MANAGEMENT DISCUSSIONS & ANALYSIS Indian Economic Scenario As per the World Economic Outlook update July 2015 report, Global economic growth after remaining stable at 3.4% in 2014, is projected to remain marginally lower at 3.3% in 2015. Decline in global economic growth was also impacted due to expected slowdown in Emerging and Developing economies from 4.6% in 2014 to 4.2% in 2015. In contrast to overall slowdown in Emerging and Developing economies, Indian economy has witnessed significant economic growth in the recent past, growing by 7.3% in FY15 as against 6.9% in FY14 (as per CSO's estimate & on revised Base 2011-12). India's consumer confidence continues to remain highest globally on positive economic environment and lower inflation. Owing to increased investor confidence, net Foreign Direct Investment (FDI) inflows touched a record high of USD 34.9 Billion in FY15 as compared to USD 21.6 Billion in the brvious fiscal year, according to Reserve Bank of India, May 2015 Bulletin. Net FDI inflows reached to 1.7 percent of the GDP in FY15 from 1.1 percent in the brvious fiscal year. M&A activity increased in 2014 with deals worth USD 38.1 Billion being concluded, compared to USD 28.2 Billion in 2013. Index of Industrial Production (IIP) grew by 2.1% in FY15 as against negative growth in FY14. Per Capita Net National Income at current prices grew to Rs.88,533 in 2015 from Rs.80,388 in 2014. Currently, the manufacturing sector in India contributes over 15% of the GDP which is expected to be taken up at 25% with the government's new initiatives such as Make in India. Other key initiative, Digital India focuses on creation of digital infrastructure, delivering services digitally and to increase the digital literacy. The Government of India has also launched an initiative to create 100 smart cities as well as Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 500 cities with an outlay of Rs.48,000 Crore (USD 7.47 Billion) and Rs.50,000 Crore (USD 7.78 Billion) Crore respectively India is set to emerge as one of the world's fastest-growing major economy by 2015 ahead of China, as per IMF's World Economic Outlook Update July 2015. Economic fundamentals have strengthened with the combined impact of strong government reforms and RBI's inflation focus. According to IMF Report, India ranks seventh globally in terms of GDP at current prices and is expected to grow at 7.5% in 2016. Indian Telecom, Biggest Success Story The one-billion-subscriber telecom industry has been the flag-bearer of the Indian liberalization / reforms process driving connectivity from a meager 0.8 per hundred persons in 1994 to over 77 per hundred persons today. Significant growth of the telecom sector is resultant of factors like continued government policies and regulatory framework, subscribers' needs and available technologies, evolution and development, operator's capabilities and available capital. All these factors are working 360 degree even now for the better and the appetite still remains. Telecom has been the biggest success story which makes India, the second - largest telecommunication market. With annual service revenue of about Rs.2,338 Billion in FY14 which grew at around 10 percent YoY recently, this socio-economic catalyst shall continue to grow with evolution of vibrant ecosystem imbibing a broad range of products, technologies and services. Mobile economy is growing rapidly and now Voice is no more a single need where the subscribers demand Triple Play with high speed and quality. Data contributes to the Revenue upside of the Operators. The Indian mobile economy is growing rapidly and will contribute approximately USD 400 Billion to India's gross domestic product (GDP), according to a report. Reduction in Tariff coupled with availability of smart phones at affordable prices has helped the segment to gain in scale. Mobile segment is playing significant role to increase tele-density in the rural areas. It is rather mobile density then tele-density now. The industry after having focused and succeeded to garner significant voice subscribers in last decade is seriously working towards addressing the subscribers' need of quality data at high speed. Socio-economic changes in the society have broadened the need of subscribers which is now not limited to simple voice but is unlimited and therefore, demand of Data at brsent. The ongoing evolution of the mobile ecosystem coupled with demand for high-bandwidth applications is keeping the industry on toes for delivery and quality of broadband connectivity. This is evident from the rapid growth of internet and broadband subscribers. Internet and broadband subscriber base witness significant growth. Internet subscribers grew from 22.86 Million in March, 2012 to 267.39 Million in December, 2014, significant jump of almost 11 times. During the same period, the Broadband Subscribers grew from a mere 13.81 Million to 85.74 Million, a rise of almost seven times. Affordable pricing has anyway come into being with the variety of operators in market ready to garner their piece of subscribers with competitive offers. It would therefore, be appropriate to mention that a new wave has fallen into place in last couple of years with the baton now passed over to data. There has been a surge in data consumption across the country. Overall data grew at 72% in 2014, catalysed by 3G growth. 