2Sistema Shyam TeleServices Limited

Chairmans LetterDear Members,

I am glad to be addressing you allour distinguished stakeholders.

I am writing to you at a time when the Indian General Election 2014 is over and the new Indian Government

is already in place. It is a general feeling that after rather continuous period of policy paralysis, the regulatory

environment is likely to undergo a significant change, further boosting business prospects across Indias key

industry sectors.

The Indian telecom market I believe, is a major pillar and growth driver for the countrys economy. The

telecom revolution and in particular, the mobility revolution is sweeping across India, touching and transforming

the lives of citizens across the metros, tier 1 and 2 cities as well as the rural area. Cell phones are now

ubiquitous and internet access through mobiles is becoming the norm, leading to greater inclusion and more

opportunities for the marginalized.

This is the reason why the telecom industry in India, despite the sluggish economic environment, continued

to remain upbeat during last year, creating greater optimism for the year ahead. Most segments of the telecom

industry witnessed growth during FY 2013-14 and the hope is that these will gain further momentum in FY

2014-15.

During FY 201314, the wireless industry saw its subscriber base jump by 35 million, increasing to 903 million

by February, 2014. The voice business witnessed strong growth as most operators raised their tariffs in an

attempt to drive revenue growth. This segment, however, faces a threat from OTT services such as WhatsApp,

Viber and Skype that could cannibalize SMS and voice revenues.

FY 2013-14 saw the broadband business pick up pace with subscriptions reaching 55 million (including

40.7 million wireless broadband users) at the end of December, 2013. Broadband subscribers now account

for a significant proportion of internet users in India and this segment of the wireless industry is expected to

grow exponentially over the next few years. Severe under-penetration of the market, falling PC prices,

introduction of newer devices and the desire of customers to be connected while on-the-move will catalyze

the expansion of this domain.

During the year, telecom operators additionally received some regulatory clarity on a number of issues

including M&A, spectrum trading, spectrum sharing and policy with regard to future allocation of spectrum.

The government completed auctions of 900 MHz in metros and 1800 MHz. Most of the spectrum in the

auctions was acquired by incumbents, resulting in virtual consolidation in the sector. The spectrum allocated

through these auctions meanwhile is liberalized and in the future, there is a possibility of 4G\LTE rollouts on

different bands currently being used exclusively for voice services.

I am glad to share that your Company viz. Systema Shyam TeleServices Ltd. (generally known also as MTS

India), after successful participation in March, 2013 in spectrum auction, by the middle of last financial year

had purchased extended frequency resourses (3 carriers in every operating circle) and received new

universal licenses in nine service areas.

3Sistema Shyam TeleServices Limited

Post the auctions, our new footprint covers 40 percent of the population and 60 percent of the data

market potential in India. Effectively, the Company managed to retain almost 75 percent of its pre-auction

revenues.

Clearly, with the Indian telecom market growing across all dimensions, the forecast for MTS India is also

promising. We now find ourselves in an environment, that after a tremendous lull and uncertainty, is increasingly

turning stable and positive and assures us of more robust business growth.

During 2013, MTS India has rejuvenated itself, set stringent goals and followed them up assiduously. The

Company has been focusing on rebuilding its business and optimizing it in line with its milestones and new

footprint. One of the biggest achievements of our Company in FY 2013-14 has been the launch of our

3GPLUS network across all nine operating circles, which is truly scaling the experience of our customers and

we feel, will result in high business impact.

Going forward, MTS Indias success will be determined by its ability to further harvest the voice business

through product and device innovations, and by its ability to grow its distribution network and build brand

value and recognition in the market. We have already made strides in some of these areas and despite the

challenges, emerged as a strong, recognizable brand. Today, MTS India is considered as a provider of high-quality

and innovative solutions. The Company has won several industry accolades such as the Most trusted brand

in India in 2013, Indias buzziest brand and has the second highest brand in the data category after Airtel.

MTS India has built a robust connect with Indias generation next, gaining popularity among youth through its

social media engagement initiatives.

The year ahead therefore appears positive, owing to the external environment, as well as the strategic changes

within MTS India, which should enable the Company to achieve its mid-term as well as long term goals. As we

inch forward towards our OIBDA break-even target, we also expect to compete aggressively within our

chosen telecom playgrounds.

I would like to thank each one of youour stakeholders, employees, our banking partners, government

agencies, promoters and holding companyfor helping and staying with us through our exciting, yet difficult

journey. Your support and encouragement have enabled MTS India to deal with the tough times, pull itself out

of the woods and view the future with greater hope and clarity.

Warm regards.

Ron Sommer

CHAIRMAN

September 02, 2014

4Sistema Shyam TeleServices Limited

CEOs MessageDear Members,

The year 2013-14 has been one of change and revitalization and we are now looking at consolidation

and growth for MTS India over the next 12 months. It is of tremendous importance with our

over-arching goal of achieving OIBDA break-even at the earliest and I do believe we are on target to

cross this milestone.

I am glad to share with you that the uncertainty that marked our agenda for India over the last two years

is behind us and that we have greater clarity now on our future goals and the roadmap to achieve these

targets.

While in the initial part of 2013-14, MTS India continued to witness a lowering of revenues due to a

decline in the customer base (which was impacted by lower gross additions as well as strict control over sales

and marketing expenditures, aggressive tariffs and predatory practices by competition), today, the trend is

reversing.

With the operating environment becoming more stable and spectrum wins backing us, we expect to notch

up higher top and bottomline growth.

As you may know, SSTL won three blocks of 1.25 MHz each in the 800 MHz spectrum band in eight service

areas in the spectrum auctions held by the government in March, 2013. SSTL was allocated third carrier in

October, 2013. After getting the third carrier, we upgraded our network to REV B Phase II services, providing

subscribers speed up to 9.8Mbps.

In the last few quarters, Q4 being the most recent, we have further improved our performance on all operational

parameters. Our consolidated revenues for instance have increased. We have stepped up on ARPU, expanded

data coverage to 550 towns, scaled our subscriber base for data cards and recorded the lowest OIBDA loss

in the last four years.

The highlight of Q4 in fact, was the launch of our revolutionary 3GPLUS network across all nine circles, which

has given us a first-mover advantage in the market and will have a positive impact on our revenues in future.

Today, with a footprint spread across nine circles, the company services 40 percent of the countrys population

and addresses around 60 percent of the data potential.

Also significant is the fact that according to Millward Brown Optimor 2013 Global Brand Value Rankings,

MTS has seen its brand value rise by 11 percent, making it the 82nd most valuable brand in the world.

Specifically looking at telecom brands, MTS is now pegged at the 9th position among the top 10 most

valuable telecom brands globally. It is assets such as these which we are leveraging to take forward MTS

Indias growth story.

In the months ahead, MTS Indias strategic focus will be on its operations in nine circles, where we will build

further scale and efficiencies. Key imperatives will include strengthening the voice and data business through

innovative and competitive products based on Rev B technology, a large, yet comprehensive devices portfolio

and greater penetration of the dongles and smartphones segment.

5Sistema Shyam TeleServices Limited

We expect to expand our High Speed Data (HSD) footprint and provide HSD services across 1000 cities and

towns of India. At the end of March, 2014, MTS India had 1.3 million data subscribers, out of a total user base

of 9.1 million.

The pace of growth in data revenues will continue to be much higher than voice growth. The reason for this

is MTS Indias focus on the data business, existing coverage and deployment of Rev B technology, reliable

service, product offerings and time-to-market advantages.

Voice however, will remain on our radar and we will be looking to roll out competitive tariff plans to increase

voice revenues. In order to enhance our voice network, draw more customers and convert existing data

subscribers to voice and data users, we will continue to introduce various customer-centric products like

Always Talk. The proliferation of low-cost smartphones will additionally fuel the demand for mobile data

services.

Going forward, MTS Indias success will be determined by its ability to further harvest the voice

business through product and device innovations and first, grow its distribution network and build

brand value and recognition in the market. We have already made strides in areas such as branding and

the MTS India Born for the Internet campaign, which has greatly improved our visibility in the market,

is a case in point. Our Q4 performance, which marked improvements across all operational parameters

and revenue linesvoice, data and smartphonesfurther leads us to believe that the year ahead will

be marked by optimism.

Our aim in 2014 therefore, is to monetize our voice network (ensuring over 50 percent utilization), be the

Number One CDMA dongle player (with a 50 percent SoGA [Share of Gross Addition]) and acquire over

50,000 new subscribers in the smartphones segment. Our endeavor will also be to rank among the top three

telecom companies in spontaneous brand awareness.

On the regulatory front, our ability to do business and upgrade to future generations of technology will

depend on the spectrum and license. There is still lack of clarity about the future roadmap for the 800 MHz

band and the auction of spectrum in this band. It will depend on the new government to clarify whether

further allocation of spectrum will be contiguous to the earlier allocation.

Clearly, a new horizon awaits us all and we are now looking to strengthen MTS Indias position in the market.

With a passionate team in place and our unwavering focus on delivering a higher customer experience, we

expect to win both mind and market share in the year ahead.

