Diamonds BulllonDeweltery/Stonesand Gold

Add: Labour charges / l.lfg. Expenses

Less: ClosingStock Dlamonds Gold,Jewellery and Stone GITANJALI GEMS LTD.

Ff|PMTNG PART OF THE PROFIT & LOSS FORTHEYEAR ENDED }IARCH 3T, (RupeesinMi|lion 2007 2006 SCHEDULE15 - OPERATINGEXPENSES

Cost Emplovee 44.O7 Bonus& Allowances 65.O1 Salary, 3.34 To P.F.&Other Funds 4.70 Contribution 4.63 StaffWelfare 3.89 exPenses o.11 o.10 StaffRecruitment 4.45 Gratuit' t.t7 suB-TorAL 74.88 56.59 o.04 Consumed o.24 Stores o.o2 PackingMaterials Consumecl o.67 13.37 Rates& Taxes 7.93 Rent, o.o5 Boiling& ProcessingCharges Expenses Computer r.39 Electricity to.77 AdvertisementSelling & DistributionExpenses / 2.31 Travelling& Conveyance 1.75 TelephoneExpenses o.40 Postage& AngadiaExpenses 15.o1 Legal,Professional And Service Charges 1.82 Printing& Stationery 3.50 ExportSales Expenses 1.15 Auditors'Remuneration 1,60 Commission o.14 73.66 BankCommission 7t.59 o.08 Consumables t.76 Insurance 4.27 1.10 Donation 2.89 2.36 ImportExpenses 2.61 13.21 E.C.G.C.Premium 13,O1 1.65 Freight& Forwarding(ExPort) 1.79 2.86 SecurityService Charges 2.83 o.14 Brokerage L.23 26.44 DebtsWoff 1.45 Membership& SubscriPtion o.o2 1.35 Repairs& Maintenance- Building o.45 o.56 ReDairs& Maintenance- Plant & Machinery 0.46 3.O0 Repairs& Maintenance- Others 4.2L FaciliryExchange Difference (74.541 3.4 EEFC/ConvCryVBank 20.4t MiscellaneousExpenses 22.96 o.19 EntertainmentExPenses o.24 SUB.TOTAL 273.74 205.39

GRANDTOTAL 348.66 251.98 GITANJALI GEMS LIMITED Regd.Office: 801/802,Prasad Chambers, Opera House, Mumbai 400 004.

Schedulesforming part of the accountsfor the yearended March 31,2OO7.

SCHEDULE.17

SIGNIFICANTACCOUNTING POLICIES & NOTESTO ACCOUNTS:

1. SionificantAccountinq Policies:

1.1 AccountingConcepts

The Companyfollows the mercantilesystem of accountingand recognizes income and expenditureon accrual basis. The accountsare preparedon historicalcost basis as a going concernand complywith generallyaccepted accountingprinciples in India includingthe mandatoryAccounting Standards issuedby the Instituteof CharteredAccountants of India and the provisionsof the CompaniesAct, 1956.

L,2 Fixed Assets

a) Fixedassets are recordedat cost of acquisitioninclusive of freight,duties and taxesand incidentalexpenses related to acquisition.Expenditure incurred during constructionperiod has beenadded to the costof assets.

b) The costs of improvementsto leasedproperties are capitalizedand disclosed appropriately.

c) The originalcost of fixed assetsacquired through foreign currency credits are adjustedat the endof eachfinancial year by anychange in liabilityarising out of expressingoutstanding foreign currency credits at the rate of exchange prevailingat the dateof the BalanceSheet and alsoby gains/losseson foreign exchangerate fluctuationwhich ariseon repaymentof foreigncurrency credits duringthe year.

1.3 Impairment of FixedAssets

An asset is treated as impairedwhen the carryingcost of assetsexceeds its recoverablevalue. An impairmentloss is chargedto the profit and Lossaccount in the year in which an assetis identifiedas impaired.The impairmentloss recognizedin prioraccounting periods is reversedif therehas beena changein the estimateof recoverableamount. t.4 Depreciation

Depreciationis chargedon the fixed assetsunder the written down value methodin accordancewith the provisionsof ScheduleitVto the CompaniesAct, 1956.The expenditureincurred on improvementof assetsacquired on leaseis writtenoff evenlyover the balanceperiod of the lease. 1.5 Investment in the value Long- term investmentsare statedat cost' Provisionfor diminution than temporary of l6ng-terminvestments is madeonly if sucha declineis other in the opinionof the management.

1.6 Borrowing Costs: of qualifyingasset Borrowingcosts attributable to the acquisitionor construction are recognised are capitalizedas part of the costof asset.Other borrowingcosts as an expensein the periodin whichthey are incurred'

L.7 Foreign CurrencYTransactions the date of Transactionsin foreigncurrency are recordedat the rate in force'on Foreign-currency assets, except investments, and liabilitiesother transactions. prevailingat inan ro,.financing iixed assetsare statedat the rate of exchange to the profit the date of balancesheet and resultantgains/losses are charged contractsis and lossaccount. Premium in respectof forwardforeign exchange for financing iecognizeOover the life of the contracts.Foreign currency loans at the date fixedassets are statedat the contracted/prevailingrate of exchange costof of balancesheet and the resultantgains/losses are adjustedto respective assets.

1.8 Inventories goodsand Inventoriesof raw materials,finished goods, rejections,trading storesare valued as under:-

Particulars Lowerof costand net realisablevalue RoughDiamond Rejections At netrealisable value t-owerof costand net realisablevalue Finished Goods - Polished t-owerof costand net realisablevalue

cost Workin process- Jewellery t-oweiof marketvalue and material ProPortionate labour and overheads. cost FinishedGoods - Jewellery t-owerof marketvalue and material pluslabour and overheads.

FinishedGoods - Gold Lowerof cost and market value 1.9 Taxation

Provisionfor currenttax is made on the basisof estimatedtaxable income for the currentaccounting year in accordancewith the IncomeTax Act, 1961.

Deferredtax is recognized,subject to prudence,on timing differences,being the differencebetween the taxableincome and the accountingincome that originate in one periodand are capableof reversalin one or more subsequentperiods. Deferredtax assets are recognizedfor unabsorbeddepreciation and carry forward lossesto the extent there is virtual certainty that sufficientfuture taxableincome will be availableagainst which deferredtax assetscan be realized.

1.10 RetirementBenefits

Regularcontributions are made to providentfund authorities.Provision for liability in respect of gratuity to employeesis actuariallyassessed by an independentactuary and providedfor as at the BalanceSheet date. Leave salary providedon actual.

1.11 Provisionsfor ContingentLiabilities and ContingentAssets

Contingentliabilities are not providedfor and are disclosedby way of notes, Contingentassets are neither recognizednor disclosedin the financial statements.

2. Notes to Accounts :

2.I ContingentLiabilities not providedin respectof :

a) Guaranteesgiven by the Companyfor Workingcapital facilities availed by Subsidiaries& Associate Companies are as under:

1) SubsidiaryCompanies : Rs.360 Millions (Previous year Rs.B0 millions) 2) AssociateCompanies :NIL (Previousyear Rs. 140 millions)

b) OutstandingLetters of Credit: Rs.191.95 millions (Previous year Nil)

c) DisputedIncome Tax : NIL(Previous year Rs. 30.03 millions)

2.2 The Company has receiveda net proceedsof Rs. 3t14.7O Millionsthrough a publicissue of sharesduring precedingyear whichhave beenutilized as follows.

Particulars : Amount (Rs. In Millions)

CurrentYear PreviousYear

Investmentin Subsidiaries, JointVentures & Associates 855.40 244.40

Generalcorporate purpose (Includingworki ng Capital) 859.30 120.30

Unutilizedmoney invested in BankFixed Deposits 1400.00 2750.00

3LL4.70 3IL4.70 2.3 The companyraised USD 110 Millionsby issuing(1olo Coupon Rate ) Foreign CurrencyConvertible Bonds (FCCB)due 2011 on 24th November,2006 in internationalmarket. The net proceedsof USD 105.50Millions after adjusting issuerelated expenses, were utilized towards foreign acquisitions, infrastructure projectsincluding development of specialeconomic zone as per the objectsfor whichit was raisLd.The balanceproceeds as on 31't March,2007 amountingto USD40.38 millionsis temporarilylying in depositswith overseasbanks. These bondswere listed with Singapore Stock Exchange. Broadly,the termsand conditions of saidbonds include the following: a) Unless previouslyredeemed, purchased or cancelled,the. bonds are convertibleat any time on or after 24thDecember, 2006 upto 25thNovember, 2011intofully paid equityshares at par valueof Rs. 10 eachwith an initial conversionprice of Rs.275 pershare b) Thesebonds may be redeemedat any time on or after 25thNovember, 2009 and priorto 25thNovember, 2OLl.

2.4 ForeignAcuisitions :

SamuelsJewelers, Inc, USA The companyacquired majority stake in SamuelsJewelers Inc, USA,a major jewellerychain from B III CapitalPartners, L.P.,USA and B III-A Capital Partners,L.P.,USA. The companyobtained necessary approvals from Foreign InvestmentPromotion Board on 28thMarch, 2007 and its shareholders'approval throughpostal ballot on 09.03.2007for issuingon preferentialbasis 1,554,050 equityshares of Rs. 10 eachat issueprice of Rs. 290 per shareto aforesaidB III CapitalPartners, L.P.,USA and B III-A CapitalPartners, L.P.,USA as part considerationfor the said acquisition.After having obtained necessaryin principleapprovals from the stockexchanges, the companymade allotment of 1,554,050equity shares on 29.05,2007.Pending allotment as on 31.03'2007, theseshares have been shown under Share Capital Suspense Account including premium(under shareholders' fund) and correspondingamount is shownas investment.

2.5 SecuredLoans:

Workingcapital borrowings from Banks/financial institution are securedagainst hypothecationby way of a first chargeon all the presentand future goods, movableassets, vehicles, furniture, stock-in-trade, fixed deposits,book debts, mortgageby way of depositof title deedsof landand buildingof the Company's factory premisesand ResidentialPremises and personalGuarantee of the ManagingDirector.

2.6 Foltowingpayments have been made to Directors during the year (Rs.In Millions)

CurrentYear PreviousYear

Salary & Other Payments 6.43 4.93

In view of the sufficientprofits during the year and as no commissionis paidI payableto any director,separate computation of profit in respectof managerial remunerationas requiredunder Section 198 / 349of the CompaniesAct, 1956is notgiven. 2.7 Interestreceived during the yearamounted to Rs.282.27 Millions (Previous Year Rs.54.59 Millions) and tax deductedat Sourcefrom interestincome amounted to Rs. 51.01 Millionsfor the year ended31't March2007. (PreviousYear Rs. 11.95Millions)

2.a Sundry Debtors (Schedule8)

Sundrydebtors as on 31't March2007 includesRs. 560.25millions. (Previous yearRs 588.94millions) due from concernsin whichdirectors are interestedas directors/partners.