3G data usage is expected to grow further as operators continue to invest in expanding and strengthening 3G networks, coupled with a surge in the availability of smartphones at affordable prices. The 3G ecosystem showcases strong growth across parameters. With increased Internet user base, IP traffic is also projected to grow 4 fold at 33% CAGR from 2014 to 2019. As per the estimates of the 10th annual Cisco Visual Networking Index (VNI) IP traffic shall reach 4.0 Exabytes per month in 2019 compare to 967 Petabytes per month in 2014. It needs to me mentioned that Government policies and regulatory frame work have been instrumental in bringing the telecom revolution leading to transparency among operators and deliver quality services at affordable prices to subscribers. Foreign Direct Investments upto 100% made the Sector attractive destination for Investors which is considered to be among top five generator of employment. With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth USD 16,994.68 Million during the period April 2000 to January 2015, according to the data released by Department of Industrial Policy and Promotion (DIPP). Overall, the sector promises quality to subscribers and volumes of business to the operators. Intense competition leads to prompt service to subscribers whereas low tariffs and rural penetration level pose opportunity of demand for operators. Subscribers have a choice of plans whereas operators can bargain on the niche product they develop. Therefore, there is a win-win for both, the subscribers and the operators. Nevertheless, Government stands to gain from progress of any. Further, despite the substantial increase in the reach of telecom services, around 30% of the Indian population, mainly in far flung rural and tribal areas, are still deprived of basic mobile services. Geographically, 15% of the country's area remains to be covered by the telecom service providers. Furthermore, broadband coverage is still low in the country. This shall need investments to be made in telecom infrastructure. Policy framework- Growth Engine Government Policies and Regulatory framework have been the major backbone that contributed for remarkable growth of telecom sector. Government has been protective to transform India as a global telecom hub. All of this started in 1991 when the process of liberalization in the country began in the right earnest with the announcement of the New Economic Policy in July 1991 where the industry was opened up for all. In 1994, the National Telecom Policy was announced which defined certain important objectives, including availability of telephone on demand, provision of world class services at reasonable prices, improving India's competitiveness in global market and promoting exports, attractive FDI and stimulating domestic investment etc. The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997. Internet service was opened for private participation in 1998 with a view to encourage growth of Internet and increase its penetration. However, the most important milestone and instrument of telecom reforms in India was the New Telecom Policy 1999 (NTP-99). NTP-99 that laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services. It also recognized the need for resolving the brvailing problems faced by the operators so as to restore their confidence and improve the investment climate. Initiatives were taken in the direction of opening National Long Distance for private participation, setting up of Universal Service Obligation Fund, introduction of Unified access license regime. The launch of wireless services was an important landmark and one of the most important drivers of overall industry growth during the past two decades. Year 2004 saw the announcement of much needed Broadband Policy in October 2004 which emphasised on creation of infrastructure through various technologies that can contribute to the growth of broadband services. Later, operators were allowed dual technologies that is CDMA and GSM. DoT also allowed single licence to Internet Service Providers (ISP) but restriction was put in VoIP The Government of India recognized the importance of wireless broadband and the 3G/BWA auction in 2010 was a significant step for the Indian telecom sector. Further for attracting foreign investments, the sectoral cap was raised to 74% and now at 100%. Regulations have also been made for tariff balancing and mobile number portability (MNP) has been introduced. Latest National Telecom Policy, 2012 was another serious attempt by the Government with bouquet of targets to strengthen the sector and making in indigenous and independent. It has introduced Unified Licensing Regime and emphasises on manufacturing in India. Spectrum of Reforms and Issues The government has fast-tracked reforms in the telecom sector and plans to clear the proposal allowing spectrum trading and sharing ahead of the year-end deadline as it wants to lift the business sentiment for the forthcoming airwave auction. Having said