Thanking You,

Dmitry Shukov

Whole Time Director (designated as CEO)

September 02, 2014

6Sistema Shyam TeleServices Limited

DIRECTORS PROFILE*

Mr. V. Rozanov did his graduation from the

Lomonosov Moscow State University with a degree

in Economics. He is having rich corporate experience

of more than 20 years, mainly in the field of

Management, Economics and Finance. He has served

many esteemed Multinational Companies in senior

capacity. Before joining the Company he was Vice

President and CFO with Mobile TeleSystems (MTS),

Moscow, another Subsidiary Company of Sistema

JSFC. He is a successful professional who made a

significant contribution to consolidating MTSs position in the telecom market.

From August 2008 till May 2013, he held the position of Whole Time

Director designated as President and CEO of SSTL. Presently, he is the Dy.

Chairman of SSTL. He is also the Senior Vice President, Chief Financial

Officer and member on the Management Board of Sistema JSFC. He is on

the Board of telecom company MTS OJSC, oil company Bashneft JSOC,

transport company SG-Trans OJSC and management company Leader-Invest

CJSC.

V. RozanovDy. Chairman

Mr. Ron Sommer studied mathematics at the

University of Vienna, where he earned his doctorate

in 1971. He began his professional career with the

Nixdorf Group in New York, Paderborn and Paris. In

1980 he was appointed as Managing Director of the

German subsidiary of the Sony Group. In 1986 he

became Chairman of the Management Board of Sony

Deutschland and was subsequently appointed

President and Chief Operating Officer of Sony

Corporation of America in 1990. In 1993, Mr. Sommer

served at Sony Europe in the same function. From May 1995 to July 2002 he

served as Chairman of the Management Board of Deutsche Telekom AG. He

has been serving as Chairman of the International Advisory Council of

Sistema JSFC since May 2003. From May 2009 till April 2011 Mr. Sommer

served as First Vice President of Sistema JSFC, Head of Business Unit

Telecom Assets. Presently, Mr. Sommer is serving as Chairman on the

Board of MTS OJSC, Russia, as well as Director on the Board of Tata

Consultancy Services, India and Munich Reinsurance, Germany.

Ron SommerChairman

Mr. Alok Tandon is a Chartered Accountant byprofession. He looks after all the financial andcommercial activities of the Shyam Group.Mr. Tandon has experience of more than 17 years inthis field. Under his guidance Shyam Telecomsuccessfully concluded the IPO in 1994, which wasover subscribed by 25 times. He has been instrumentalin efficiently managing funding and investments forvarious group Companies. Mr. Tandon also handlesgroup relationships with all leading Banks, Foreignand Indian Institutional Investors. With his effortsShyam Telecom has been able to smoothly manage

its Equity & Debt funding requirements at the lowest possible cost. He hasbeen instrumental in closing several important deals of the Shyam Groupwhich gave group the highest ever per customer valuation of any telecomoperation in the country.

Alok TandonDirector

Mr. Ajay Khanna is a co-promoter of Shyam Group.He has been instrumental in setting up all IndiaDistribution Network for Cable TV, which catapultedShyam Telecom Limited to become leading player inthe Indian Cable TV equipment Industry. Completecommercial & operational network of SSTLs Cellular& Basic Business was set up under his guidance. Hehandles the Project implementation, Commercialoperations (Sales, Marketing & Credit control) andHR activities of Shyam Group. He also handles PublicRelations and liaison with Local Authorities andStatutory / Regulatory Bodies.

Ajay KhannaDirector

Mr. Andrey Dubovskov graduated in 1993 from RussianState University of Cinematography named afterS. Gerasimov. From 1993 onwards, he occupied a numberof management positions in such companies as MillicomInternational Cellular S.A., Millicom International CellularB.V., Regionalnaya Sotovaya Svyaz LLC and CJSC 800, aswell as other companies in Russia Moscow, NizhnyNovgorod, Ekaterinburg, Perm, Kazakhstan (Alma-Ata)and Ukraine (Kiev). From 2002 to 2004, Mr. Dubovskovheaded Tele2s operations in Nizhny Novgorod. From2004 to 2006, he was head of MTS branch in NizhnyNovgorod. From 2006 to 2007, he was the Head of

Macro-region Ural. He joined MTS Ukraine in November 2007 as First Deputy ofGeneral Director and then, since January 2008 he has been the Head of BusinessUnit MTS Ukraine. In March 2011 Andrey Dubovskov was appointed as a Presidentand Chief Executive Officer (CEO) of MTS Group. Presently, he is also member ofthe Board of MTS Group, Chairman of the Supervisory Board of MTS UkrainePJSC, Chairman of the Board of Directors of Mobile TeleSystems JV (MTS-Belarus)and MGTS OJSC (Moscow City Telephone Network), as well as member of theBoard of Directors of International Cell Holding Ltd. and Russian TelephoneCompany CJSC.

Andrey DubovskovDirector

Mr. Andrey Smelkov graduated in 1998 from theNovgorod State University with a degree with honorin management and economics. In 2000, Mr. Smelkovgraduated from the University College in Telemak(Norway) with a degree in economics and businessadministration. In 2012, he completed executivedevelopment program in business administration andmanagement at the Wharton School of Business. In2002, he began his career as a marketing and advertisingmanager of mobile operator NovgorodTelecommunications (trademark Unicell). From

2004 to 2007, he was head of Vimpelcom (trademark Beeline) operations inNovgorod. From 2006 to 2008, he served as Regional Development Directorand Deputy CEO in Vimpelcom, Uzbekistan. In 2008-2010, he worked asCEO of Skymobile in Kyrgyzstan. In 2010- 2013, Mr. Smelkov was CEO,Chairman of the Management Board of Tele2 in Kazakhstan. He joined MTSfrom Tele2 AB, where he served as Senior Advisor to Executive Vice President,Central Europe and Eurasia. Andrey Smelkov was appointed in October2013 as a Vice President for Foreign Subsidiaries, Member of the ExecutiveBoard of MTS Group.

Andrey SmelkovDirector

Mr. Anton Abugov graduated from the Academyof National Economy under the RF Government.From 1995 to 2002 he served as a Director ofcorporate finances in United Finance Group. In 2002he became a Partner of Eurasia Capital Partners. From2003 to 2006 he held a position of Managing directorof Rosbank. In August 2006 he was appointed asFirst Vice President of Sistema JSFC. During 2007 to2009 he held position of Chairman of the Board ofDirectors of various companies e.g. CJSC Sky Link,OJSC COMSTAR-UTS, OJSC Detsky Mir Center,

CJSC RWS. Presently, he is Member of the Management Board of SistemaJSFC. He is also on the Board of telecom company MTS OJSC, MTS Bankand Russian media company Sistema Mass Media.

Anton AbugovDirector

Mr. Bharat V Patel is an Independent Directorof the Company since 13.07.2011. He holds MAin Economics from the University of Notre Dame,US and MBA in Marketing from the Universityof Michigan, USA. He is the former Chairmanof Procter & Gamble Hygiene and Health Care Ltd.,and presently in the Executive Committee or Boardsof Indian Society of Advertisers (ISA), WorldFederation of Advertisers (WFA), AdvertisingStandards Council of India (ASCI) and BroadcastAudience Research Council (BARC). He has over

40 years of varied experience in the field of advertising, marketing, sales,exports and operations.

Bharat V PatelDirector

7Sistema Shyam TeleServices Limited

Dmitry ShukovWTD (CEO)

Mr. Dmitry Shukov, aged 45 years, a RussianNational, is a young and dynamic Executive.Mr. Shukov is a Telecommunication Engineer and hasa rich corporate experience of 20 years, mainly inthe field of General Management, Sales and CustomerService Delivery. Mr. Shukov has had an outstandingcareer and is known for his hands-on businessexperience, having worked as head of sales in Tele2,Russias leading mobile operator. Before joiningSistema Shyam TeleServices Limited (SSTL) he hadbeen rendering his services as Managing Director ofFE Uzdunrobita LLC (MTS Uzbekistan). He is a

successful professional who made a significant contribution in consolidatingMTSs position in the telecom market. He is a MTS veteran and was previouslythe CEO of MTS Turkmenistan as well.

Mr. Suman Sehgal graduated from the prestigiousSt. Stephens College, New Delhi. After graduationhecompleted two years of practical training in WestGermanywith Fischer & Krecke following which hetook over his family factory producing paper productsin India as Managing Director. He went to Russia in1983 and acted as consultant to various Indiancompanies- Indian Tobacco Company, GodphreyPhillips, Tata Tea, Nestle, Mcneil & Magor, Rossell andPrinters House India. Mr. Sehgal was instrumental inestablishing brands such as Capstan and Four Squarein the USSR. In Post-Soviet Russia, Mr. Sehgal was

the leading Indian exporter of rice & Tea to Russia. Since 2000, Mr. Sehgal hasconsulted various Russian Enterprises including JSFC Sistema, Ural Mining &Metallurgical Company, Sberbank, Hydroenergostroy, Transmash holding &Novolipetsk Steel. He is on the Board of SSTL since February 2008.