2.9 Loansand Advances(Schedule 10)

Advancesto suppliersincludes Rs 181.86 millions(Previous year Rs 39.53 millions) given to concerns in which Directors are interested as di rectors/mem bers/pa rtners.

2.tO Provisionfor employees'gratuity for the year has beendetermined at Rs.0.22 Millions(Previous year Rs.1.99Millions). The total liabitityas of 31$March,2007 actuarilydetermined amounting to Rs. 5.05 Millions(Previous Year Rs. 4.90 Millions).Gratuity liability is notfunded.

z.Lt Remunerationto Auditors (Rupeesin Millions) CgtrcntlYCel PreviousYear a) AuditFees 1.00 o.75 b) Tax Audit Fees o.L2 0.25 c) ServiceTax 0.14 o.L2 d) OtherMatters 0.01 O.BB

Total L.27 2.00 ==== 2.t2 Information required pursuantto Paras3 & 4 of part II of ScheduleVI to the CompaniesAct, 1956 - As perAnnexure - I

2.13 Earningper share (after Tax provision) CurrentYear PreviousYear Net profitfor the periodattributable to equityshareholders (Rs. In Millions) 819.00 478.19

No.of Equityshares as at 31.03.2007 58,998,495 58,998,495

Basicearnings per share (Facevalue of Rs.10 each) (Rs) Rs.13.88 Rs.11.37

Weightedaverage number of equity Sharesoutstanding (Nos.) 65,730,426 42,075,207

Dilutedearnings per share (Facevalue of Rs.10 each) (Rs) Rs. 12.63 Rs.11.37 Z.t4 DeferredTax Assets& Liabilitiesas on 31'tMarch 2007, are as under: (RuPeesin Millions March31, March31, 2007 2006

Deferred Tax LiabilitY 4.67 4.84 Differencesin dePreciationand other differencesin block of fixed assets as Per tax booksand financial books GrossDeferred Tax Liabilit

Deferred Tax Asset 0.84 Provisionfor RetirementBenefits 0.02 4.87 Provisionfor broughtforward business loss 0.00

5.7L GrossDeferred Tax Asset 0.02 0.87 NetDeferred Tax Asset/(Liabilit 4.6s)

2.tS SegmentReporting (Accounting Standard 17) d.1, The Managementof the companyidentifies two majorreportable segments as Diamondbusiness & JewelleryBusiness.

Referto AnnexureII

2.L6 RelatedParty Transaction (Accounting Standaid f e)

Referto Annexure- III

2,L7 Impairment of Assets

Therehave been no caseof impairmentof assetsreported during the year'

- 2.1g Disclosureas per AccountingStandard (AS 19) on "Leases",issued by the ICAI, are givenbelow:

i. The Companyhas taken variousoffice premises under operatinglease or leave and licenseagreements. These are generally non-cancelable and rangesbetween 11 monthsand 5 yearsunder leave and license,or lon|er for other leasesand are renewableby mutualconsent on mutually agreeableterms. The Companyhas given refundableinterest free securitydeposits under certain agreements

ii. Leasepayments are recognisedin the Profitand Loss Accountunder 'Rent'inschedule 16.

iii. The future minimum lease paymentsunder non-cancelableoperating lease 1. not laterthan one year Rs.7.04 Millions (Previous year Nil) 2' ',?t'1lfflr:":? notlater than nve vears Rs'36'66 Mirrions il;l; ""0

3. Morethan five yearsRs. NIL ( Previousyear NIL )

2.Ig The Companyis in processof identifyingenterprises covered under the Micro, Smalland MediumEnterprises Development Act, 2006(the Act ). Basedon the detailsregarding the statusof the suppliers,to the extentobtained, no supplier is coveredunder the Act.

2.2O Previousyear's figures have been regrouped/rearranged/reworked wherever necessaryand possibleso as to confirmto currentyear's classification

As per our report of even date.

For Ford, Rhodes,Parks & Co. For and on behalf of the Board CharteredAccountants

A.D.SHENOY Managing Director Director Partner MembershipNo. 11549

Place : Mumbai Dated : 26thJune, 2OO7 459,175.050 1,132.04 271,290.850 885.68 134 0.35

r,313,886.37O 2,971,49 459,176.050 r,132.04 134.000 0.35

2,814,128.13O 15,408.O3 2,736,0rr.220 12,496.75 279.OOO 262.27 808.000 544.84 134.000 t.72

4,7Or,996.90O 16,260.94 3,896,531.850 11,841.90 418.000 392.O2 808.000 589.05 134.000 0.35

385.030 7,91 203.790 2.r9 22,Or7.93O 306.78 27,r87.55O 235.08 lnter Divlsion DlamondTransfered 139.OOO 133.0E Inter DMslon Trdnsfer- Out (Bulllon) 32.95 3.970 0.05

437.941.O50 4,L37.78 385,537.540 2,761.60

Indlgenous

Yield o/o Value of Immrt on CIF Basis Dlamonds b) Quantitativeintormalion in respectof stocks, consumptlon, purchases and sales bY dass of goods I) RAW MATERIAL CONSUMED' TRADING GOODS

GOLD 24KT GOtD(MOUNTINGS) ALLOYS Slated in tho fofm ol IOKT (Gms.) 995 Gold (Gms ) 995Gold (Gms )

Cunentvear Prev vear Curenl Year PreY Year CunentYear Prev,Yeat

2,330.33 257 64 139,05224 6.32241 a) Oponing Stock 48.244.fi 766 58 6322.11 TOTAL QTY 48.244.9 766.5E 2 330.3ii 257U r39,0s224

37.92 0.43 100 009 0.66 002

TOTAL RS. 3792 Or|l| 1m o09 006

b) Opening Stock ot 2,s17u 180,64449 Amalgamailng ComPanY 25,97137 r80.644.49 IOTAL QTY 25,971.37 2917.U 1E54 a-l o61

067 TOTAL RS, 1E.54 300.50699 327,9186r cl Purcha3e3 280.73227 363,46061 5294a 327.916.61 TOTAL OTY 280.732.27 363 460 64 529 46 300.50699 27287 255.51 086 2W 163

TOTALRS 272.87 255 54 086 200 1.6t!

319,311.94 37't.83327 d) ConsumedIn Production fi7,972.U 3.ll,954.21 1,10850 8,14.65

TOTALOTY 5o7,97204 34't,gtr.21 1.10850 8,1465 319 311 94 371,833, 471 E5 23€.59 0€ 119 192 184

TOTALRS 471.E5 236.59 049 119 184

663./B 2,2%.18 4,00000 e) Sales durlng lhe Year 00 TOTATOTY 663./t8 2.2961E 4.0(n 0.25 001 o02

002 TOTALRS o.25 001

0 Adrustmentl 275.59032

TOTALOTY 275.59032

25716

TOTALRS 257 46 9) Closing Stock 2.33033 r08,23550 1Zg,e0079 Raw Form 27,557.75 18,1r5 01 1,0878'l 79 TOTALOTY 27 59775 lE-115 0t 1.0878r 2,33033 10E.23550 123,900 26.85 1528 1.12 100 063 059

TOTALRS 26 E5 15?A 112 t00 063 059

9,71561 15.151.45 WP 6E.997lE 30,12937 /rs TOTALOry 68.9{'7 1 30.129.37 9,71561 15.151 69 55 22il 010 007 007 TOTALRS 69 55 226/. 010 b) Ouantitativeinformation in respeclof stocks,consumPlion, purchasesand sales by class of goods D RAW MATERIAL CONSUMED/ TRADTNGGOODS

PRE & SEMI STONES& PEARLS Cls

a) OpeningStftk

TOTAL OTY.

TOTAL RS

b) OpeningStock ot AmalgamatingComPanY

TOTAL QTY

TOTAL RS

TOTAL QTY.

TOTAL RS

d) Consumedin Production

TOTAL QTY

TOTAL RS

e) Sales during lhe year

TOTAL QTY

TOTAL RS

TOTAL QTY

TOTAL RS.

TOTAL QTY

TOTAL RS

TOTAL OTY

TOTAL RS b) Ouantitativeinformation in resDectof stocfts,consumption, purclasesand salesby classof goodg D RAWMATERIAL CONSUMED' TRADINGGOODS

TOTALQTY.

TOTALRS

b) Openlng Stock of AmalgamatingComPanY

TOTALQry

TOTALRS

TOTALQTY

TOTALRS

d) ConsumedIn Productlon

TOTALQTY

TOTALRS

e) Sales during the year

TOTALOTY

TOTALRS

TOTALOTY

TOTALRS

TOTALOTY

TOTALRS

TOTALQTY

TOTALRS b) o@ntilaws infomaBm n BSp€d ot stocls, @nsumpbd' Durdrases and $los by class ol goods D RAW XATERIAL CONSUIIEI), TMDING GOODS

a) OpeningSt@k

IOTALOTY

TOTALRS

b) OpenlngStock ol Amalgama0ngComPanY

TOTALOry

TOTALRS

c) Purcha*s

TOTALQTY

TOTALRS

d) Consumedin Prcducltd

TOTALQTY

TOTALRS

€) Srlesduring the Year GitanjaliGems Ltd. c) FinishedGoods : a) StuddedJewellery Comprising of:

Jewellery/Diamond (QtyGrams) Rupees(Millions) I CunentYear PreviousYear

a) OpeningStock

TOTALQTY. 70,933.20 7,888.07

TOTALRS. 159.31 9.40 b) OpeningStock of AmalgamatingCompanies TOTALQTY. 48,988.34

TOTALRS. 99.67 c)MfgJewellery/Diamond TOTALQTY. 1,024,U1.43 79,1't9.28

TOTALRS. 2,824.83 1,767.63 d)FinishedJewellery/Diamond Purchased

TOTALQTY. 2,966,878.80 985,263.91

TOTALRS. 3,121.22 737.99 e) Jewellery/Diamondsold TOTALQTY. 3,751,404.96 1,725,328.44

TOTALRS. 6,463.04 3,071.86

0 Jewellery/Diamond- Division Transfer TOTALQTY. 147,99524

TOTALRS. 169.28 g) Cl. Stock

TOTALQTY. 163,053.23 70,93320

TOTALRS. 345.43 159.31

Yield(% ) - 87 63% 91.07o/.