above, there are certain areas that need to be addressed where for, the government has to seriously think over. Creation of an investor friendly environment, provision of adequate spectrum, rationalization of taxes and levies and arrangement for financial needs are also essential to stimulate development in the sector. Measures like Inclusion of telecom towers in the harmonized infrastructure list and ensuring timely right of way (RoW) are positive, however, benefits of these decisions must reach to the industry at implementation level. Handset segment has revolutionised the sector and therefore, NTP 2012 has provided an impetus with launch of various schemes. There is an emergent need to foster handset manufacturing ecosystem in India. Wave of internet and social media demand security, privacy and governance which should be strategically formulated in the global context while protecting industry and subscribers. Moreover, cloud and machine-to-machine are throwing lots of opportunities and given the nascent stage thereof, sound regulatory framework in the beginning shall play vital role for these services to prosper. Smart Digital India So much so that, the brsent government is leading towards making the fundamentals better for the people and industry. This phase of Digital Kranti dictates guidance for evolution and development, transformation of networks towards SMAC. Industry heads towards another phase of breakthroughs in respect of products and technologies. The government embarks on the most ambitious Rs.1,130 Billion program, "Digital India" with the objective of connecting and imparting knowledge to each one in the Society for addressing their needs. The program visions to transform India into a digitally empowered society and knowledge economy. This program is an initiative to provide digital access to one and all by sbrading internet coverage to 250,000 villages and leveraging the network infrastructure to deliver e-services anywhere anytime. This program therefore, provides the much needed thrust to its pillars viz. Broadband, Mobile Connectivity and Public Internet access along with others. Rs.480 Billion Smart Cities project is another significant leap by the government to improve the quality of life in 100 cities to start with. Having garnered the fame at world level, this project has drawn interest from investors and collaborators. All such initiatives are catalyst to digitally empower the people with internet and culminate into socio-economic development of the country. Telecom therefore shall play vital role in setting the stage whereon, all other sectors be it health or education shall perform and grow for the benefit of the people and the country. Overall, collective effort from all quarters be it government, operators or subscribers is essential for making Dream of Digital India a reality. Broadbanding the Future It seems that all factors are working towards making bigger than the biggest success story. Government's ambitious programs and favourable policies, evolution of new technologies like M2M, environment of SMAC along with 4G services hitting the market will surely fuel the rapid growth of Telecom in coming years. Next phase of Telecom boom lies in Broadband and rural connectivity. Telecom shall Broadband the future with Broadband infrastructure and rural connectivity which shall play critical role in upliftment of the socioeconomic standard of the country. Broadband connects consumers, businesses, governments, facilitates social interaction and brsents attractive opportunities for education, governance and entrebrneurship. Internet traffic in India is expected to reach 2.5 exabytes per month in 2017 from 393 petabytes per month in 2012. In addition, the wireless connectivity in India is expected to grow at about 40% traffic by 2017, up from 38% in 2012. According to the World Bank's estimates, a 10% increase in broadband penetration accelerates economic growth by 1.38% in low and middle income countries as compared to an increase of 1.21% in high-income countries. Having understood the importance of broadband, the government had auctioned the 3G/BWA licenses in 2010 itself. Internet and Broadband are the basic needs to achieve the goals of ambitious programs like Digital India and Smart Cities. Wireless broadband shall be massively implemented for its relatively low capex, affordable customer brmise equipment and reduced time for roll-out. There shall be encouraging investments in the broadband infrastructure as the NTP 2012 envisages 600 Million broadband subscribers by 2020. It will also require the substantial growth of fixed infrastructure for backhaul of wireless access and high speeds in dense urban areas through fiber (fiber to the x (FFTx)) and cable broadband. The government therefore, has been releasing additional spectrum for making the digital dream a successful one. Long-Term Evolution (LTE) services shall become mainstream in India when in 2015, the sector will witness multiple players launching 4G on a more efficient 1800 MHz spectrum. Subscribers will adopt 4G to address their needs for mobile data. 4G LTE subscribers shall begin to rise by competitive pricing, superior network