Mr. Madhukar holds a Master of Arts degree inEconomics and a Bachelors degree in Law. He didprofessional programs in Project Management andHuman Resource Development etc. from IIMAhmedabad, IIM Kolkata, IMI New Delhi and he is aCertified Associate of Indian Institute of Bankers.Mr. Madhukars banking career spans over 37 yearsand covers every major dimension of bankingoperations, both in India as well as overseas. From1990 to 1996 he served as the Managing Director ofthe State Bank International Limited, Mauritius. In

1997, he was appointed Senior General Manager at SBI Capital Markets.From 1998 to 2000, he served as the Chief General Manager, New DelhiCircle at SBI; and in 2000 to 2001, as Managing Director of State Bank ofBikaner & Jaipur. In 2003-2004, he was appointed Chairman & ManagingDirector at the Industrial Investment Bank of India Ltd. He held concurrentcharge from 2001-2004 as Chairman & Managing Director at United Bank ofIndia. He has also served as Whole Time Member with Securities and Exchange.Mr. Madhukar is also currently one of the Arbitrator of Bharat Heavy Electricals(BHEL), one of the top rated companies of India.

MadhukarDirector

Suman SehgalDirector

Mr. Igor Kozlov graduated in 1987 from Air ForceEngineering Higher School with an engineers degreein Avionics and in 1999 from Air Force EngineeringAcademy with a masters degree in Military andAdministrative Management. In 2000 he received anMA in International Economics from UCLA and in2006 he received an MBA from Esslingen UniversityBusiness School. From 1987 he served as actingofficer on different senior positions in Russian AirForce till his retirement in 2002 in a colonel rank.From 2002 to 2004 he served as an InternationalPrograms Director of aircraft manufacturing holding

KASKOL Group. During 2004 to 2006 he held a position of Member of theManagement Board and Corporate Management Director in pipe productionholding - ChTPZ Group. From 2006 to 2009 he held a position of Strategyand Investments Executive Director in URALSIB Financial Corp. In the endof 2009 he was appointed as Executive Vice President of Sistema JSFC.During 2010 to 2012 he held position of Member of the Board of Directorsof various hi-tech companies e.g. Sitronics OJSC, RTI Systems OJSC, Sitronics-NANO OJSC, Mikron OJSC. Presently, he is an Adviser of the RussianMinister of Telecom and Mass Media Communications and Member of theBoard of Directors of Russian biggest telecom operator Rostelecom OJSCand Russian private equity venture fund Rosinfocominvest OJSC.

Mr. Vikram Kaushik earned his Masters degreefrom St. Stephens College in Delhi and joinedHindustan Unilever as a Management trainee. Heworked for Unilever for more than 16 years andgot wide exposure to different product categoriesboth in India and in Asia, Europe and Africa. After ashort stint as Managing Director of a leadingadvertising agency he returned to consumermarketing as Vice President Marketing, Sales andExports at Britannia, a joint venture with GroupeDanone. He moved in 2000 as a Director on the

Board of Colgate Palmolive and was responsible for a major turnaround forthe brand Colgate in India. Thereafter, he served as the MD & CEO Tata Skyfrom 2004 till December 2010 and played a pioneering role in establishingthe DTH industry in India. Presently, Mr Kaushik consults with PricewaterhouseCoopers and Voltas, a leading Tata Group company and with leading firms inthe Private Equity sector both in India and overseas. He has served on theBoard of Prasar Bharati, Indias public service broadcaster. In 2012-13 he wasnominated by the Government as a member on the Committee onRestructuring Public Service Broadcasting. He is currently on the Board ofseveral companies both in India and in the UK. He has travelled widely andlectures regularly both in India and abroad, including at the Harvard BusinessSchool.

Vikram KaushikDirector

Igor KozlovDirector

Mr. Ram Krishna Agrawal is a qualified charteredaccountant and was the Managing Partner of S RBatliboi& Co., at the time of his retirement in June,2013. He has got wide exposure of various industries,including Steel, Paper, Cement, Telecom, Automobiles,Real Estate, Milk & Dairy Products, etc. , both in Indiaand abroad. Shri Agrawal is the past President of theInstitute of Internal Auditors, India and was a memberof the Central Council of the Institute of CharteredAccountants of India during 1991-1997.Shri RamKrishna Agrawal is connected with various Chambersof Commerce as the Committee Chairman/Executive

Committee member, permanent invitee etc., and is a past Chairman of CII(Eastern Region). He was the National Chairman of Direct Tax Sub-Committeeof CII in the year 2013-14.

Ram K. AgrawalDirector

*In alphabatical order except

Chairmans & Dy. Chairmans Profile

Mr. Rajiv Mehrotra, a telecom industry veteranand serial entrepreneur, is the founder and Chairmanof Shyam, Indias leading diversified tele-communications group. In a career spanning over40 years, he has many firsts to his credit. In 1974, asa young electronics engineer, he pioneered themanufacture of satellite TVRO systems that broughtcable TV to millions in India. He then launched ShyamTelecom-a global name in mobile coverage solutions,Hexacom (GSM services) and Shyam Telelink (nowSistema Shyam Teleservices Limited). His efforts

established Essel Shyam as the leading name in VSAT services in India. In 2004he launched VNL (Vihaan Networks Ltd.) with the dream of connecting thebillions of unconnected across the world using sustainable technology todeliver affordable mobile and broadband services. Under his guidance VNLhas won extensive international acclaim for innovation and is the only Indiancompany today that manufactures and exports its own end-to-end mobileinfrastructure solutions to countries in Asia, Africa and Latin America. Anactive industry spokesperson, he is a passionate advocate for Indias indigenoustelecom R&D and manufacturing.

Rajiv MehrotraDirector

8Sistema Shyam TeleServices Limited

D I R E C TO R S R E P O RT

Dear Members,

Your Directors have pleasure in presenting the Nineteenth (19th) Annual Report on the business and operations of the Companytogether with Audited Statement of Accounts for the financial year ended 31st March 2014.

FINANCIAL HIGHLIGHTS & PERFORMANCE

(Amount in Rs. Million)

Particulars Current Year Previous Year

31st March, 2014 31st March, 2013

Income

Revenue (Service and Sale of Goods) 11,876 12,043

Other Income 576 264

Total Income 12,452 12,307

Expenditure

Cost of Services (and sales) 8,987 9,031

Others including Revenue Share 988 1,104

Selling, General and Other Operating cost 10,065 11,002

Total Operating Expenditure 20,040 21,752

Operating Loss 7,588 9,445

Finance Expenses 6,670 9,189

Depreciation and Amortization 5,402 4,344

Loss after tax for the year from discontinuing operations 1,068 5,839

Taxes - -

Net Loss 20,728 28,817

Total Income is increased to Rs.12,452 million as against

Rs.12,307 million in previous fiscal, representing year on year

increase of 1% in total income.

Cost optimization measures taken by the Company have resulted

in decrease in sales & marketing expenditure, personnel cost

and other general & administrative expenditure. Accordingly,

total operating expenditure for the year reduced to Rs.20,040

million as against total operating expenditure of Rs.21,752 million

during the previous fiscal year.

Considering the impact of discontinued operations the financial

performance of the Company is as below:

Companys operating loss for the year ended 31 March 2014

reduced to Rs.7,588 million as against Rs.9,445 million during

last year and Net Loss for the year reduced to Rs.20,728 million

against Net Loss of Rs.28,817 million during previous fiscal.

(Amt. in Rs. Mn.)

Particulars 31 March 2014 31 March 2013

Continued Discontinued Total Continued Discontinued Total

Operation Operation Operation Operation

Total Income 12,452 46 12,498 12,307 3,655 15,962

Total Expenses 32,112 1,114 33,226 35,285 9,494 44,779

Net Loss 19,660 1,068 20,728 22,978 5,839 28,817

9Sistema Shyam TeleServices Limited

DIVIDEND

In view of the losses incurred during the year under review,

your Directors do not recommend any dividend on equity shares.

The BRAND -

Brand MTS in India scaled new heights in FY 2013-14 by attaining

its highest ever spontaneous awareness score of 56 by the end

of Q4 2013. The positive trend was visible through several other

brand health parameters including significantly improved

Consideration and Intention-To-Purchase scores, and in key

image parameters. Within the datacard category, the equity of

brand MTS has further improved and now stands in second

position in the industry, only behind Airtel.

The consolidation of brand MTS in India was also evidenced

through several industry awards and market recognitions. One

of the most significant was the fact that MTS remained in

Economic Times prestigious list of Brand Equity 50 Most Trusted

Service Brands in India at Rank 37, a remarkable achievement in

the context of a reduced geographical footprint due to which

MTS was not operational in over half the survey centers. The

brand was recognized at several other forums including the ET

Telecom Awards 2013, AEGIS Graham Bell Awards and the OOH

Awards 2014.

Key marketing programs that contributed to the strong growth

of the brand included Always Talk (Voice campaign), 3GPlus/

MBlaze Ultra (Data campaign to launch Rev.B network), MTS-

Micromax Blaze (smartphone launch campaign), and the Internet

Baby campaign (Corporate/Brand campaign to underline network

superiority). The 3GPlus/MBlaze Ultra campaign targeting heavy

users of the internet was instrumental in leveraging the Rev.B

technology to reposition MTS vis--vis competing 3G brands,

resulting in improved ARPUs and retention. The Internet Baby

campaign targeting digital natives was launched in March 2014,

and has already proved to be the most successful campaign in

the history of MTS India; at the time of publishing this report it

had already become Indias most viewed telecom ad with over 7

million online views, and had received extensive earned media

coverage including PR and social media shares.