Consumptlon-Diamonds/ Jewellery Amount lmported 86.'l2o/o 1,322.75 Indigenous 13.88% 213.14 100.00% 1.535.89 Annexure- ll GITANJALIGEMS LIMITED

SegmentwiseReporting Revenue, Results and GapitalEmployed forthe vear ended March 31, (Rup9esin Millions)

Particulars 2007 2006 Description

1. SegmentRevenue 't5,868.02 a. Segment- Diamond 12,898.51 b. Segment- Jewellery 6,639.29 3,548.99 Total 22,507.31 16,447.50 Less:Inter Segment sales 314.69 235.08 Net Sales 22,192.62 16,212.42

2. SegmentResults ProfiU(Loss)before Tax and

516.89 458.92 665.31 371.70 1,192.20 830.62

265.72 287.44

916.48 543.18

3,302.17 2,706.05 1,303.49 1,654.75 3,434.44 2,723.78

8.040.10 7.084.58

B) SecondarySegment (By GeographicalSegment)

lndia 9,246.04 4,536.56 Restof the world 12.946.58 11,675.86 Total Revenue Annexure : III

GITANJALI GEMS LTD.

RelatedParty Disclosurefor the year ended March 31, 2OO7

(A) Particulars of EnterDrasesControlled Bv The ComDanY

Name of Related Partv Relationshlo

MehulImPex Ltd. SubsidiarY Subsidiary GitanjaliExports Corporation Ltd. Subsidiary CRIAJewellery Pvt. Ltd. FantasyDiamond Cuts Pvt Ltd Subsidiary HyderabadGems SEZ Ltd. Subsidiary Subsidiary ShubalavanyaaJewel crafts Pvt.Ltd. Subsidiary DesireLifesWle Pvt.Ltd. Subsidiary GiliIndia Ltd' Subsldiary GitanjaliVentures DMCC Subsidiary GitanjaliInfratech Ltdl Subsidiary Samuelslewelers Inc' USA Subsidiary GitanjaliUSA Inc

(B) Particulars of Kev ManaqementPersonnel

Name of Related Partv Relatlonshlo

MehulC. Choksi ManagingDirector G.K.Nair Director AdrianusVoorn Director

(c) Particutars of Enterorlses Under CommonControl of The Kev ManaqementPersonnel

Name of Related ParW

AudaryaInvestments fut. Ltd. NavirajEstates Pvt' Ltd. PriyankaGems Pvt.Ltd. ParthaGems Pvt.Ltcl' LustreMa nufacturers Pvt. Ltd' GitanjaliRealiry Fvt.Ltd' GitanjaliGold & PreciousLtd. RohanDiamonds Fvt. Ltd. RohanMercantile Pvt. Ltd. TransExpo Trade Pvt. Ltd. TheNext Diamond ComPanY MozartInvestment Pvt. Ltd. MaitreyiImpex Pvt. Ltd. Touchstone DiamondCreations PrismBullion Pvt.Ltd BrightestCircle Jewellery Pvt.Ltd'- Associate D'DamasJewellery (I) Pvt'Ltd'- JointVenture ModaliDistributors Pvt.Ltd' - Jointenture ModaliJewels Pvt.Ltd' - JointVenture SpectrumJewellery Pvt.Ltd. - JointVenture DecentSecurities & FinancePvt. Ltd.

(D) pafticulars of Enterprises controlled Bv Relatlvesof Kev Manaoement Personnelwhere Thcre Are Transactions

DimincoN,V.

(E) Particulars Of RelativesOf Kev Manaoement Personnelwhere there are Transactions GuniyalC. Choksi PritiM.Choksi (F) Particulars of Transactions with Parties Reffered To in (A) (Ruoees in Millions) Above

Purchases 682.89 Amountoutstanding shown under Sundry Creditors 398.70 LabourCharges Paid 43.43 Sales 7,634.51 Amount outstanding shown under Sundry Debtors 280.43 Advancesgiven 2,529.28 Advancesgiven receivedback 896.07 Amount outstanding shown under Advanceto SubsidiaryCo. 1,706.55 AdvanceReceived 520.58 Advance ReceivedGiven Back 698.68 Amountoutstanding shown under Advance from Customer 9.76 Guaranteesgiven to the bankersfor Letter of Credit facility 360.00 Investment 1,208.81 ShareApplication Money paid 204.24 Loan Received 205.15 Loan ReceivedRepaid 205.15

(G) Particulars of Transactions with Parties Reffered To in (B) Above

Salary and other payments 6.43 PurchasesOf EquityShares 85.00 Sales 0.16 Loan taken 7.5L Loan returned 6.80 AdvanceGiven 42.34 AdvanceGiven Recd.Back 42.34 Amountoutstanding shown under Unsecured Loans from Director 4.95 Guaranteesobtained for working capital borrowings from bankers To the extentof workingcapital borrowings

(H) Particulars of Transactions with Parties Reffered To in (C) Above

Sales 67r.t9 AmountOutstanding Shown Under Sundry Debtors 420.t0 Purchases 215.60 AmountOutstanding Shown Under Sundry Creditors 237.00 Advancesgiven 45t.71 Advancesgiven receivedback 238.43 Amountoutstanding shown under Advances to Suppliers 176.67 Advancesreceived 121.19 Advancesreceived Given back 77.70 Amountoutstanding shown under Advances 213.30 Amount outstanding shown under Advancesfrom Customer 62.L4 Amount outstanding shown under Unsecuredloan from Share Holder 8.03 Amountoutstanding shown under Unsecured loan from Company 0.i1 Assortment charges 3.05 SharesApplication Money paid 23.70 Investment 4.30 ExpensesReimbursement 0.50

(I) Particulars of Transactions with Parties Reffered To in (D) Above

Sales 294.41 Purchases 580.21 AmountOutstanding Shown!nder SundryDebtors 131.52 AmountOutstanding Shown Under Sundry Creditors 387.41

(t) Particulars of Transactions with Parties Reffered To in (E) Above

PurchasesOf EquityShares 42.50 AmountOutstanding Shown Under Sundry Creditors 63.23 GITANJALI GEMS LTD.

1 Registration Details I RegistrationNo' : 4 O 6 8 9 StateCode:1 (RupeesIn Thousands) BALANCESHEET AS AT 31-O3-2OO7

2 Capital raised during the Year Nil PrivatePlacement PublicIssue Nil BonusIssue Nil RightIssue

of mobotisation and deployment of funds 3 Position 18,878,753 Totalliabilities 18,878,753 TotalAssets of Funds Sources 6,999,442 up CaPital 589,985 Reserves& SurPlus Paid 4,654 SusPense 450,675 DeferredTax Liability Share 4,966,552 SecuredLoans 5,967,445 Unsecuredloans of Funds Application 1,470,84L Netfixed assets 294,692 Investments Netcurrent assets t7,113,220 DeferredTax Assets

Performanceof the ComPanY 4 21,290,49L TurnoverIncl. other income 22,206,969 TotalExpenditure 818,995 NetProfit Before Tax 916,478 Net Profitafter Tax o/o Earningper share (Rs) 13.88 DividendRate 1

5 Genericnames of five principal products of company Item CodeNo' (ITC Code) Product Descriotion 7ro23l 00 RoughDiamonds 7L0239 10 PolishedDiamonds 7lo8t2 00 Gold 710691 00 Silver 71131910 Gold)ewellery

For Ford, Rhodes, Parks & Co. For and on behalf of Board CharteredAccountants

(PankhuriWarange) Place: Mumbai A. D. ShenoY MehulC. Choksi G. K. Nair Company SecretarY Date : 26th lune, 2007 Partner Managing Director Director i6666-'?.!r1d@o@oooo ddd;qioooo

E I z

I te ]5 o e333 nEqq cioiggghoN Efi E oo ?- c =F u t ts o\tno NVVq co6h Nooo 'cjdritlt c o9s H: $€s3 ov <.ii \\ j 4Y' NN Y; c,- to u) o B+RR EE\q rl oci$n+ooo o@ tJ P o o o o co '=1\ o xo oox Fd 3 $s =xi 6i d E 9E 9('t BB -t 0i5 OC sm tu b e; or-o bB -to o= oIF !U€ 03 'YI- N9 Fa ssEErEhqq dd;\ovtof-iNo i666@{rNs Eh Ho99_ 'EE t $€ Ei egsB qqfi! 58 ctid;digooo EE ti E(5 c> -9; o. tt 8s33Rfii{q .j.i6oct.roon 5E H;iFiR-B-id 5d o 89 rO gECC d! ssss nqqa ie ossnsoti E omN o E g o o ssRR {Edfi ;;ri{tloto EilPR $.P : io'ro'60

o !2^ a3 !r! o 5E N *H PE ix N O.O oo ;;io- z: FF NO =47 bs €EE \c .?E Jl4! :i iis E> TE 9e oc EsE qo AUDITORS'REPORT ON CONSOLIDATEDFINANCIAL STATEMENTS

The Boardof Directors GitanjaliGems Limited Mumbai.

1. We have auditedthe attachedConsolidated Balance Sheet of GITANJAUGEMS LIMITED(the company) its subsidiaries,joint ventures and an associate (entitiestogether termed as the GitanjaliGroup) as at March31, 2007, the consolidated Profit and Loss Account and the consolidatedcash Flow Statementfor the year endedon that dateannexed thereto. These consotidated financialstatements are the responsibilityof the company'smanagement and have been preparedon the basisof separatefinancial statements and other financialinformations regarding components. Our responsibilityis to express an opinionon thesefinancial statements based on ouraudit.

2. we conductedour audit in accordancewith generally accepted auditing standardsin India.Those standards require that we planand performthe audit to obtain reasonableassurance about whetherthe financialstatements are preparcd,in all material respects,in accordancewith an identifiedfinancial reporting framework and are free from material misstatements.An audit includes,examining on a test basis, evidencesupporting the amountsand disclosuresin the financialstatements. An audit also includesassessing the accountingprinciples used and significantestimates made by the management, as well as evaluatingthe overallfinancial statement presentation. We believe that our auditprovides a reasonablebasis for our opinion.

3. We did not audit the financialstatements of certain subsidiariesand joint venture companies whose financial statements reflect total assets of Rs.4,764,05million as at March31, 2007 (previousyear Rs.3G2.23million), and total revenuesRs.3,093.63 million (Previous Year Rs.469.55 million) for the year ended on that date. Thesefinancial statements and other financial informationhave been subjected to audit by otherauditors whose reports have been furnishedto us. we have placedreliance on the said reports for the purposeof our opinionon the consolidatedfinancial statements.