experience and affordable smartphones. Auction of more spectrum, will also boost availability of 4G services in the market. Those service providers who would be able to provide affordable services with relevant local content shall generate a significant pull. There shall be a significant spurt in wi-fi hotspots driven by both the government 'smart cities' and 'digital India' as well as private sector initiatives. As per MbiT Indix, it is time for faster Rollout of High Speed Data Network. Key Highpoints • India has ~130 Million 3G capable devices and only 69.9 Million active 3G subscribers. A significant opportunity for further 3G penetration. • India already has 5.5 Million to 6.0 Million 4G capable devices and only about 85,000 active. • LTE subscribers - opportunity for selective rollout of 4G network and services. • Devices Ecosystem is moving faster than network maturity, pushing high potential to Data Traffic Growth. • Data traffic growth is reflecting fast in mobile data revenue growth for telecom operators - a sign of healthy growth in Indian telecom industry. Huge potential for the sector definitely exists keeping in view the demographics of the country with its young and increasingly urban population base. Furthermore, growing usage of smartphones is driving usage of mobile internet. India will emerge as a leading player in the virtual world by having 700 Million internet users of Telecom infrastructure comprising of fiber/cell sites like towers acts as a backbone for the development of telecom services. Operators have been spending on capex around Rs.5,600 Billion every year. It is estimated that more than 150,000 towers will be required on a pan-India level which provide the foundation to achieve the Digital India objectives of broadband highway covering both rural and urban areas, universal access to mobile connectivity, public internet access, e-governance, e-Kranti and to develop smart cities in the country. As part of the focus on overall Digital India, the Indian Government is seeking to overhaul the national broadband project program that was launched as NOFN in 2011 and renaming it BharatNet. A committee report analyzing the project expects that retail broadband services should be available at prices below Rs.150 a month in poorer states and approximately Rs.250 per month in more economically advanced states, with speeds ranging between 2Mbps and 20Mbps for all households. It further recommends on demand capacity to all institutions. BharatNet is expected to subsume all the ongoing and proposed broadband network projects taking the project outlay to around Rs.720 Billion. Mobile handset market is another area of big opportunity as there is still untapped market. Increased data demand will definitely fuel the demand for smart devices. Indian handset market is valued at approx. Rs.1,000 Billion with volume of appox. 305 Million devices. In spite of India's handset market growing at a robust rate, almost 83% of the demand is met via imports, while domestic production and manufacturing continues to lag. The Government has recognized the need to bolster telecom equipment manufacturing in the country, and subsequent National Telecom Policies have also acknowledged telecom manufacturing as critical to the overall economic growth. Furthermore, electronic systems or the electronics system design and manufacturing (ESDM) industry has been identified as one of the focus sectors under the Make in India program. Mobile handset industry, which accounts for the largest share of electronic products sold in the country is expected to benefit due to policies instituted for the ESDM industry. DeitY has established a joint task force of industry rebrsentatives and government officials with an aim to achieve production of 500 Million handsets by 2019. The task force aims to rejuvenate the mobile handset and component manufacturing ecosystem in the country and targets to create additional employment opportunities for 1.5 Million people. Consumers' addiction to connectivity and speed poses a big opportunity as well as challenge to the industry. Operators, therefore, will continue to pursue technological advancements to handle demand. At the same time continued backhaul improvements are likely to be a key focus to assure continued mobile broadband momentum. Consumers' ongoing obsession with their devices will further drive telecom sector growth with the rising popularity of streaming audio and video among smart phone users, which is contributing to their consumption of more than a gigabyte of data per month. The telecom sector is expected to create four Million direct and indirect jobs over the next 5 years on the back of the government's efforts to increase penetration in rural areas along with the growth in the smart phone numbers and internet usage. Outlook The year FY16 is very promising for the business growth in the existing areas of operation and new business verticals, setup during year FY15. The Company has sound order book of over Rs.3,000 Crore. The manufacturing of OFC will be greatly supplemented with expansion as shall be required to address the growing demand. Exports of OFC are expected to increase