FY 2013-14 also saw brand MTS make dramatic strides forward

in its digital presence through a slew of social media, paid media

and e-commerce initiatives. The exponential growth in reach

and engagement in social media has resulted in MTS now having

nearly 2 million Facebook likes and the highest engagement

rate amongst telecom brands, and averaging two nationally

trending hashtags per month on Twitter. Multiple paid media

campaigns for the online shop, smartphones, 3GPlus and MBlaze

Ultra ensured a cumulative reach of over 100 million online

users, including a high impact campaign for 3GPlus that achieved

a reach of 15 million in a single day. The e-commerce store,

www.shop.mtsindia.in, launched in H2 2013, now averages

approximately 1000 sales per month, and is poised to scale up

significantly over the coming financial year.

Brand MTS continued to strengthen its relationship with core

youth audiences in its operating circles through ongoing music

properties designed to manifest the brands core promise -

discovering and promoting young talent. These included MTS

Rising a college activation program that reached over a million

students across 56 colleges, NH7 Weekender Indias premier

music festival held across four cities, and MTS Discover a

platform for upcoming musicians and bands hosted on

www.mtsdiscover.com. The brand has also ensured local connect

through regional programs run at relevant circles such as the

MTS Durga Puja festival in Kolkata, MTS Onam program in Kerala

and several others.

A slew of other product and marketing programs contributed

to the success of the brand through FY 2013-14, including the

launch of MBlaze Ultra Wi-Fi, MBlaze Chroma dongles (Music,

Gaming and Lifestyle themed datacards bundled with relevant

content and freebies), strategic alliances with Intel, Spice, HP,

Micromax, 10 paise voice product and MBuddy talktime gifting

product amongst others.

LICENCES & SPECTRUM

The Government notified a new Unified License regime to allow

licensees to provide all services under the same license and

also to delink spectrum allocation from the license. In March

2013 spectrum auctions, SSTL won 3 carriers of 1.25 MHz each

in 800 MHz spectrum band in eight circles Delhi, Gujarat,

Karnataka, Kerala, Kolkata, Tamil Nadu, UP (West) and West

Bengal. Under the new licensing regime SSTL was granted

Unified License on October 3, 2013 with an authorization to

provide access services in these eight circles. The Unified License

will enable the company to provide technology neutral telecom

services for a period of 20 years. With this development, SSTL

became the first telecom operator in the country to be a part of

Unified Licensing regime.

SSTL has subsequently applied for authorization to provide

National Long Distance Service under the same license. Once

authorization is received your company will start carrying inter-

circle traffic which hitherto were handed over to other carriers.

After receiving Unified License, SSTL received the 3rd carrier

amongst 3 carriers which were won in March, 2013 auction. The

allotment of the 3rd carrier was significant as your company

could launch its next generation, REV B Phase II telecom services.

SSTL plans to acquire at least 5 MHz of contiguous spectrum

within the 800 MHz spectrum band for network upgradation as

well as to expand its footprint in the country. Your company

was keen to participate in the next round of 800MHz spectrum

auction for which Government in July, 2013 had sought TRAIs

recommendation on reserve price. TRAI on September 23,

2013 recommended that the auction in the 800 MHz band should

not be carried out and to explore the feasibility of adoption of

E-GSM band within 800 MHz spectrum band. Therefore, 800

MHz spectrum band auction could not take place along with the

auction of 900 MHz and 1800 MHz spectrum bands which was

held in February, 2014.

The Government has since rejected TRAIs recommendation

on 800 MHz and received fresh recommendation on reserve

price for 800 MHz spectrum band which is under consideration

of the Government.

The Government in February, 2014 has notified relatively liberal

merger and acquisitions (M&A) policy but also specified that

10

Sistema Shyam TeleServices Limited

acquiring company would have to pay to the Government, the

differential between the entry fee and the market determined

price of spectrum for spectrum allocated administratively prior

to auctions starting 2010. The Government is also expected to

shortly announce spectrum trading or sharing guidelines. The

SSTL will explore all options including M&A, Spectrum Trading

or Sharing and spectrum auction to meets its spectrum

requirement.

SHARE CAPITAL AND COMPLIANCE OF FDI

SECTORAL POLICY

During the year under review your Company issued and allotted

3,433,500 0.01% Redeemable Preference Shares of Rs.10/- each

on Private Placement basis to Insitel Services Private Limited at

a premium of Rs. 9,990/- per preference share.

There has been no change in the issued, subscribed and paid up

equity share capital of the Company. The total paid up share

capital of the Company at the end of financial year 2013-14 is

Rs. 32,033,535,000/-. The breakup of equity share capital along

with Foreign and Indian holding is as under:-

Shareholders No. of

Equity Shares % of Holding

Sistema JSFC 1810289400 56.68

Rosimushchestvo 547312918 17.14

(Federal Agency for State

Property Management of

Russian Federation)

Others 4319340 0.13

Total (Foreign) 2361921658 73.95

Indian Promoters 766575760 24.00

Others 65417818 2.05

Total (Indian) 831998342 26.05

Total Equity 3193920000 100

Share Capital

The present foreign share holding in Company is within the

sectoral equity cap for foreign equity as approved by Foreign

Investment Promotion Board under FDI policy as in force as on

date.

STATUS OF LISTING OF SHARES AS PER SCHEME

OF ARRANGEMENT

As informed to the shareholders in the past Directors Reports,

the Company has been taking all adequate steps in the matter of

listing in due compliance of the order passed by Honble High

Court to this effect on 07.08.2008. However, post Supreme

Court verdict dated Feb 2, 2012 cancelling the telecom licenses,

the Company was forced to put the IPO plan on hold and it was

decided by the Board of Directors to review the feasibility of

listing through IPO after having complete clarity on the status of

Licenses and other important regulatory issues.

In March 2013 fresh auction for allotment of spectrum was

conducted by the Department of Telecom, Government of India.

Your company also participated in the said spectrum auction for

800 MHz and won the spectrum for 8 telecom circles - Delhi,

Gujarat, Karnataka, Kerala, Kolkata, Tamil Nadu, West Bengal

and Uttar Pradesh (West).

Presently, the Company is in the process of restructuring its

business operations across India pursuant to the issue of fresh

Unified Licenses for the 8 circles for which it had won the

spectrum in the auction held by the Department of Telecom

(DoT). Moreover, the Company is also looking at / focusing on

the developments taking place in respect of second round of

Spectrum Auction of 800 MHz, which is expected to be

scheduled / held by DoT in future.

The Company further submits that it is committed to undertake

any action necessary in the best interests of the Company and

its shareholders / investors, however in view of the regulatory

and legal uncertainties in the telecom market, delay in attaining

desired results is unavoidable and beyond control.

The Company will keep the shareholders informed about the

developments in the matter.

AWARDS & RECOGNITION

Your Company was awarded Most Innovative Data Product

Award 2012 for its product Memory on Dongle at the Economic

Times Telecom Awards in September 2013. The Innovative

Product Award recognizes products / services / plans which

have resulted in increase in customer base, increase in revenue

(ARPU) on profitability, reduced customer churn, changed

market dynamics, etc.

For its efforts to collect non-perishable food items for the

underprivileged through a week long food drive, your Company

was recognised at the Foodathon Awards 2013. The Company

was presented two awards Maximum Food collected by a

Corporate and Best internal communication campaign by a

Corporate to promote participation by Sam Pitroda, Advisor

to Prime Minister of India and Randeep Singh Surjewala, Cabinet

Minister, Govt. of Haryana.

Your Company won the Aegis Graham Bell Award 2013 in the

Best Tariff Plan category. The Company was recognized for

technology innovation on the URL based charging platform. Aegis

Graham Bell Awards are one of the most coveted awards in the

area of T.I.M.E. (Telecom, Internet, Media, and Edutainment).

Your Company was also awarded the prestigious Global

Telecoms Business Innovation Award for MTS Digital Hub -

One Click Application in the Consumer Service Innovation

category. Created by Global Telecoms Business group, Global

Telecoms Business Innovation Awards are presented to the

most exciting and path breaking initiatives in the telecom industry.

Your Company was recognized at the prestigious Express

Technology Senate, held at Abu Dhabi in October, 2013. The

Company was conferred with the Uptime Champions Award

at the conclave, considered to be a premier platform for CIOs,

IT heads and decision makers. The Senate is a forum where the

countrys best and brightest CIOs come together to share

insights and best practices about the deployment of technology,

11

Sistema Shyam TeleServices Limited

while also catching up on the latest tech trends that are expected

to reinvent enterprise IT.

MANAGEMENT DISCUSSION AND ANALYSIS

A detailed report on Management Discussion and Analysis on

Telecom Sector Growth, Indian Telecom Market, Regulatory

Developments, Discussion and Analysis of Companys Financial

Statements and Operational Performance, Opportunities, Risks

and Threats, etc., is presented in a separate section and forms

part of this Directors Report.

CORPORATE GOVERNANCE

The basic philosophy of Corporate Governance in the Company

is to achieve business excellence and dedicate itself for increasing

long-term shareholders value. The Company is committed to

maximum transparency in all its dealings and places prominence

on business ethics.

Being an unlisted entity, the legal provisions of Corporate

Governance such as Clause 49 of Listing Agreement are not

applicable to the Company. However, the Company voluntarily

follows the standards of Corporate Governance which are, to

the extent possible, in line with the internationally accepted

standards of Best Practices. The Company is committed to

establish best practices of Corporate Governance and to this

end the Board has already approved the Companys Corporate

Governance Strategy and the same is being implemented in a

phased manner.