4. We reportthat the consolidatedfinancial statements have been prepared by the management of the company in accordancewith the requirementsof AccountingStandard (AS) 21 - ConsolidatedFinancial Statements, Accounting Standard(AS) 23 - Accountingfor Investmentsin Associatesin.Consolidated FinancialStatements and AccountingStandard (AS) 27 - FinancialReporting of Interest in Joint Ventures,issued by the Instituteof CharteredAccountants of India. 5. Basedon our audit and on considerationof the reportsof other auditorson separatefinancial statementsand also other financialinformations of the components, and to the best of our information and according to the explanationsgiven to us, we are of the opinionthat the attachedConsolidated FinancialStatements give a true and fair view in conformitywith the accounting principlesgenerally accepted jn India:

a) in the caseof the ConsolidatedBalance Sheet, of the state of affairsof the GitanjaliGroup as at March31, ZOO7,

b) in the caseof the ConsolidatedProfit and LossAccount, of the profitof the GitanjaliGroup for the yearended on that date,and

c) in the caseof ConsolidatedCash Flow Statement, of the Consolidatedcash flowsof the GitanjaliGroup for the yearended on that date.

ForFord. Rhodes, Parks & Co,, CharteredAccountants

A.D.Shenoy Partner MembershipNo. 11549 Date : 26thJune, 2007 Place: Mumbai GITANJALI GEMSLIMITED GoNSoLIDATEDBALANCE SHEET AS AT 31STHARCH, (Rupeesin Millions) Particularc Schedules 2007 2006 SOURCESOF FUNDS Shareholders'Funds ShareCapital 1 589.98 589.98 ShareSuspense .450.67 Reserves& Surplus 2 7,686.23 7,103.03 8,726.99 7,693.01

MinorityInterest 941.33 619.83 LoanFunds SecuredLoans 3 9,567,22 6,910.36 UnsecuredLoans 4 5,02r.51 158.62 14,588.73 6,968.98

DeferredTax Liability (Net) 0.07

TOTAL _4257n1 ls.rRl.n?

APPIJCATION OF FUNDS Flxcd Assets Gross Block 1,162.30 354.83 Less: Depreciation 23t.76 13r.30 Net Block 930.54 223.53 Capital Work-in-Progress 275.06 5.19 1,205.60 228.72

Advances on Capital Account 6 r47.28 114.95

Expenditure During Construction perlod, Pendlng Allocatlon 14.37

Goodwillon consolidation 402.7L

fnvestrnents 7- 229.r3 101.19

Deferred Tax Asset (Net) 1.78

Current Assets, Loans and Advances Inventories 8 7,797.lg 2,629.17 Sundry Debtors 9 r5,184.95 t2,372.00 Cash & Bank Elalances 10 6,L74.y 4,112.90 Loans & Advances 11 2,687.4L 1,298.65 3r,844.08 20,4L2.62

Less:Current Liabilities and Provlslons CurrentLiabilities t2 9,312.75 5,220.60 Provlsions l3

Net Current Assets L4,834.22

Mlscellaneous Expenditure L4 0.96 (to the extent not written off or adjusted) TOTAL ____19414?_

Significant Accounting Policies & Notes to Accounts 19

Schedules1 To 18 annexed hereto form part of the Balance Sheet and Proflt & LossAccount

As per our report of even date. For FORD, RHODES,PARKS & CO. For and on behalfof the Board Chartered Accountants

A. D. SHENOY I,IEHULC. CHOKSI G.K.NAIR PANKHURIWARANG Partner ManagingDirector Director CompanySecretary. M. No. 11549 Place: Mumbai Date: June 26,2007 GITANJALI GEMSLIMITED

CONSOLIDATEDPROFIT & LOSSACCOUNT FOR THE YEARENDED 3IST MARCH,

(Rupeesin Millions) Partlculars Schedules 20|)7 2006

INCOME Sales(Net) 15 34,674.44 24,O33.2t Other Income 16 40.83 34,7t5.27

EXPENDITURE CostofTrading Goods/ MaterialConsumed t7 31,706.09 22,522.r3 Expenses 18 1,289.82 457.44 - Operating Interest 496.41 409.37 Depreciation& Amortization 70.37 33,562.69 26.92 _ 23,4L5.86 Profit Before Tax 1,r52.58 631.33 - Provisionfor Current Tax 135.87 94.06 Provisionfor Fringe Benefit Tax 4.01 2.36 Provisionfor DeferredTax 3.55 L43.43

Profit after Tax (before adjustment for ConsolidaUon) 1,009.15 539.49 Less:Minoriw Interest 97.87 (31.53 profit Companies 6.23 (91.il) 6.48 Add: Share of from Associate (2s.0s Profit after Tax (after adjustment for consolidation) 917.51 514.44 Add: Balancebrought forward from previousyear (i) GitanjaliGems Ltd. 2,948.79 2,t66.46 (ii) GIU indiaLtd - adjustmenton accountof acqusition (16.16) 373.75 (iii) SubsidiaryCompanies as at 31-3-06 (0.03) t4.75 (iv) JointVenture as at 31-3-06 4L.34 2,5t3.62 Amount Available for Appropriations 3,848,93 3,028.06

APPROPRIATIONS ' General Reserve 90.00 12.00 ProposedDividend on EquityShares 93.83 59.00 ' Tax on Dividend 15,86 199.69 8.27 79.27 Balance Carrled to Balance Sheet re_re-

BasicEarnings per Shareof face valueof Rs' 10 each (in rupees) 15.55 t2.23 Diluted Earningsper Shareof facevalue of Rs'10each (in rupees) 14.13 t2.23 (ReferSchedule 19 II, Note - 9)

As per our reportof even date' For FORD, RHODES'PARKS & CO. For and on behalfof the Board Chartered Accountants

A. D. SHENOY MEHULC. CHOKSI G.K.NAIR PANKHURIWARAI{ ManagingDirector Director CompanySecretary _Partner M. No.1lg9 Place: Mumbai Date: June 26,2007 CONSOLIDATEDCASH FLOW STATEMENT FORTHE YEAR ENDED 2006.07 in Millions ,o*rrar**,

CASHFLOWS FROM OPEMTING ACTIVITIES: Net Income beforeTax Adjustmentsfor : Interest(Net) 496.41 Depreciationand amortization 70.37 Effectsof foreign exchangerates on cash 0.54

Changesin Assets& Liabilities (Increase)/ Decreasein Trade and Other receivables (4,446.00) (Increase)/ Decreasein Inventories (5,168.01) Increase / (Decrease)in Trade and Other Payables Cashgenerated (used) by operatingactivities (3,O02.L7) Less:Taxes Paid L43.43

Total Net cash ated / activities

CASHFLOWS FROM INVESTING ACTIVITIES: Purchaseof FixedAssets (Net), Changes in CapitalW.I.P. and other assets (1,093.95) Acquisitionof Subsidiaries (420,08) Purchaseof Investments (t27.94) Shareof MinoriWInterest 321,50 Net cash / (used for activities

CASHFLOWS FROM FINANCING ACTIVITIES: Increase(decrease) in Securedloans 308.32 Proceedsfrom Unsecuredloans 4,862.89 ShareIssue Pending Allotment incuding premium 242.80 Dividendspayments Including distribution tax (10e.6e) Interest Net Net cash ded used for activities:

Net increase / (decrease) in cash (A+B+C) 2,O6L.74 Cashand equivalentsat beginningof the year 4,112.80 Cash and cash at end of

Note:- Previousyear, beingthe first year of consolidation,no cashflow statementwas given.

As per our report of even date. Forand on behalfof the Board For FORD,RHODES, PARKS & CO. CharteredAccountants

A. D. SHENOY MEHULC. CHOKSI G.K.NAIR PANKHURIWARANGE Partner ManagingDirector Director CompanySecretary M. No. 11549 Place: Mumbai Date: June26,2007 GITANJALI GEMSLIMITED SCHEDULESFORMING PART OF THE BAI-ANCE SHEET AS AT 31STMARCH, (Rupeesin Millions) SCHEDULE1 . SHARECAPITAL 2007 2006

Authorlsed: (i) 120,000,000Equlty shares of Rs.10/- Each(Prevlous year 70,000,000 Equity Sharesof Rs. 10/- each) 1,200.00 700.00 (ll) RedeeemablePreference Shares - CurrentYear - Nll(Prevlous year 500,000 RedeeemablePreference Shares of Rs. 100/- each) 50.00 ______1,2oo.oo_ ___l!o.oo_ tssued,Subscrlbed & Paid uP :

58,998,495( PreviousYear 58,998,495 )Equity Shares of Fs.10each fully paid up s89.98 589.98

589.98 589'98

(l) Theabove shares Includes 29,250,000 fully patd up eguityshares allotted as bonusshares by capitallsationof profits& deneralReserve over a perlodof tlme and f ,598,095fully paid up equityshares alloRed as bonusby capitallsationof profitsand GeneralReserve by erstwhileGemplus Jewellery Indla Ltd slncemerged with the Company.