three fold this year and new lines set up in Goa factory for FTTH cables, will address new opportunities in Fiber to the home (FTTH) networks. Further, Company's subsidiary i.e. HTL Limited is also planning to setup a facility for manufacturing of OFC in Chennai which shall lead your Company having combined OFC Capacity of approx 9 Million fibre KMs per annum. In telecom equipment manufacturing, the Company will start manufacturing equipment for broadband services to address the requirements of broadband networks under Digital India programme and also address requirements of CATV operators and ISPs. The Company is also in discussions with renowned technology provider, for acquiring technologies for manufacturing of routers & switches, needed for data networks. These products also have export potential. Total telecom solution for railway networks is another big opportunity started during the brvious year. Various city metro rail projects, planned by the government under Smart City initiative brsent large market for the Company. The Company, therefore, expects turnkey contracts for railway networks in future. The Company also has participated in large tenders floated by BSNL for setting up of countrywide Telecom network and is hopeful in winning some of the large opportunities addressed. Under the Make in India programme, the government is encouraging manufacturing of civil and defence equipment in India which has attracted best of the companies from US, Europe to do business in India and HFCL is actively engaged with many top defence companies for possible tieups. In summary, the Company will see growth in business, acquisition of new technologies, new EPC contracts from railways and business opportunities in defence sector. In Telecom manufacturing, NTP 2012 and the recent Make in India initiative of the Government shall open up more opportunities for us. It goes without saying that there lies immense potential for equipment manufacturing which is evident from research that the sector imports electronic goods worth over USD 40-50 Billion which may reach a humongous USD 300 Billion by 2020 if initiatives are not taken to support domestic manufacturing. Domestic products contribute to merely 15% of all equipment used in the sector. We believe the emphasis laid by the Government on domestic products shall yield good results in enhancing the equipment manufacturing. High Speed Data consumption and broadband subscribers shall continue to grow in coming years. Missions like Digital India and Smart Cities shall fuel the fibre optic networks all over the Country. NOFN of 7.5 lakh kilometres in 2.5 lakh villages is being speeded up. WiFi hotspots and high speed data shall be in demand and therefore, operators shall keep on spending for improvement of their network services. We shall also see aggressive roll out of 4G networks. Tower industry provides another big opportunity for the Company. Operators look at increasing market penetration with limited capital expenditure through leased towers from tower companies. It also enables telecom operators to rollout services in record times. There are close to 400,000 telecom towers in India at brsent and are estimated to reach around 500,000 by FY20. Exploding data traffic is leading to in-building solutions and smaller cell sites which is expected to drive growth of tower industry. For the Company, therefore, lies a huge business opportunity in this industry. The defence industry is of strategic importance for India. India has the 3rd largest armed forces in the world and it spends a significant amount of resources on its national defence. Finance minister raised the defence budget for FY16 to Rs.2.46 Trillion from Rs.2.29 Trillion in FY15. In the next 7-8 years, India would beinvesting more than USD 130 Billion in modernization of its armed forces and with the brsent policy of Make in India, the onus is now on the industry to make best use of this opportunity. The new government projects India as an exporter of defence equipment in the next decade. Government is creating investor friendly environment for this sector. All these initiatives shall also create sufficient business opportunity for the Company. Operational Review The Company during the year accelerated its performance in both of its manufacturing and turnkey business segments. In manufacturing of OFC, the Company achieved record revenue and profits coupled with full capacity utilisation of the facility in Goa. Nevertheless, exports of OFC was another breakthrough during FY15. Equipment manufacturing saw production of GSM products. The Broadband Era with growing smartphones, 4G rollouts, internet driven applications will require expansion of OFC network throughout the country and therefore, the Company may explore further expansion of OFC capacity. In turnkey projects execution, the Company has successfully completed high capacity optical transport network for Railtel by deploying 80 channel DWDM system at over 60 sites, along two connecting routes between Delhi - Mumbai. The project is under annual maintenance contract and based on excellent execution, the customer has gone ahead with 75% expansion order on the Company. Another