Your Company realizes the shareholders right to information

on the performance of the Company and hence, your Company

has voluntarily posted on the website of the Company-the

Annual Reports, Notices and Minutes of the General Meetings,

Memorandum & Articles of Association, Code of Conduct,

Directors profile, Charters of different Committees of the

Directors and updated share holding pattern. The latest

important developments and other information of interest to

the shareholders are also posted in various forms in different

sections of the website of the Company.

In furtherance of its quest for adoption of best corporate

governance practices, your Company has taken initiatives of

voluntarily publishing reports on Corporate Governance and

Management Discussion and Analysis in the Annual Report. These

Reports are annexed and forms part of this Directors Report.

CORPORATE SOCIAL RESPONSIBILITY

Your Company is at the forefront of Corporate Social

Responsibility and acknowledges its responsibility of playing a

key role in building social equity to safeguard the interest of

society in which it operates. The Company believes that emphasis

should not only be on maximization of revenues but also on

improving the efficiency of business processes to minimize the

environmental and social costs.

The Company has adopted Corporate Social Responsibility

Strategy to address the CSR issue effectively and to ensure that

business is conducted with an innate sense of Social

Responsibility. The objective of this strategy is to leverage the

advancement in Information and Communication Technologies

to contribute towards progressive socio-economic change in

the fields of Health and Education.

During the year under review, your Company further

strengthened its partnership with India Unites to End Polio

Now (IUEPN) campaign that aims to create awareness for Polio

eradication amongst the masses. The IUEPN campaign is an

initiative implemented by Aidmatrix Foundation, in partnership

with the Polio Eradication Programme in India, a collaborative

effort between the Ministry of Health and Family Welfare, United

Nations Childrens Fund, World Health Organization, National

Polio Surveillance Project, Rotary International, and the U.S.

Centre for Disease Control. As a part of this initiative, the

Company provided support to Polio awareness campaigns

organised in several Indian states including Delhi NCR, West

Bengal, and Uttar Pradesh. The Company sent millions of SMSs

to its customers, notifying them about the upcoming polio rounds.

The joint efforts of all involved in Polio Eradication have led to

India being declared Polio free in February 2014.

Your Company continued its support to Smile Foundation, a

national level development organization reaching out to more

than 2 Lakh underprivileged children through various education

and health care projects across 22 states of India. Under this

unique initiative, SSTL is providing mobile broadband support

to 23 Mission Education centers across India benefiting over

4200 underprivileged children on an annual basis. Given the

success of the project; the Company has extended its support

to Smile Foundation beyond the initial scope of 2 years.

The Company continued its partnership with India Food Banking

Network (IFBN) to collect non-perishable food items for

underserved sections of the society in 2014. In a week long

drive organised during the Joy of Giving week at Companys

Corporate Office and Delhi Circle offices, the Company

managed to collect more than 4 tonnes of food items. In the

process, your Company became of one of the highest

contributors to the food drive that featured more than 20 Indian

and multinational companies. Your Company was also rewarded

for its efforts during the Foodathon 2013 Awards.

Marking the 64th Republic Day celebrations in January 2013,

your Company partnered with Goonj - one of Indias most

credible NGOs in their Raahat (Relief) campaign. As part of the

campaign, your Company organised a winter clothes collection

drive at its Corporate Office in Gurgaon. Post completion of

the week long collection drive, few SSTL employees also visited

the Goonj facility to handover the collected clothes and also

understood how Goonj uses the contributed items.

In wake of the devastation caused by floods in Uttarakhand in

2013, your Company organised a drive at Corporate Office and

circle offices in Delhi and Uttar Pradesh to collect relief material

for the affected. The proceeds from the collection drive were

handed over to Goonj, one of Indias most credible NGOs as it

was engaged in on-ground relief activities. The Company had

set up special helplines to help people track their friends and

family basis the cell tower locations. Your Company had also set

up Free calling booths in Dehradun for people to call their

friends and family in wake of the calamity.

Your Company partnered with Child Rights & You (CRY) for

ClickRights 2013. As communication partner for the project,

your Company sent out a series of specially designed SMSs to

12

Sistema Shyam TeleServices Limited

promote the initiative amongst all its 10 million customers.

Additionally, the Company also encouraged its 2000 strong

workforce to be part of the campaign and make CLICK RIGHTS

2013 a success. ClickRights 2013 was a campaign urging people

to use the power of photography and capture various reasons

due to which children are unable to get even basic education.

SUBSIDIARY COMPANY

Shyam Internet Services Limited (SISL), a wholly ownedsubsidiary of your Company is having a Category B ISP licenseand is providing Internet Service with brand name Infinity in131 cities in the State of Rajasthan.

As required under Section 212 of the Companies Act, 1956,Balance Sheet, Profit & Loss Account, Directors Report andAuditors Report of SISL have been attached with the BalanceSheet of the Company.

BOARD OF DIRECTORS

Pursuant to Sections 149, 152 and other applicable provisions,if any, of the Companies Act, 2013, one-third of such of theDirectors as are liable to retire by rotation, shall retire everyyear and, if eligible, offer themselves for re-appointment at everyAnnual General Meeting. Consequently, Mr. Ron Sommer,Mr. Vsevolod Rozanov, Mr. Suman Sehgal and Mr. Rajiv Mehrotrawill retire by rotation at the ensuing Annual General Meeting,and being eligible, offer themselves for re-appointment inaccordance with the provisions of the Companies Act, 2013.

Mr. Alexander Gorbunov and Mr. Andrey Terebenin resignedfrom the Directorship of the Company with effect fromSeptember 2, 2014. Consequently, Mr. Andrey Smelkov andMr. Vadim Savchenko, Alternate Directors to Mr. AlexanderGorbunov and Mr. Andrey Terebenin respectively, also vacatedthe office of Directors with effect from that date. Further,Mr. Vasyl Latsanych, also resigned from the position of AlternateDirector of Mr. Anton Abugov with effect from September 2,2014. Your Directors place on record their sincere and warmappreciation for their support and guidance during theirassociation with the Company.

Mr. Igor Kozlov, Mr. Andrey Smelkov, Mr. Andrey Dubovskov andMr. Ram Krishna Agrawal were inducted on the Board asAdditional Directors with effect from September 2, 2014. Onthe same date Ms. Oxana Tarasenko, Mr. Vadim Savchenko,Mr. Vasyl Latsanych and Mr. Alexander Gorbunov were appointedas Alternate Director to Mr. Igor Kozlov, Mr. Andrey Smelkov,Mr. Andrey Dubovskov and Mr. Anton Abugov respectively.

Mr. Igor Kozlov, Mr. Andrey Smelkov and Mr. Andrey Dubovskovwere appointed as Non-Executive Directors while Mr. RamKrishna Agrawal was appointed as Non-Executive IndependentDirector. Mr. Igor Kozlov and Ms. Oxana Tarasenko (AlternateDirector) were nominated on the Board by Russian Federation.Mr. Andrey Smelkov, Mr. Andrey Dubovskov and their alternatedirectors as mentioned aforesaid were nominated by SistemaJSFC, the Holding Company. In terms of the Section 161(1) ofthe Companies Act, 2013 additional directors will hold officeupto the date of ensuing 19th Annual General Meeting of theCompany.

Your directors recommend the appointment of Mr. Kozlov,Mr. Smelkov and Mr. Dubovskov as Non-Executive Directorsliable to retire by rotation. Pursuant to Section 149, yourdirectors also recommend to appoint Mr. Ram Krishna Agrawal

as Non-Executive Independent Director not liable to retire byrotation for 5 consecutive years for a term upto September 1,2019. The Company has received written notice from membersunder section 160 of the Companies Act, 2013 along withrequisite deposit proposing the candidature of Mr. Kozlov,Mr. Smelkov, Mr. Dubovskov and Mr. Agrawal for the office ofthe directors of the Company. Mr. Agrawal has also given adeclaration to the effect that he meets the criteria ofIndependence as provided in Section 149(6) of the CompaniesAct, 2013.

Further as per Section 149(5) of the Companies Act, 2013 theCompany is required to appoint Independent Directors underSection 149(4) within a period of one year from April 1, 2014i.e. the date of commencement of the said Section and Rulesmade thereunder. Since the Company had already appointedMr. Vikram Kaushik, Mr. Bharat Patel and Mr. Madhukar asNon-Executive Independent Directors subject to retirementby rotation in terms of Companies Act, 1956, the Board ofDirectors in their meeting held on September 2, 2014 after dueconsideration has recommended to fix the tenure of all theaforesaid Non-Executive Independent Directors within themeaning of Section 149 and 152 of the new Companies Act,2013 read with Schedule IV thereto and Rules made there under,for a term of 5 (five) consecutive years with effect from the dateof ensuing Annual General Meeting upto the conclusion of24 th Annual General Meeting of the Company, and suchappointment shall not be subject to retirement by rotation.