SCHEDULE2 - RESERVES& SURPLUS

SharePremlum Account 3,543.64 Less:FCCB lssue expenses 207.89 3,335.7s 3,y3.il GeneralReserve 102.00 12.00 Profit& LossAccount Balance 3,649.24 2,948.79 CapitalReserve on consolldatlon 598.69 598.60 Exchfluctuatlon Reserve A/c 0.55 TOTAL 7,6A6.23 7,103.03

SCHEDULE3 - SECUREDLOANS

WorkingCapltal Loans From Banks / FinanclalInstitution 9,258.90 6,810.36 (ReferSchedule 19, NoteII - 10) vehlcleLoAn 1.68 Term Loan 306.9 TOTAL L567.22 6,E10.36

SCHEDULE4 - UNSECUREDLOANS

Froma Dlrector 178.09 61.78 FromShareholders 8.03 8.11 FromEx-partner of the erstwhlleflrm 35.28 35.28 Froma Company 0.11 0.10 -19) FromForelgn Currency Converuble Bonds (refer note no - 4 (b) of II to Schedule 4,792.70 53.35 FromOthers 7.30 TOTAL 5,O21.s1 158.62 D9q'oHoita@ a fit h@oNidhoN- F r do gdiFi{rJ{.ici'c; q q; 9@hN t ^ N ;d og Y

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v, F u g o c u} 0 J E I q t o 9 : ?H z C rtUl o ( Jtt F t t D< L o d a 3 u v, d c !a q f a t ; F OI o o I |'\ v E d GITANJALI GEMSLIMITED SCHEDULESFORMING PART OF THE BALANCE SHEET AS AT 31STMARCH, (Rupeesin Millions) SCHEDULE6 - Advanceson W-I-P ( Incl, CaoitalAdvancesl 2007 2006

AndhraPradesh Ind. InfrastructureCorporatlon Ltd. 100.00 37.50 Advancefor Land 9.12 CarltonProperues Pvt. Ltd. 4.00 4.00 BharatDlamond Bourse 33.66 72.95 GujratHlra Bourse 0.50 0.50 Total 147.28 114.95

SCHEDULE7 - INVESTMENTS

(l) LongTerm Investment (unquoted at cost)

- In Affiliates

3,000,000Equity Shares of Rs.10/-each fully paid.up of GILIIndla Limited - Formerly knownas Gitanjali Jewets Ltd. (Previous year : 20,000,000equity shares) - 74.t8 166,668Equity shares of Rs. 10/- eachof Brtghtestclrcle Jewellery pvt' Ltd ( PrevlousYear r 166,668Equity shares) L6.57 10.34

166,666 - 406Non - CumulaUveReedeemabte Preference Shares of Rs' l0/- eachof BrtghtestClrcle Jewellery pvt. Ltd ( PrevlousYear : 166,666Prefrence Shares) L6.67 16.67 200Shares ofAED 1,000/- each ofGitanjall Venture DMCC - Dubal(PrevlousYear Nil) 2.42 100Shares of GltanjalUSA Inc. (PrevlousYear Nll) 173.18 25,000Equity Shares of Rs. 10/- eachof DiademRanka Deslre Llfestyle Pvt Ltd (previousyear -nll) 0.25 - In Others 5f equltyshareofCltlzenCo-opBankof facevalueof Rs. 10/-each,fullypaldup( PreviousYear 5l EquityShares) 0.00 1,000,000Equity Shares of Re.l/- eachat a premlumof Ps.9/- eachof Dlamond IndiaLtd. (Previous year NIL) 20.00

(ll) In EquityShares (Non - Traded) 125 Equityshare of Shoppers'StopLtd. Of Rs. 10/- each,fully pald up (prevlous Year125 Equity shares) 0.03 - (lll) rn GovernmentSecuritle. Nationalsaving certificates of facevalue Rs. 5,000 (pledge with salestax department) 0.01

TOTAL 229.13 101.19

SCHEDULE8 - INVENTORIES a. RawMaterlals 3,907.4L r,464.15 b. WorkIn Process 168.68 94.35 c. ManufacturedGoods / TradlngGoods 3,712.53 499.68 d. TradlngGoods 563.r7 d. Consumables,Stores & Tools 6.06 6.34 e. Props,Display Material and Soxes 2.20 1.48 f. Others 0.30

TOTAL 7,797.1E 2,529.t7

SCHEDULE9 - SUNDRYDEBTORS

Unsecured,Considered Good unlessand otherwise stated Outstandingfor morethan six months 1,779.60 2,677.46 Outstandingfor more than six monthsconsldered doub$ul L4.37 7.69 Add : ExportsRecelvables Translatlon Control A,/C (27.43\ (3,99) r,766.54 2,68r.16

Others t3,479.17 9,679.75 Add : ExDortsReceivables Translation Control A/C (46.38) 18.78 L3,432.79 9,698.53

Less:Provlsion for doubtfuldebts 14.38 7.69

TOTAL 15,184.95 12,372.OO GTTANJALI GEI,ISLIMITED SCHEDULfSFORMING PART OF THE BAIANCE SHEET AS AT 31STMARCH, (Rupeesin Millions) SCHEDULE10. CASH & BAN( BALANCES 2oo6

Cash ln hand 28.29 1.38

Balance wlth Scheduled Eanks : ln Current Accounts 489.67 409.96 In Rxed Deposlts 5,656.35 3,70t.23 ln EEFCAccount 0.23 o.23

TOTAL 5,t74.54 4,112.80

SCHEDULE11 . LOANS& ADVAI{CES

(Unsecured,Consldered Good) Advancesrecoverable In cash or In klnd or for value to be recelved 1,785.31 865.35 Deposlts 35.79 r9.73 ServlceTax Recelvable 3.19 SalesTax RefundRecelvable 4.23 o.22 IncomeTax - Tax deductedat source 394.33 261.90 StaffAdvances 6.80 7.10 AdvanceFrlnge Benellt Tax 0.17 PrepaldExpenses 131.63 so.sz OtherRecelvables L7.78 26.21 Advancesto Suppllers/ labourcr 264.22 55.57 ShareAppllcauon l.loney 43.96 2.00

TOTAL 2,687.41 1,298.65

SCHEDULE12 - CURRENTLIABILTTIES

Sundry Credltors * ForGoods / Labour 8,629.78 4,748.37 For Expenses 163.84 99.85 Otherllablllues 357.37 184.51 StatutoryLlabllltles 10.20 8.93 Advancerecelved from customers 164.38 171.83 ShareAppllcauon Money r€cd, 10.09 Interest accruedbut not due on bank loans ,14.58 11.82 [€ss: Import PayableTrangauon Control Account 67.49 4.71

TOTAL 9,3t2.75 5,220.50 -norc.'i'irere F no amonutoue ano guts-Grnqrngto rnyestorEoucaEon ano rrcfecuon Fundand SmallScale Industrlal Undertaklngs.

SCHEDULE13. PR,OVISIONS

Provlslonfor Taxauon 393.65 280.50 Provlslonfor FrlngeBenent Tax 3.12 t.97 Provlslonfror Gratulty / LeaveEncashment 10.01 8.06 ProposedDlvldend 93.83 59.00 Provlslonfor DlvldendTax 15.86 8.27 OtherProvlslons 2.28

TOTAL 51r.75 35r.80

SCI|EDULE14 - trlISC. EXPENDITURE (to the extent not wrltten of or adJusted)

Prelhlnary Expenses .3.78 0.10 DeferredRevenue Expendlture 24L.56 0.86

TOTAL o.96 GITANJALI GEMS LIMITED SCHEDULESFORMING PART OF THEPROFTT & LOSSACCOUNT FOR THE YEARENDED 31ST MARCH, (Rupeesin Millions) scHEpuLE15 - SALES(NET) 2007 2006

Exports(tncludlng DeemedExports) Diamonds 15,453,47 L5,252.52 Jewellery 4,899.13 2,t36.42 20,352.60 17,344.94 Local Dlamonds 8,098,87 5,083.76 Bullionand Jewellery 6,218.56 1,560.49 Others 4.31 0.02

SCHEDULE16 - OTHERINCOME -0.44 CommlssionRecelved 0.52 DivldendRecelved 2.00 2.00 Labour& Jobwork charges 15.37 RentRecelved 0.12 0.L2 ProfesslonalCharges Received 10.30 4.00 Intereston IncomeTax Refund 0.01 InsuranceClalm 0.65 Provlslonfor doubtfuldebts w/back 0.75 DlscountRecelved 1.52 0.5s SalesTax Retund 0.39 SundryBalance written back(Net) 2.91 1.06 Profiton Saleof FlxedAssets 3.9 EEFC/ConVCryVBankFacillty Exchange Difference 0.15 OtherIncome 6.87 1.44

13.98

SCHEDULE17 - COSTOF TRADING GOODS / I'IATERIALCONSUI'IED

OpeningStock Dlamonds 1,951,84 1,634.45 Bulllon/lewellery 2,353.52'0.25 429.L3 O,thers 0.13 4,305.61 2,063.71 Add: Purchases Diamonds 24,839.66 L9,226.98 Bulllon/lewellery/Stonesand Gold 9,180.93 2,810.28 Others 0.20 0.01 34,020.79 22,037.27 ForelgnExchange Rate Dlfference - Imports (36.37) Add: LabourCharges 1,219.63 1,042.50 35,204.05 23,079.77

Less ! Closlng Stock Dlamonds 4,603.78 1,951.84 Bulllon/Jervellery 3,199.14 653.89 Others 0.65 15.62 7,803.57 2,62r.35

TOTAL 31,706.09 : 22,522.t3 GITANJALI GEMSLIMITED SCHEDULESFORMING PART OF THE PROFIT & LOSSACCOUNT FOR THE YEAR ENDED 31ST MARCH, (Rupeesin Millions) SCHEDULE18. OPERATINGEXPENSES 2007 2006

Paymentto and Provlslonfor Emplovees Salary,Bonus & Allowances 351.06 70.22 ContrlbutlonTo P.F.&Other Funds 9.70 4.U Statr Welfare 7.24 5.15 Staff Recrultmentexpenses 0.11 0.r0 LeaveEncashment o.24 0.03 GratulW 1.87 7.6r suB-rorAl (A)

OtherOperatlng Exoenses StoresConsumed 8.46 0.t7 Rent, Rates& Taxes 4L.22 18.29 Postage,Telephones & Communlcatloncharges 24.29 6.56 BankCharges r36.45 tLg.76 Insurance 7.28 2.19 Prlnung& Statlonery 9.44 3.37 Travelllng& Conveyance 42.I5 12.61 Advertlsement/ BuslnessPromotlon expens€s r81.r6 48.43 Pac{ng MatedalsConsumed 1.94 SalesCommlsslon 111.15 Donatlon 3.59 2.9 Dlrectors'Remunera0on 5.08 Repalrs& Malntenance- Bulldlng o.72 r.sr Repalrs& Malntenance- Others 19.96 4.67 Repalrs& Malntenance- Plant& Machlnery 0.55 0.56 Octrol Charges 7.41 Legal,Professlonal And ServlceCharges 180.26 23.02 LlcenseFees o.47 ExportSales Expenses 7.39 6.r3 Frelght& Forwardlng(Export) 3.68 Import Expenses 2.U 2.38 Auditor'sRemuneratlon 3.37 1.58 BadOebts wrlttenoff 2.9L Provlslonfor DoubtfulDebts s.86 Deffered& PrellmlnaryExpenses w/ofr 0.93 0.28 ElockPollcy Pr€mlum o,74 0.73 Bolllng & ProcesshgCharges 7.08 Books& Perlodlcals 0.40 0.01 ConstructlonExpenses 14.02 EEFQConVCTVBankFadllty Exchange Dlfference (72.r0) 10.93 Electrlclw 7.69 3.51 EntertalnmentExpenses 0.33 0.19 l,lembershlp& Subscrlptlon 0.11 1.45 8ad Debts/AdvanceySundry Balances wrlttenoff 1.84 27.76 MlscellaneousExpenses r04.26 48.51 Brokerage r.23 Interest on contracts t.97 SecurltyServlce Charges 8.16 Computerand RelatedExpenses 0.28 Prlorperlod Expenses 3.22 o.rs

suB-ToTAL(B) 919.60

TOTAL(A+B) 1,2E9.E2 157./E SCHEDULE- 19:

SIGNIFICANT ACCOUNTING POLICIES & NOTESTO ACCOUNTS

I. SIGNIFICANTACCOU NTING POLICIES

1. Basisof preparation of financial statements:

The accompanyingConsolidated Financial Statements have been preparedin accordancewith AccountingStandard (AS) 2L for ConsolidatedFinancial Statements,Accounting Standard (AS) 23 for Accountingof Investmentsand AccountingStandard (AS) 27 for reportingof Interestin Joint Venturesissued by the Instituteof CharteredAccountants of India.The financialstatements of a foreignSubsidiary used in the consolidationare drawnupto the same reporting date as that of the parent companyviz, March37,zOO7.The Consolidated FinancialStatements have been preparedsubstantially in the same format as adoptedby the parentcompany to the extentpossible.

