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HFCL Infotel Ltd has informed BSE that in the limited review report of the Company for the quarter ended December 31, 2007, the Auditors of the Company have made the following observations:

“1. Without qualifying their opinion, the Auditors draw attention to Note 3 of the statement, the Company has incurred a loss of Rs 4726.42 lacs and Rs 11459.10 lacs during the three months ended and nine months period ended December 31, 2007 (accumulated loss of Rs 88,715.75 lacs) resulting into erosion of its net-worth, and has a net current liability of Rs 14,817.08 Lacs (after considering provision for interest amounting to Rs 9,127.21 lacs being the difference in the amount paid in comparison to the amount accrued on yield basis as per the CDR scheme) as of December 31, 2007. The Company has achieved profitability at the ‘Earnings before interest and depreciation / amortisation’ level, and is also able to generate cash from operations. The ability of the Company to continue as a going concern is significantly dependent on its ability to successfully arrange the balance funding in terms of the CDR scheme and achieve financial closure to fund its operating and capital funding requirements and to substantially increase its subscriber base. The management in view of its business plans is confident of generating cash flows and to fund the operating and capital requirements of the Company in the event of any delay in the arrangement of the balance funding. Accordingly, these statements have been prepared on a going concern basis.

2. Attention is invited to Note 4 of the statement regarding Company’s investment Rs 7,176.71 lacs (Rs 180 lacs as equity and Rs 6,996.71 Lacs as unsecured convertible OFCD) in an associate company, The Investment Trust of India Ltd (’ITI’), ITI has incurred a net loss of Rs 925.15 lacs and has a negative net worth of Rs 132.20 lacs as on March 31, 2007. The Auditor’s of ITI has in their audit report dated May 25, 2007 qualified ability of ITI to continue as going concern, which depends on its ability to generate income on their Investment Business Segment. The associate company being an unlisted company, there is neither the requirement of law nor practice to prepare interim financial statements. In the absence of any interim financial information, the accompanying Statement of Unaudited Financial Results do not include adjustments required on account of probability of permanent diminution, if any, in the value of investments in the associate. The management of ITI is, however, confident of generating cash flows to meet the working capital and capital funding requirement in the near future. The Company, therefore, believes that no provision is required on account of any diminution in the value of the investments. Considering the uncertainly involved in the generation of income on investments, the Auditors are unable to comment on the carrying value or the realisability of such investments and thereby its impact on the profit and loss for the quarter”.