Further, with the provisions of Companies Act, 2013 becomingapplicable from April1, 2014, Mr. Suman Sehgal who wasappointed by the Board as Independent Director under theCompanies Act, 1956 ceased to be the Independent Directorfrom April 1, 2014 as Mr. Sehgal does not fulfil the criteria ofIndependence as defined under Section 149(6) of the CompaniesAct, 2013. However, Mr. Sehgal continues on the Board asnon-executive director liable to retire by rotation.

With the change in the composition of the Board, thecomposition of various committees of the Board has also beenchanged effective from September 2, 2014.

Brief profile of Directors proposed to be appointed /reappointed is annexed to the Notice convening the 19th AnnualGeneral Meeting.

DIRECTORS RESPONSIBILITY STATEMENT

As required under the provisions of Section 217(2AA) of theCompanies Act, 1956, the Directors confirm that:

1. In the preparation of the annual accounts applicableaccounting standards have been followed.

2. Appropriate accounting policies have been selected andapplied consistently and judgment and estimates that arereasonable and prudent have been made so as to give a trueand fair view of the state of affairs of the Company at the endof the financial year ended March 31, 2014 and of the lossesof the Company for the year ended on that date.

3. Proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of theCompanies Act, 1956 for safeguarding the assets of theCompany and for preventing and detecting fraud and otherirregularities have been taken.

13

Sistema Shyam TeleServices Limited

4. The annual accounts have been prepared on a going concernbasis.

AUDITORS

The term of office of M/s. Deloitte Haskins & Sells, CharteredAccountants as Statutory Auditors of the Company expires atthe conclusion of ensuing Annual General Meeting. The Boardrecommends re-appointment of M/s. Deloitte Haskins & Sells,Chartered Accountants as Statutory Auditor of the Companyfrom the conclusion of ensuing Annual General Meeting till theconclusion of next Annual General Meeting.

The Company has received necessary notice from the Auditorsconfirming their eligibility and willingness to accept the office ofStatutory Auditors, if re-appointed. The Audit Committee hasalso recommended the appointment of M/s. Deloitte Haskins &Sells, Chartered Accountants as the Statutory Auditors.

AUDITORS REPORT

The comments made by Auditors are self-explanatory andparawise management response to the observations made inAuditors Report is stated as under:

1. As regards Para No (x) of the Annexure to the AuditorsReport, the Company is an Infrastructure Company operatingin telecommunication business. As per industry practice, thecompany is making cash losses in initial years of operationand it expects to generate operational profit after the initialgestation period.

2. As regards Para No (xvii) of the Annexure to the AuditorsReport, the Company has already requested the lender towaive the condition of charge on license quashed by SC.

COST AUDITORS

In compliance of the Section 233 B of the Companies Act 1956,the Company has appointed M/s. Sanjay Gupta & Associates asthe Cost Auditors for the Audit of the cost records / accountsmaintained as per the Cost Accounting Records(Telecommunications) Rules, 2002 for the financial year ending31 March 2014. The Cost Audit Report for the financial year2013-14 will be filed on or before the due date.

PARTICULARS OF CONSERVATION OF ENERGY,

TECHNOLOGY ABSORPTION AND FOREIGN

EXCHANGE EARNINGS & OUTGO

Particulars with respect to Conservation of Energy, Technology

Absorption and Foreign Exchange Earnings and Outgo, as per

Section 217(1)(e) of the Companies Act, 1956 read with the

Companies (Disclosure of Particulars) Rules, 1988 are given

below:

a) Conservation of Energy

Your Company being a telecommunication services provider

requires minimal energy consumption and every effort has

been made to ensure the optimal use of energy, avoid waste

and conserve energy as far as possible.

b) Technology Absorption, Adaptation and Innovation

The Company has not imported technical know-how.

Your Company has not established any separate R&D

facilities.

c) Foreign Exchange Earnings & Outgo

The details of earning and expenditures incurred in foreignexchange are as under:

(Rupees in Million)

Earning in March MarchForeign Currency 31, 2014 31, 2013(on accrual-basis)

Data Branding 14 -

International in roaming 11 2

TOTAL 25 2

(Rupees in Million)

Expenditure in March MarchForeign Currency 31, 2014 31, 2013(on accrual-basis)

Interest 1007 1,172

Finance set-up cost 174 781

Project Management &Maintenance Services 217 209

Advertisement and marketingexpenses - MTS brand fee 13 17

Salaries, wages and bonus 384 27

Other Services 7 25

TOTAL 1,802 2,231

FIXED DEPOSITS

The Company does not hold or accept any deposits and as such,

no amount of principal or interest on fixed deposits was

outstanding on the date of the Balance Sheet.

PARTICULARS OF EMPLOYEES

A statement of particulars of employees as required in

accordance with the provisions of Section 217(2A) of the

Companies Act, 1956 read with Companies (Particulars of

Employees) Rules, 1988 as amended from time to time is annexed

hereto and forms part of this report.

ACKNOWLEDGEMENT

Your Directors place on record their gratitude to Bankers,

Financial Institutions, Vendors, Dealers and Business Associates

for the assistance, co-operation and encouragement they have

extended to the Company.

Your Directors also wish to place on record their sincere thanks

and appreciation for the continuing support and valuable

assistance received from Sistema JSFC, the Shyam group and

the Russian Federation as major shareholders in ensuring an

excellent all around operational performance.

The Directors wish to convey their appreciation to all of the

Companys employees for their enormous personal efforts as

well as their collective contribution to the Companys

performance. The Directors are also thankful to the shareholders

for their continued patronage.

For and on behalf of the Board

Place : Gurgaon Sd/-

Date : September 02, 2014 CHAIRMAN

14

Sistema Shyam TeleServices Limited

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry gross revenue increased 10% y-o-y to INR 426 billion

between Q113 to Q114. During this period Average Revenue

Per User (ARPU) increased by 7% to INR 159 mainly on account

of increase in revenue per minute and better traction in data

business.

Voice business of most operators witnessed strong growth

during the year as most of the operators raised their tariffs

either by increasing headline rates or by cutting down on free

minutes throughout the year. With increase in input costs and

license liability, operators are expected to continue focusing on

tariff increase to drive revenue growth. A key threat to voice

business is cannibalization of SMS and Voice revenues by OTT

services like WhatsApp, Viber and Skype. Bharti, Idea and

Vodafone saw over 25% decline in their non-data VAS revenues

from Mar13 to Mar14. Non-data VAS revenues that contribute

approximately 6-7% of industry revenues is expected to fall

further in the near future.

Broadband subscription reached 55 million at the end of

December 2013, which includes 40.7 million wireless broadband

subscribers. Broadband subscribers now account for significant

proportion of internet subscribers. This segment of the wireless

industry is expected to grow exponentially in the years to come.

Severe under penetration of the market, falling PC prices,

introduction of newer devices and desire to be connected on

the move will be key growth drivers in future.

3G services in India started gaining traction during the year

driven by increase in devices penetration and increased

investments from operators to drive 3G business. The 3G

subscriber base almost doubled in 2013 to 35 million 3G

subscriber at the end of December 2013. 3G business momentum

is expected to continue with more investments from operators

and availability of smartphones at lower price points. Currently,

approximately 20% of the entire base tower stations (BTS)

installed in India are 3G enabled. This percentage is expected to

go up significantly in near future.

4G deployments in the sector are still at a nascent stage with

only one large player rolling out its 4G network in few cities.

Management is of the view that another operator will launch

4G services sometime in 2014, however, large scale 4G LTE

deployment will not happen in current year.

The sector witnessed regulatory clarity on a number of issues

including M&A, spectrum trading, spectrum sharing, and policy

with regards to future allocation of spectrum. The government

successfully completed auctions of 900 MHz in metros and 1800

MHz in other circles with total bid from auctions amounting to

USD 10.2 billion. Spectrum allocated through these auctions is

liberalized, which means players are free to use any technology

of their choice. In future, there is possibility of 4G\LTE rollouts

on different bands currently being used exclusively for voice

services. Most of the spectrum in the current auctions was

acquired by incumbents resulting in virtual consolidation in the

sector.

Discussion & Analysis on Financial Statement

Overview

As at 31 March 2014, the Company has created significant

infrastructure across in circles, including high speed data services

in major cities.

On 3 October 2013 the DoT has issued Unified License - Access

Services to the Company for eight telecom circles for 20 years.

On 9 October 2013, the DoT has allotted the right to use

spectrum in eight telecom circles for 20 years as per terms of

auction.

For the year ended 31 March 2014, there is the improvement of

28% in net loss from Rs.28,817 million to Rs.20,728 million

primarily on account of 33% decrease in Cost of Service (and

sales) and 32% decrease in Selling, General and Other Operating

cost.

Key Financial & Operational Highlights for the financial

year 2013-14

In third quarter of FY 2013-14, the Company has rolled out

3GPlus telecom network, powered by Evolution Data

Optimized (EV-DO) Rev. B Phase II technology.

Wireless Market in India

During the financial year 201314 wireless industry witnessed

37 million increase in subscriber base to 905 million on Home

Location Register (HLR) basis. The slow-down in subscriber

addition is driven by stringent new subscriber verification norms

implemented by the regulator and increased focus by operators

to acquire profitable customers. However, during the same

period, the industry added 68 million active subscribers (on

Visitor Location Register basis) taking overall VLR subscriber

base to 791 million. Overall industry VLR% increased from 83.3%

in March 2013 to 87.4% in March 2014.