Principlesof consolidation

a) The consolidatedfinancial statements include the financialstatements of GitanjaliGems Ltd. (the Company)and all of its subsidiaries,which are more than 50o/oowned and controlled.Investments in associatesare accountedfor as per the equity methodand its shareof interestin joint ventureon the basisof line-by-lineconsolidation. All materialinter company accounts and transactionsare eliminatedon consolidation.

b) The differencebetween the cost of investmentin the subsidiariesand net assetsat the time of acquisitionof sharesin subsidiariesis recognizedin the financialstatements as Goodwilland groupedwith FixedAssets or Capital Reserveand groupedwith Reserves,as the casemay be. In casewhere loss is in excessof the minority interestin the equity of the subsidiary,it is adjustedagainst the majorityinterest.

c) MinorityInterest's share of net profitof consolidatedsubsidiaries for the year is identifiedand adjustedagainst the incomeof the group in order to arrive at the net incomeattributable to shareholdersof the company.

d) Minority Interest's share of net assets of consolidatedsubsidiaries is identifiedand presentedin the consolidatedbalance sheet separatefrom liabilitiesand the equityof the company'sshareholders.

As far as possible,the consolidatedfinancial statements are preparedusing uniform accountingpolicies for like transactionsand other events in similar circumstancesand are presentedin the same manner as the company's separatefinancial statements. - 3. Accounting Concepts

a) The Companyfollows the mercantilesystem of accountingand recognizes incomeand expenditureon accrualbasis. The accountsare preparedon historicalcost basisas a goingconcern and complywith GenerallyAccepted AccountingPrinciples in India includingthe mandatoryAccounting Standards issuedby the Instituteof CharteredAccountants of India and the provisions of the CompaniesAct, 1956. Accountingpolicies not referredto othenruise are consistentwith generallyaccepted accounting principles.

b) Useof Estimates:The preparationof ConsolidatedFinancial Statements, in conformity with the GenerallyAccepted Accounting principles, requires estimatesand assumptionsto be madethat impactthe reportedamounts of assetsand liabilitieson the date of financialstatements and the reported amountsof revenuesand expensesduring the reportedperiod. Differences betweenthe actual resultsand estimatesare recognizedIn'the periodin whichthe resultsare known/ materialised.

4. FixedAssets and Intangibles

a) Fixedassets are recordedat cost of acquisitioninclusive of freight, duties and taxes and incidental expensesrelated to acquisition.Expenditure incurredduring constructionperiod has been addedto the cost of assets. Capitalwork-in-progress includes capital advances.

b) The costsof improvementsto leasedproperties are capitalizedand disclosed appropriately.

c) Theoriginal cost of fixedassets acquired through foreign currency credits are adjustedat the end of eachfinancial year by.any changein liabilityarising out of expressingoutstanding foreign currency credits at the rate of exchange prevailing at the date of the Balance sheet and also by gains/losseson foreignexchange rate fluctuationwhich arise on repayment of foreigncurrency credits during the year.

d) Leases:Assets taken on leaseon or after April 1, 2001 are acgountedfor as FixedAssets in accordancewith Accountingstandard (AS) 19 on "Leases",as issuedby the ICAI.

i. Finance lease: Assetstaken on financelease are accountedfor as fixed assetsat fair value. Leasepayments are apportionedbetween finance chargeand reduction of outstandingliability. ii. operating lease: Assetstaken on lease under which all risks and rewardsof ownershipare effectivelyretained by the lessorare classified as operatinglease. Leasepayments under operatingleases are either recognizedas expensesin the profit and loss accountor recordedon accrualbasis in accordancewith the respectivelease agreements.

5. Impairment of Fixed Assets

An assetis treatedas impairedwhen the carryingamount of assetsexceeds its recoverablevalue in accordancewith AS 28. An impairmentloss is determined by eachcompany and chargedto the respectiveProfit and LossAccount in the year in whichan assetis identifiedas impaired.The impairmentloss recognized in prior accountingperiods is reversedif there has been a change in the estimateof recoverableamount. 6. Depreciationand Amortization of FixedAssets

Depreciationis charged on the fixed assetsunder the written down value methodin accordancewith the provisionsof ScheduleXIV to the CompaniesAct, 1956.The expenditureincurred on improvementof assetsacquired on leaseis written off evenlyover the balanceperiod of the lease.However, in respectof FixedAssets of a ForeignSubsidiary, the depreciationmethod and ratesfollowed by the subsidiaryare differentfrom thosefollowed by the parentcompany.

LeaseholdLand is amortisedover the periodof lease.

Goodwill

Goodwillarises out of Consolidationof subsidiariesand Joint Ventureswith GroupCompanies, being the excessof valueof Investmentsover proportionate stake in net assetsof Subsidiaries/JointVenture entities in terms of bookvalue whichare indicatedin the ConsolidatedBalance Sheet. In the caseof a Foreign Subsidiary,goodwill and other intangibleAssets are originallyrecorded at their fair valuesat the date of acquisition.Goodwill is not amortisedbut subjectedto periodicimpairment testing where applicable. Goodwill of businesscombinations workingout to negativeis deductedproportionately from the fixed assetsof the acquiredentity,

In the caseof intangiblesviz, trade names.and customerrelationship, the same havebeen amortised by the subsidiaryas per its accountingpolicy.

DeferredRevenue Expenditure

Expenditureincurred on advertisementand brand promotionup to March31, 2004 hasbeen amortised over a periodof 3 years.

7. fnvestments

Long- term investmentsare statedat cost.Provision for diminutionin the value of long-terminvestments is madeonly if sucha declineis other than temporary in the opinionof the management.

Currentinvestments, if any,are valuedat lowerof costand marketvalue.

8. Borrowing Costs

Borrowingcosts attributable to the acquisitionor constructionof qualifyingasset are capitalizedas part of the cost of asset.Other borrowingcosts are recognized as an expensein the periodin whichthey are incurred. 9. Foreign Currency Transactions

a) Transactlonsin foreigncurrency are recordedat the rate preyailingon the date of transactions.Foreign currency assets except investmentsand liabilitiesother than for financingfixed assetsare stated at the rate of exchangeprevailing at the date of balancesheet and resultantgains/losses are chargedto the profit and loss account.Premium in respecfof fonvard foreign exchangecontracts is recognizedover the life of the contracts. Foreign currency loans for financing fixed assets are stated at the contracted/prevailingrate of exchangeat the date of balancesheet and the resultantgains/losses are adjustedto respectivecost of assets.

b) Transactionsand accountingof Financialstatements of ForeignSubsidiaries: The financialstatements are translatedto Indian Rupeesin accordancewith the guidanceissued by the ICAIin the backgroundmaterial to AS 21. Brieflystated: ' All income and expensesare translatedat the average rate of exchangeprevailing during the year. ' Assetsand liabilitiesare translatedat the closingrate at the date of BalanceSheet. . Sharecapital is translatedat historicalrate. ' The resulting exchangedifferences are accumulatedin currency translationreserye.

10. Inventories

Inventoriesof raw materials,finished goods, rejections,trading goods and storesare valuedas under:-

RawMaterial Lowerof costand net realisablevalue RoughDiamond Rejections At net realisablevalue TradingGoods Lowerof costand net realisablevalue FinishedGoods - PolishedDiamonds Lowerof costand net realisablevalue Workin progress- Jewellery Lowerof marketvalue and materialcost plusproportionate labour and overheads.

FinishedGoods - Jewellery Lower of market value and material cost/estimated cost plus labour and overheads. FinishedGoods - Gold Lowerof costand marketvalue ConsumableStores & Tools At cost

11. Taxation

Provisionfor current tax is madeon the basisof estimatedtaxable income for the currentaccounting year in accordancewith the IncomeTax Act, 1961.

Deferredtax is recognized,subject to prudence,on timingdifferences, being the differencebetween the taxableincome and the accountingincome that originate in one periodand are capableof reversalin one or more subsequentperiods. Deferredtax assets are recognizedfor unabsorbeddepreciation and carry forward lossesto the extent there is virtual certaintythat sufficientfuture taxable income will be availableagainst which deferredtax assetscan be realized. tz. Retirement Benefits

Regularcontributions are made to provident fUnd authorities.Provision for liabilityin respectof gratuity to employees(wherever applicable) is made on actuarialbasis assessed by an independentactuary and providedfor as at the dateof BalanceSheet. Leave salary provided as perthe policyof the company.

13. Provisionsand Contingent Liabilities and ContingentAssets

Provisionis recognizedwhen the Companyhas a presentobligation as a result of past event and it is probablethat an outflowof resourceswill be requiredto settle the obligation,in respectof which a reliableestimate can be made. Provisionsare not discountedto their presentvalues and are determinedbased on managementestimates required to settlethe obligationat the balancesheet date. Theseare reviewedat eachbalance sheet date and adjustedto reflectthe currentmanagement estimates.

Contingentliabilities are not providedfor and are disclosedby way of notes. Contingent assets are neither recognizednor disclosedin the financial statements. II. NOTESTO CONSOLIDATEDFINANCIAL STATEMENT

Notesto these ConsolidatedFinancial Statements are intendedto serveas a means of informativedisclosure and a guideto better understandingof the consolidated positionof the Company.Recognizing this purpose,the Companyhas disclosedonly suchnotes from the individualfinancial statements which:

a) Are necessaryfor representinga true and fair view of the Consolidated FinancialStatement b) Involve items consideredto be materialand whichcannot be viewedin the independentfinancial statement of GitanjaliGems Limited.

1. (a) The subsidiary companies considered in the consolidated financial statementsare:

Sr. Name of the Subsidiary Country of Percentageof No. companies Incorporation Ownership Interest as at 31-O3-2007 1. MehulImoex Ltd. India 100.000/o 2. CRIAJewellerv Pvt. Ltd. India 99.800/o 3. GitanialiExports Corooration Ltd. India 51.00o/o 4. HvderabadGems SEZ Ltd. - India 100.000/o 5. FantasvDiamond Cuts Pvt. Ltd. India 99.80o/o 6. DesireLifestvle trvt. Ltd. India 100.00o/o 7. GiliIndia Ltd. (formerlyknown as India GitanjaliJewels Ltd.) 60.00o/o B. ShubalavanyaaJewel Crafts Pvt. India 51.00o/o Ltd. 9. SamuelsJewelers Inc. USA 84.O0o/o 10. Gitaniali Infratech Ltd. India 100.00o/o

(b) The Associatecompany considered in the consolidatedfinancial statements is:

Name of the AssociateCompany Country of Percentageof fncorporation Investment as at 31-03-20O7 BrightestCircle Jewellery (Private) Limited India 33.34o/o (c) The Joint venture companiesconsidered in the consolidatedfinancial statements are:

Nameof the Joint Venture Country of Percentageof Companies Incorporation Investment as at 31-03-2007 D'Damas Jewellery (India) India 50.00o/o PrivateLimited. ModaliJewels Private Ltd. India 50.00o/o ModaliDistributors Private Ltd, India 50.00o/o Spectrum Jewellery Private India 50.00o/o Ltd.

2. Investments (Schedule 7)

. Fant?sY Diamond Cuts Private Limited (FDCPL):The Companyas on 31't March,2ooz notar 4,990,000equity sharesin its subsidiary(FDCPL) having a facevalue of Rs.10/-each. During lhe year, the Companypurchased additional 3,95O,OOOequity shareshaving a facevalue of Rs.10/-each' Thus, there is an increasein the stakefrom 99'04o/oto 99'B0o/o.

. Desire Lifestyle Private Limited (DLPL): During the year, the Company purchased10,600 equityshares having face value of Rs'10/-each' Thus, DLPL became100o/o subsidiary of the Company.

.-ettl India Ltd. (GrLr): The Companyas on 31* March,2007holds 3,000,000 equityshares having a facevalue of Rs.10/-each. During the year,the Company purchasedadditionil 1,000,000equity shareshaving a face value of Rs'10/- each.Thus, GILI became600/o subsidiary of the Company'

. Shubalavanyaa Jewet Crafts Pvt. Ltd. (SLICPL): During the year, the Companypuichased 2,550 equity shareshaving a face value of Rs.10/- each' Thus,SUCPL became 51olo subsidiary of the Company'

' Gitanjati Infratech Ltd. (GIL): Duringthe year, the Companyformed a wholly ownedsubsidiary in India as GIL. The Companycurrently holds 50,00o equity shares(entire issuedand paid up sharecapital) having a face value of Rs.10/- each, purchased . Samuels Jewelers Inc. (SlI): During the year, the Company t,645.36 common stock oi USb O.Ol each of SJI. Thus, SJI became 84o/o subsidiaryof the ComPanY'

. Gitaniali venture DMCC (GVD): During the year, the company formed a 200 whollyowned subsidiary in Dubai,LRe as GVD.The Companycurrently holds shares(entire issued and paidup sharecapital) of AED1,000/- each. 100 , Gitanjali usA Inc (GUI): During the year, th.e company purchased commbnshares of GUIand thus it became100o/o subsidiary of the Company. Modali Jewels Pvt. ttd.(MJPt) : During the year, the Companypurchased 325,000equity shareshaving a face valueof Rs.10/-each. Thus, MJPLbecame joint ventureof the Companyby holding50o/o stake,

Modali Distributors Pvt. Ltd. (MDPL): During the year, the Company purchased325,000 equity shares having a face value of Rs.10/- each.Thus, MDPLbecame joint ventureof the Companyby holding50o/o stake.

Spectrum Jewellery Pvt. Ltd. (SJPL): During the year, the Company purchased10,000 equity shareshaving a face value of Rs.10/- each of SJPL. Thus,SJPL became joint ventureof the Companyby holding50o/o stake.

Diadem Ranka Desire Lifestyle hrt. Ltd. (DRDLPL):During the year,one of the subsidiaries(FDCPL) of the Companypurchased 25,000 equity sharesof Rs.10/- each.Thus, DRDLPLbecame a joint ventureof the FDCPLby holding 50o/ostake.

Other Investments:

- During the year, the Companypurchased 1,000,000 equity sharesof Rs.l/- eachof DiamondIndia Ltd (DIL). DIL cannotbe classifiedas either subsidiaryor joint ventureor associatecompany and hencethe same is not consideredfor consolidationpurpose.

- The companyholds following investments through one of its subsidiariesGILI: a) 125 equity sharesof ShoppersStop Limitedhaving a face value of Rs.10/- eachat a total costof Rs.29,750/- t b) 51 equityshares of CitizenCo-operative Bank having a facevalue of Rs.10/- eachat a total costof Rs.510/- c) NationalSavings Certificateof Rs.5,000/- (Pledgedwith the sales tax department).

ForeignAcquisitions

The Companyacquired majority stake in SamuelJewelers Inc, USA, a major jewellerychain from B III CapitalPartners, L.P., USA and B III-A CapitalPartners, L.P.,USA. The Companyobtained necessary approvals from ForeignInvestment PromotionBoard on 28thMarch, 2007 and its sharehotders'approvalthrough postal balloton 9thMarch, 2OO7 for issuingon preferentialbasis 1,554,050 equity shares of Rs.10 each at an issue price of Rs.290per share to aforesaidB III Capital Partners,L.P., USA and B III-A CapitalPartners, L.P.,USA as part considerationfor the saidacquisition. After havingobtained necessary in principleapprovals from the stockexchanges, the Companymade allotmentof 1,554,050equity shareson 29th 14ay,20O7.Pending allotment as on 31stMarch, 2007, these shares have been shown under Share Capital Suspense Account including premium (under sbareholders'fund) and correspondingamount shown under Investment Schedule as Investment. 4. Statement of utilization of Issue proceedsas on 31st March, 2OO7

(a)Issue Of EquityShares In India

TheCompany has received net proceedsof Rs.3,114.70million through a public issueof equityshares during preceding year which has beenutilized as follows:

Particulars Amount (Rs. in Million) CurrentYear PreviousYear Investmentin Subsidiaries,Joint 855.40 Ventures& Associates 244.40

Generalcorporate purpose (Including 859.30 120.30 workingCapital)

Unutilizedmoney temporarily 1,400.00 2,750.00 investedin BankFixed Deposits TOTAL 3,1L4.70 3,tt4.70

(b)Issue of Foreign Currency ConvertibleBonds (FCCB)

The Companyraised USD 110.€0million by issuing(1olo Coupon rate) FCCBdue 20t7, on 24rhNovember, 2006 in internationalmarket. The net proceedsof USD 105.60million after adjustingissue related expenses were utilizedtowards foreign acquisition,infrastructure projects including development of specialeconomic zone as per the objectsfor which it was raised.The balanceissue proceeds as of 31't March,2007 amountingto USD40.38 millionis temporarilylying in fixed deposits with overseasbanks. These bonds are listedwith SingaporeStock Exchange.

Broadly,the termsand conditionsof the saidbonds, includes the following:

- Unless previouslyredeemed, purchase or cancelled,the bonds are convertibleat any time on or after 24h December,2006 upto 25th November,2011 intofully paid equity shares at par valueof Rs.10each with an initialconversion price of Rs.275per share. - Thesebonds may be redeemedany time on or after 25thNovember, 2009and prior to 25thNovember, 2011.

Sofar, noneof the bondsare due for conversionin to equityshares.

SecuredLoans (Schedule 3)

Workingcapital borrowings from Banks/financial institution are securedagainst hypothecationby way of a first chargeon all the presentand future goods, movable assets,vehicles, furniture, stock-in-trade, fixed deposits, book debts, mortgage by way of depositof title deedsof landand buildingof the Company'sfactory premises and ResidentialPremises and PersonalGuarantee of the ManagingDirector, 5. The Sundry debtors of subsidiarycompanies include dues of Rs. 68.60 million outstandingsince 2001, where one of the subsidiaryhas filed suit for recoveryin the HonorableCity Civil Court at Ahmedabadagainst M/S K.L.Chokshi.It has obtaineda legalopinion confirming that it hasa reasonablygood chance to succeed at the hearingof the abovesuit and to get decreeagainst the defendant.It is also observedthat the defendantis in the bullionbusiness at Ahmedabadand uponthe decree being passedagainst them in the above suit the said companyhas a reasonablygood chanceto executethe same against them. The Management, based on the aforesaidview, is of the opinion that the debts are good and recoverable.

7. Contingent Liabilities not provided in respect of:

a) Guaranteesgiven by the Companyfor Workingcapital facilitiesavailed by Subsidiaries& AssociateCompanies are as under:

1) Subsidiaries: Rs. 360.00 million (Previous Year Rs. 80 million) 2) Associate : Rs. NIL (PreviousYear Rs.140 million)

b) OutstandingLetters of Credit: Rs.641.21 million(Previous Year Rs. 59.23 million)

c) BankGgarantee given by Subsidiarycompanies: Rs. 3.47 million.(PreviousYear NrL)

d) DisputedIncome Tax: Rs. 5.39 million (Previous Year Rs. 54.55 million)

e) EstimatedAmount of Contractsremaining to be executedon CapitalAccount and not providedfor (Netof Advancesgiven): Rs. 0.17 million (Previous Year NrL).