Number of subscribers (M)

1000

800

600

400

200

-Q113 Q213 Q313 Q413 Q114

868 873 871 886 905

15

Sistema Shyam TeleServices Limited

Revenue from operations for operating circles on YoY basis

slightly decreased by 1% but there is increase in revenue

of 6.4% on Q-o-Q basis since REV B services were started

in Q3, 2013. However, there is a decrease of 8% in operating

expenditure, resulting in improvement of EBITDA margin

by 20%.

Data revenue is increased from Rs.2,988 million in 2013 to

Rs.3,211 million in 2014.

ARPU is increased to Rs.97 in 2014 from Rs.81 in 2013.

I. Financial Condition

1. Net Worth

As at March 31, 2014, net-worth of the Company is increased

from Rs.2,646 million to Rs.16,253 million.

2. Share Capital

During the financial year 2013-14, the Company issued 3.4 million

(2013 6 million) Non Cumulative Non-convertible

Redeemable Preference Shares (RPS). Till 31 March 2014,

total issued share capital of RPS including premium is Rs.94,335

million.

There has been no change in the equity share capital and as at

31 March 2014 the Company has paid-up equity share capital of

Rs.31,939 million comprising 3,193,920,000 equity shares of

Rs.10/- each.

3. Secured and Unsecured Loan

The Company has prepaid the term loan amounting to Rs.9,400

million from Indian banks. Loan of Rs.12,491 million from holding

company is also repaid in full during the year.

4. Deferred Payment Liabilities

Deferred Payment Liabilities of Rs.20,132 million represents

the amount payable to DOT towards the acquisition of Right

to use of Spectrum in eight Telecom Service Areas in the auction

carried out by DoT and Rs.865 million represents vendor

liabilities against network equipment supply, relating to funding

to be arranged by respective vendors and assets acquired on

deferred payment basis.

5. Tangible and Intangible Assets:

Tangible assets have been increased by Rs.1,000 million due to

EVDO and REV-B up-gradation for MTS 3G plus roll out.

Intangible assets have been reduced due to amortization charge

for the period.

II. Results of Operations

Total income of the Company from operating circles has been

increased by Rs.145 million, an increase of 1% over previous

year and operating loss has been decreased from Rs.9,445 million

to Rs.7,588 million due to cost optimization measures. The

Company has implemented various programs to benchmark and

optimize its costs in the areas of network maintenance,

operations and customer servicing.

1. Revenues from Telecommunication Services

Revenue from operations for operating circles on YoY basis

slightly decreased by 1% but there is increase of 6.4% on

Q-o-Q basis.

2. Other Income

Other income is increased to Rs.576 million (previous year

Rs.264 million) mainly due to increase in investments in fixed

deposits.

3. Operating Expenses

The major operating expenses comprise of the following:

i) Network Operation costs

Network operation cost is constant in comparison to previous

year as there is very few additions of sites during the year.

ii) Sales and Marketing expenses

S&M expense is reduced by 10% Rs.610 million primarily on

account of reduction in Subscriber Acquisition Costs and Other

Subscriber Acquisition Costs.

iii) Employee Related Expenses

Employee cost is reduced by 13% from Rs.3,947 million to

Rs.3,448 million due to reduction of employee count.

4. Finance and Treasury Charges

Finance cost is reduced by 27% from Rs.9,189 million to

Rs.6,670 million, this reduction is primarily on account of

prepayment of loans.

5. Depreciation and amortization

Depreciation and amortization charges increased to

Rs.5,402 million (previous year Rs.4,344 million) due to

amortization of Right to use Spectrum.

6. Taxes

No provision for current income tax has been made in accounts

as there were no taxable profits for the year.

7. Net Loss

The Companys net loss reduced to Rs.20,728 million for the

year (previous year Rs.28,817 million). Generally, it is not

2013

2014

Comparison of Revenue & OpexRs. in million

25000

20000

15000

10000

5000

0Revenue Operating Expenses

12307 11876

20648 20040

16

Sistema Shyam TeleServices Limited

uncommon for large green field infrastructure telecom projects

to incur losses during the initial few years of project

implementation.

Discussion on Operational Performance

SSTL won 3 blocks of 1.25MHz each in 800 MHz spectrum band

in eight service areas in spectrum auctions held in Mar13 and

now has operations in nine service areas. Post auctions, the

new footprint covers 40% of population and 60% of data market

potential in India. Effectively, organization managed to retain

approximately 75% of its pre-auction revenues. Management

believes this reduced footprint gives faster path towards OIBDA

break-even for the business.

The Company after getting the new licenses was initially focused

on optimizing operations in line with new footprint. Then several

different strategies were adopted in order to optimize costs

and selectively grow data business. SSTL was allocated third

carrier which it won in Mar13 auctions in Oct13. After getting

the third carrier it upgraded its network to REV B Phase II

services providing its subscribers speed up to 9.8Mbps.

SSTL continues to have a data centric strategy with dongles and

smartphones as its priority focus areas. In the nine operational

circles, Company continues to expand its HSD footprints, and

now provides High Speed Data (HSD) services in approximately

500 cities and towns. During the year, SSTL launched several

new smartphones and plans to continue expansion of its

smartphones portfolio going forward in 2014. SSTLs subscriber

base as on Mar14 stands at 9.1 million including 1.3 million data

subscribers.

On customer front SSTL continued on several initiatives like

MBonus for engagement and retention. To harness its Voice

Network the Company launched various customer centric

products like Always Talk.

SSTL continued its focus on building a strong data brand

Continued several campaigns like #AlwaysOn, to reinforce

positive association with target segment; continued association

with music and youth by means of sponsorships to programs

like NH7 weekender. The Company also launched joint

smartphone advertisement campaign with Micromax, Indias

leading mobile phone Company to strengthen its smartphone

portfolio.

In the financial year 2014-15, the companys strategic focus will

be to leverage its operations in nine circles in order to build

further scale and efficiencies. This will require successfully

meeting our strategic imperatives that includes:-

Strengthen voice business and build competitive channel

for the same.

Further strengthen data business through competitive

products, expanding devices portfolio and offering

innovative solution on recently launched Rev B technology.

Continue efforts to penetrate in the smartphones segment.

Aggressively focus on cost management and profitability.

Products and Services

Data Business Line

Data business continued to grow and today contributes

significantly to the overall revenue of the Company. The

Company upgraded its network from EVDO Rev-A to EVDO

Rev-B under 3GPlus brand supporting upto 9.8 Mbps speed.

The Company also continued to expand its data footprint and

currently covers over 1080 towns.

The Company enhanced its data portfolio with a launch of many

innovative products and solutions. Key initiatives in data business

include.

A. Products

MTS 3GPLUS Network: In October 2013, Company

launched the first ever EVDO Rev-B network across all

circles. The REV-B network which was branded as 3GPLUS

network gives customers a better user experience with

Speeds upto 9.8 Mbps. The Coverage also expanded to

over 1080 towns.

Speed Booster Packs For Unlimited Data Plan Customers:

SSTL launched an HTTP based real time Popup Alerts service

for customers at various stages of Bundled High Speed

Usage Consumption. The Popup Alerts are being sent at

80%, 90% and 100% usage. Along with the Popup alerts

customers are also prompted to take optional Speed

Booster Packs which throttle back the Speed to High Speed

Number of subscribers (M)

Wireless Revenue (INR M)

14

12

10

8

6

4

2

-Q113 Q213 Q313 Q413 Q114

12.0

9.9 9.7 9.99.1

4000

3000

2000

1000

-Q113 Q213 Q313 Q413 Q114

3384

2810 2743 28232976

17

Sistema Shyam TeleServices Limited

for remaining validity of the month till the additional

bundled usage of Speed Booster Pack.

Roaming Packs: SSTL launched attractive Roaming Packs

for Prepaid Customers and introduced Per MB charging

for Postpaid. Roaming Packs allows customers to enjoy

High Speed Data Access in Non-MTS Circles where the

HSD Network is available.

Free Dongle on IT Channel Sales: Company Launched a

special program for First Time Laptop / Computer Buyers

by offering Free Data Card device along with attractive

Product / Plan options from select IT Channel Partners.

Launch of Surveillance Product: Company launched a

specially focused Product Bundle with Surveillance Camera

and MiFi Dongle. Specially crafted Prepaid Packs have been

designed for the same

Launch of Super Unlimited plans: To drive high ARPU and

heavy user customer segment, Company launched super

unlimited products for both prepaid and postpaid. While in

prepaid the product offering is Rs.999/20GB Unlimited, in

Postpaid the product offering is Rs. 999/40GB unlimited.

B. Devices

Launch of Wi Fi device: In July 2013, SSTL was the first ever

Company in Indian Data market to launch a MiFi Device.

The Device was EVDO REV-B network ready and was

capable to connect a maximum of 5 devices at any given

point, without a need of a laptop. The device can be

connected to any USB to power itself.

C. VAS: The company launched various innovative VAS services

on Data which enabled better user experience and

stickiness, including:

Recharge Rewards Program: An industry first loyalty

program launched in Jan13 end. The program helped to

induce usage for data card users as subscribers had to stay

connected for longer duration to bid for gifts online in the

landing page while accumulating credit points through

recharge of some special tariff vouchers.

Divine Portal: Launched the Devine Portal in Aug-2013.