8. CapitalCommitments - Outstanding

Currentyear - Rs.NIL (Previous Year Rs. 2.6 million)

9. EarningPer Share

- Basic Earning Per Share (after Tax Provision) (Rs.In Millions)

Particulars Current Previous Year Year profit for period attributableto Equity Net the 9L5.97 5t4.44 shareholders number of EquityShares Weightedaverage 58,998,49542,075,2O7 outstandinqas at 31'tMarch (Nos.) Basicearnings per share(Face value of Rs. 10 15.55 12.23 each)(Rs) Diluted Earning Per Share (after Tax Provision) (Rs.In Millions)

Particulars Current Previous Year Year profit for the periodattributable to Equity Net 927.27 574.44 shareholders Weightedaverage number of Equity Shares 42,075,207 outstanding(Nos.) 65,73O,426 per (Face Diluted earnings share value of t4.13 12.23 Rs.10each)

Deferred Tax Assets and Liabilities as on 31st March 2OO7are as under:

(Rs.In Millions) Particulars Current Year Previous Year

DeferredTax LiabiliW and otherdifferences Differencesin depreciation 0.14 4.99 in blockof fixedassets as per tax booksand financialbooks GrossDeferred Tax Liabilitv -o.14 4.99

Deferred Tax Asset Provisionfor RetirementBenefits / Doubtful Debts 3.4r 1.86 Disallowanceunder Section 438 of I.T.Act 0.38 Provisionfor brouqhtforward business loss 4.87 Differencesin depreciationand otherdifferences in blockof fixed assetsas per tax booksand (3.72) 0.04 financialbooks GrossDeferred Tax Asset 0.09 6.77 Net Deferred Tax Asset/(LiabiliW) (o.o7) 1.78

11. Segment Reporting (Accounting Standard 17)

The managementof the Companyidentifies two major reportablesegments viz. DiamondBusiness and JewelleryBusiness. Activity in diamondbusiness includes manufacturingand expclrtof cut & polisheddiamonds and salesin local market. Activityin jewellerybusiness includes manufacturing and export of plain gold and diamondstudded jewellery and manufacturingand salesin localmarket of branded andunbranded jewellery.

Referto AnnexureI

RelatedParty Transactions (Accounting Standard 18)

Referto AnnexureII 13. Impairment of Assets

As requiredby AccountingStandard (AS) 28 - "Impairmentof Assets"issued by the Institute of CharteredAccountants of India, the Companyhas carriedout the assessmentof impairmentof assets.

Therehas been no impairmentof assetsreported during the year.

L4. The Companyis in processof identiffingenterprises covered under the Micro,Small and Medium EnterprisesDevelopment Act, 2006 (the Act ). Basedon the detalls regardingthe status of the suppliers,to the extent obtalned,no supplieris covered underthe Act.

15. Previous yea/s figures have been regrouped/rearranged/reworkedwherever necessaryand possibleso as to confirmto currentyea/s classificatlon

As per our report of even date.

For Ford,Rhodes, Parks & Co. Forand on behalfof the Board CharteredAccountants

A.D.SHENOY MehulC. Choksi G.K.Nair ManaglngDirector Director

Partner MembershipNo. 11549

Place : Mumbai Dated : 26thJune, 2007

t ANNEXURE. I

GITANJALI GEMS LIMITED

ConsolidatedSegmentwise Reporting Revenue,Results and Capital Employed For the year ended 3tst March, (Rupeesin Millions) A) PrimarySegment (By BusinessSegment) ? Particulars 2007 2006

1. SegmentRevenue a. Segment- Diamond 23,832.97 20,672.79 b. Segment- Jewellery 11,156.16 3,699.99 Total 34,989.13 24,372.78 Less:Inter Segmentsales 314.69 Net Sales

2, SegmentResults Profit/(Loss)before Tax and interestfrom eachsegment a. Segment- Diamond 708.40 626.70 b. Segment- Jewellery 844.49 388.9s 1. c. Segment- Others 4.46 Total 1,557.35 1,015.65 Il Less: Interest 496.4t 409.37 Total Profit Before Tax

3. CapitalEmployed a. Segment- Diamond 4,7OO.37 3,775.26 b. Segment- Jewellery 2,353.13 1,735.42 c. Unallocatednet assets 801.20 Total Capital Employed

B) SecondarySegment (By GeographicalSegment)

Segment Revenue Pafticulars

GeographicalLocation India Restof the world Total Revenue Annexure- II:

ConsolidatedRelated Party Statement for the year ended 31st March' 2OO7

Related Party & Their Relationship

1 SubsidiaryCompanies CRIAlewellery Private Ltd. DesireLifestyle FantasyDiamond Cuts Private Ltd. GiliIndia Ltd. I GitanjaliExports Corporation Ltd. GitanjaliInfratech Ltd. GitanjaliVentures DMCC I HyderabadGems SEZ Ltd. MehulImpex Ltd. SamuelsJewellers Inc. ShubaLavanyaaJewel Crafts A/t. Ltd. GitanjaliUSA,Inc.

2 JointVenture Companies D'DamasJewellery (India) Prlvate Ltd. ModaliDistributors Pvt. Ltd. ModaliJewelsPvt. Ltd. SpectrumJewellery h/t. Ltd.

3 KeyManagement Personnel

Mr.Adrianus Voorn 4 Mr.G.K.Nair Mr.Mehul C. Choksi i

4 Enterprisesunder Common Control of KeyManagement Personnel A.P.Gems& JewelleryPark tut. Ltd. AmberExportsh.Ltd. AudaryaInvestments Pvt. Ltd. BrightestCircle Jewellery tot. Ltd. DecentSecurities & Financeh/t. Ltd. DiamdemRanka Desire Lifestyle Pvt. Ltd. DiamondCreations DigicoHoldings Ltd. EurekaFinstock Pvt. Ltd. ExcelLaserTechnology h . Ltd. FacetShop Pvt. Ltd. GalenticPharma Fvt. Ltd. GitanjaliGold& Precious Ltd. GitanjaliImpex Pvt. Ltd. GitanjaliLaser House Pvt. Ltd. GitanjaliReality h/t. Ltd. IndianInstitute of JewelleryLtd. JustLifestyles Pvt. Ltd. LustreManufacturers hrt. Ltd. M SquareSilver Pvt. Ltd. MaitreyiImpex Fvt. Ltd. MannatJewellers Manufacturing Pvt. Ltd. MastJewellery Distribution Pvt. Ltd. MozartInvestment h/t. Ltd. N & J Finstocktut. Ltd. NavirajEstates Pvt. Ltd. ParthaGems Art. Ltd. PriorityMarketing h/t. Ltd. PriorityOne Marketing Pvt. Ltd. PrismBullion Pvt. Ltd. PriyankaGems tut. Ltd. RohanDiamonds Pvt. Ltd. RohanMercantile Pvt. Ltd. SneakingMercantile h/t. Ltd. TheNext Diamond Company Touchstone Trans-ExpoTrade tut. Ltd. X CaliburLaser Systems Pvt. Ltd.

5 Relativeof Key ManagementPersonnel Mrs.Amita Bhansali Mrs.Guniyal C. Choksi Mrs.Neena Sheth Mrs.Priti M. Choksi

6 EnterprisesControlled by Relativesof KeyManagement personnel DimincoN.V.

7 Enterprisescontrolled by the Investingventurer of the Jointventure company DamasLLC ModernIndia Ltd. $

J (Rs. In Millions)

AmountOutstanding shown under Sundry Debtors 24.L4 ShareApplication Money Received 1.65 Expensesincurred 1.06 EquityShares Issued 3.20 Purchaseof FixedAsset 0.51 Sales 15.66

relatives of

AmountOutstanding shown under Sundry Debtors 34t.49 Purchases 580.21 Sales 659.24 Guaranteegiven for WorkingCapital borrowings to the banks To the extentof / financialinstitution borrowing

under CommonControl of AdvanceGiven AdvanceGiven Received Back 144.38 Advances/ Balanceswritten back 0.21 AdvancesReceived 22t.18 AdvancesReceived Given Back 206.34 AmountOutstanding shown under Advances from Customer 62.53 AmountOutstanding shown under Advances to Suppliers 207.08 AmountOutstanding shown under Loans & Advances 2.96 AmountOutstanding shown under Sundry Creditors 552.68 AmountOutstanding shown under Sundry Debtors 391.45 AmountOutstanding shown under Unsecured Loan 11.87 Expensesincurred 31.43 Investments 2.15 OtherIncome Received o.o7 Purchases 496.84 Reimbursementof Expenses 2.75 Sales 619.62 ServicesReceived 15.16 ShareApplication money paid 12.30

Advance 42.34 AdvanceGiven Received Back 42.34 AdvancesReceived 62.92 AdvancesReceived Given Back 11.55 AmountOutstanding shown under Sundry Creditors 22.30 AmountOutstanding shown under Unsecured Loan 98.28 DividendPaid r.50 Purchaseof EquityShares 85.00 Reimbursementof Expenses 0.24 Salary& OtherPayments 11.23 Sales 1.09

Relative of key management personnel Amount Outstandingshown under Other Creditors 8.90 AmountOutstanding shown under Sundry Creditors 63.23 AmountOutstanding shown under Sundry Debtors 0.06 DividendPaid 1.25 Purchaseof EquityShares 42.50 Sales 0.67

Subsidiary Companies Guaranteesgiven to bankersfor workingcapital credit facilities 360.00 CORPORATEINFORMATION

Boardof Directors Mr.Mehul C. Choksi Chairman& Managing Director Mr.G. K. Nair ExecutiveDirector Mr.Adrianus B. Voom ExecutiveDirector Mr.Dhanesh V.Shetr Non-Executive Director Mr.Prakash D.Shah IndependentDirector Mr.SujalA Shah IndependentDirector Mr,S. Krishnan IndependentDirector IndeoendentDhector Mr.Suresh Chukkapalli

CompanySecretary & ComplianceOfficer Ms,PankhuriWarange

Auditors M/sFord, Rhodes, Parks & Co. SaiCommercial Building, 3|2l3l3,3rdFloor, BKS Devslri Marg, Govandi(East), Mumbai - 400088.

Bankers : AllahabadBank, Limited, , , Bankof Baroda, Punjab & SindBank, , State Bank of Bikaner & Jaipur,Corpoation Bark, Sbte ,, State Bank of lndore, j DevelopmentCredit Bank Limited, State Bank of Hydeabad, Export lmport Bankof India,, lClCl Bank Limited, Unitd Bankof India,Indian t OverseasBank, UCO Bank, Induslnd Bank Limited t RegisteredOffice 8011802,Prasad Chambers, Opera House Mumbai- 4000O4 Tel: +91-022-40362222, Fax: +9 1-022-23630363 e-mail:[email protected]

AdministrativeOffice 6, BackbayView, Mama Parmanand Road, OperaHouse, Mumbai- 400 004. Tef: +91-022-40362200,Fax:+9L-022-23696805 e-mail: [email protected]

I Registrars& TransferAgents KarvyComputershare Private Limited fr KarvyHouse,46, Avenue 4, StreetNo.l BanjaraHills, Hydenbad- 500 034. Teli+91440-23420815-820, Fax: +91440-23424814 +mail:[email protected] Website:www.karisma.karw.com