This is a live as well as recorded web based service covering

all the religions where a data card subscriber can watch

live glimpses from over 51 shrines of India some of them

being Haji Ali, Gurdwara Bangla Sahib etc.

VOICE BUSINESS LINE

Voice business was amply supported by the launch of innovative

products and aggressive market moves. The highlights for the

year included the launch of several new products and market

initiatives.

A. Products:

Always Talk : The offer was launched as the most attractive

tariff proposition in the market with Unlimited On-net

and 1000 Local Off-net minutes free at Rs. 199 price point

for 30 days. Subsequently the sachet variants of 7 day and

15 day validity were also launched. 1Million recharges were

sold within 6 months of launch.

Launch of Innovative M-Buddy service & 1212 IVR :

The M-Buddy service was launched with innovative features

for MTS subscribers like talk time sharing, gifting an STV to

another MTS subscriber, asking balance from another

subscriber.1212 IVR was launched to offer the subscriber

customized offer as per the subscriber profile.

B. Devices: The device portfolio moved towards open market

handsets (non-subsidized)

Two new device categories launched

- Music at MOP INR 1200 for new acquisition and an

upgrade option for existing subscribers

- DUAL SIM (CDMA + GSM) with zero subsidy at MOP

INR 2200 for targeting multiple connection

subscribers and churn GSM subscribers.

Enhanced Voice device portfolio by introducing 8 new

devices in various categories with MOP range of INR 999

to INR 2200.

C. VAS & Roaming

Third Party Consent Gateway (TPCG), seeking double

confirmation on VAS activations, was implemented in July

2013 as per TRAI (Telecom Regulatory Authority of India)

mandate. This led to severe erosion in VAS revenues across

industry. To mitigate risk the VAS vertical did more than 50

product interventions, viz One-stop VAS activation Portal,

Contest Portal, Regional Portal, IVR Info search, FM Gold ,

each one contributing more than 1Million revenue per

month. VAS has been recording positive revenue growth

for last two consecutive quarters. Today MTS has industry

best performance in terms of share of non-data VAS to

overall service revenue.

Voice Roaming Special Tariff Vouchers as well as Data Card

Roaming were launched for the first time, which resulted

into incremental revenues as well as customer delight. Intra

Circle Roaming tie-ups for Tata subcribers as well as

International in-roaming arrangement with Sprint further

added to incremental revenues.

SMARTPHONE BUSINESS LINE

The smartphone business line strategy was hinged around a

portfolio of dual-sim devices (GSM + EVDO) that allowed

customers to use EVDO along with GSM technology. MTS Duet

1 & 2 Handsets were test launched in the first half of 2013 along

with unlimited Data & Voice offer for 2 months.

Subsequently, MTS partnered with Micromax, one of the leading

handset manufactures in India for the launch of the

MTS-Micromax Canvas Blaze MT500 handset.The handset was

18

Sistema Shyam TeleServices Limited

bundled with attractive Voice and Data benefits.

The smartphone portfolio was further strengthened with the

launch of the 2 new Dual SIM (EVDO+GSM) devices along with

the incredible 100,000 MB offer. Devices launched in FY 2013-

14 included:

1. Canvas Blaze MT500 : launched in Dec12

Android 4.1.2 (jelly bean)

Qualcomm 1.0Ghz Dual Core

12.7 cm Touch Screen

RAM 768 MB

Product offer highlights: 2 GB Data, 2 hours of local talk

time & 1000 MTS to MTS minutes applicable per month for

6 months

2. Blaze 4.0: launched in Feb 2014

Android 4.1.2 (jelly bean)

Qualcomm 1.2Ghz Dual Core

10.16 cm Touch Screen

RAM 512 MB

ROM 4 GB

3. Blaze 4.5 : Launched in March 2014

Android 4.1.2 (jelly bean)

Qualcomm 1.2Ghz Quad Core

11.43 cm Touch Screen

RAM 1 GB

ROM 4 GB

Besides the introduction of new EVDO+GSM devices, the

smartphone business also saw the launch of disruptive tariffs

and offers by MTS, including:

100,000 MB Data offer: First Recharge 198 was launched

in Feb and is applicable with both Blaze 4.0 & 4.5 devices.

The unheard of offer was another first by MTS. The Product

was designed to engage and attract the new age Smartphone

user. The offer is applicable for 1 year through the balance

carry forward recharge.

Unlimited WhatsApp & Viber pack: Was launched in

April at price range of Rs. 50-60 (Circle specific price

points available on MTS website). The Pack allows a

customer to stay connected with their friends through the

interactive message service & Data based voice calls. All

Usage on this application is Free.

Customer Service Operations

The Customer Service Operations Team began the year with a

clearly defined and prioritized strategy to drive premium service

and cost efficacy management.

Post implementation of new guidelines in 2012-13 on activation

policy by Department of Telecommunication (DOT), SSTL made

consistent efforts towards enhancing quality through various

measures.

T6 (Retailer to HLR activation within 24hrs) and T3 (CAF entry

to employee verification within 8 hrs) were identified as Critical

to quality and activation TAT. Rigorous measurement of these

KPIs has helped to enhance the customer experience.

Critical measures were taken like:

- Activation model based on Scan CAF

- Increasing Spoke locations at high volume areas

- Change in pick-up model for certain circles from

Courier to FoS collection

- Realignment of CAF pickup schedule at circles,

Manpower calendaring

- Optimum utilization and Focus on Training need

analysis.

In FY2013, with the SSTL focus on Data Card, Team focused on

improving the customer service delivery with the launch of the

below initiatives:

Appellate consolidation at Corporate Center: Pan India

Appellate emails to be handled from corporate center

through in-house off role employees. Savings 38% less cost

compared to cost incurred through decentralized model.

Current SLA > 94%.

Seamless online bill payment through My Account:

Customers can make seamless bill payment through My

Account without redirection and need to remember the

Data Card MDN. Commission saving of 1% which is paid

to distributor for bill collection on all online payment.

Titanium Desk: Identification of high value customers at

IVR and providing seamless customer service. Tenured and

Hand Picked executives to handle customer queries with

Quarter wise performance- Retailor to Hotline

activation within 24 hours

Q12013-14 Q22013-14 Q32013-14 Q42013-14

49.03%52.17% 54.52%

60.56%

Quarter wise performance- CAF entry to

employee verification within 8 hours

Q12013-14 Q22013-14 Q32013-14 Q42013-14

97.97% 98.13%97.56%

98.94%

19

Sistema Shyam TeleServices Limited

increased empowerment. Online support of backend team

for quick resolution. Executive Call Back Facility if

executive is unable to provide information / resolution on

the call. Current SL & CQ > 92%

VAS services Activation through IVR: Announcement of VAS

services which are currently activated on customers

account through Voice IVR @ 155.

Call 2 Activate: Support helpline for activation of Data Card

& Smartphone through various alliances.

Additionally, Self help penetration improved enabling customers

to service through My Account & IVR.

TRAI metering and billing audit

TRAIs metering and billing audit for 2012-2013 was conducted

in accordance with the schedule of the empanelled Telecom

Regulatory Authority of India (TRAI) audit agency, with the scope

including different processes for Sales, Usage and Retention,

Value Added Services, Subscriber Activation, Customer billing

etc.

Post the assessment and analysis, TRAI declared SSTL to be

100 % compliant on financial parameters. The agency did however

make some observations on which appropriate action was taken

and the issues were closed on time and we saved approx

INR 300 million, which otherwise could have been levied as

penalty.

In FY 2013-14, Telecom Regulatory Authority of India (TRAI)

implemented a revised regulation where metering and billing

audit is conducted every quarter along with the yearly audit.

TRAI empanelled agency has conducted the audit til l

Q32013-14 and submitted the reports. Post Quarterly

assessment, TRAI has declared SSTL to be 100% compliant on

all financial parameters.

Regulatory Affairs

Unified License

Government has notified the new Unified Licensing regime to

delink assignment of spectrum from the license. The new Unified

License permits licensee to provide any telecom service. In

March 2013 spectrum auctions, SSTL had won 3 carriers of

1.25 MHz each in eight circles Delhi, Gujarat, Karnataka, Kerala,

Kolkata, Tamil Nadu, UP (West) and West Bengal. Under the

new Unified Licensing regime, SSTL has been granted Unified

License on October 3, 2013 with the authorization to provide

access services in these eight circles. The Unified License will

enable SSTL to provide technology neutral telecom services

for a period of 20 years. With this development, SSTL became

the first telecom operator in the country to be a part of Unified

Licensing regime.

SSTL has subsequently applied for authorization to provide

National Long Distance Service under the same license. Once

authorization is received SSTL will start carrying inter-circle

traffic which hitherto was handed over to other carriers.

Spectrum

SSTL received the 3rd carrier in October, 2013 which it had

won in March, 2013 auction. The allotment of the 3rd carrier

was significant as your Company could launch its next generation,

REV B Phase II telecom services.

Spectrum Auction

SSTL plans to acquire at least 5 MHz of contiguous spectrum

within the 800 MHz spectrum band to upgrade network to

provide next generation telecom services and also to expand

While cost remained a significant focus area for SSTL, below

initiatives helped us in controlling the Cost of Service:

a. Promotion of self-help options (Website, IVR, My Account)

to the customer

b. Increase in ef