success was the winning of a turnkey contract for laying OFC network in one of the largest states of the country from BSNL. Further, the Company was awarded large project for setting up of GSM network at extremely remote standalone sites and connecting each site to the national network. In addition to these new projects, won in severe competitive environment, the Company has continued with the rollout of nationwide OFC network for various service providers. Keeping in view the Company's strengths and existing business, it has ventured in synergised business verticals of Defence, Railways and Smart & Safe cities. It has already participated in several brstigious large telecom RFPs and tenders and has also offered complete telecom network solutions to Railways for greenfield railway freight corridor networks. It has a strong team in place to deliver on the said business opportunities. Financial review Revenue from Operations The net sales during the year under review stood at Rs.2,551 Crore, higher than Rs.2,019 Crore recorded in 2013-14. The significant boost in net sales was from both products as well as services division. The net revenue from the Turnkey Contracts and Services division FY15 was Rs.1,985 Crore up from Rs.1,671 Crore in the brvious year. The net sales from Telecom Products division for FY15 stood at Rs.566 Crore, up from f347 Crore in the brvious year. Operating expenses The total operating expenses for the FY15 stood at Rs.2,285 Crore up from Rs.1,818 Crore in the brvious year. EBITDA The EBITDA during the year under review stood at Rs.266 Crore as against Rs.200 Crore in FY14. Profit after tax The profit after tax for the year under review came in at Rs.190 Crore, a jump from Rs.147 Crore recorded for the year FY14. The Net Profit Margin for the year under review was 7.44% up from 7.30% in FY14. The earnings per share for FY15 stood at Rs.1.49 per share up from Rs.1.15 in the brvious year. Net worth With better profitability, the net worth of the Company has increased during the year under review to Rs.1,013 Crore from Rs.839 Crore in the brvious year. The book value per share for the FY15 stood at Rs.8.17 as against Rs.6.77 in FY14. Gross debt The total gross debt at the end of the FY15 has marginally increased to Rs.294 Crore from Rs.284 Crore in the brvious year FY14. Gross block The total gross fixed asset for the FY15 stood at Rs.411 Crore, down from f493 Crore in the brvious year due to adjustment in debrciate value of impairment assets. Capital structure During FY15 the paid up capital of the Company stood at Rs.204.44 Crore. Risk Management With rapidly evolving technology and increasing globalization, risk management becomes even more critical for enterprises. As a leading telecom services and products Company, HFCL's business risks are similar to most of its peers. During the year, your Directors have constituted a Risk Management Committee to oversee the risk management efforts in the Company under the Chairmanship of Shri Mahendra Nahata, Managing Director as required under Clause 49 of the Listing Agreement. Your Company recognizes that risk is an integral part of business and is committed to managing the risks in a proactive and efficient manner. The Company periodically assesses risks in the internal and external environment. There are no risks which in the opinion of the Board threaten the existence of the Company. However, some of the risks which may pose challenges are setout below:- Economic Risk: The economic slowdown and adverse movement of key macroeconomic indicators can impact Company's business operations. Mitigation: The overall economic slowdown would have some bearing on Company's operations including deferment of roll out plans by customers. The Company, however, has a wide bouquet of products and services offering coupled with a strong balance sheet to face such slow down. Competition Risk: Company has to compete with various organized and un-organized peers, particularly when the business is being awarded through Tenders. Mitigation: The Company is a single window end-to-end solution provider that keeps it ahead of its peers. With its integrated capabilities, proven track record along with long standing relationships, the Company shall always remain a brferred supplier. Risk of Delay in Completion of Orders: There is a risk that delay in completion of orders may invoke penalties. Mitigation: The Company has well-defined operational policies driven by well experienced pool of executives who have capabilities to complete the orders in time. Foreign Exchange Risk: The Company imports various raw materials and volatility in exchange rates may impact Company's business adversely. Mitigation: HFCL protects its business interest with a well-defined currency hedging initiatives under professional consultants. Technology Risk: Foreign companies may license their technology to other manufacturers or may set up their own establishment in India. Mitigation: The Company gives priority to enhance its technology strengths by way of in-house R&D and technical tie-ups. It has set high standard of HR Policies to attract the best of technology talent in this direction. Government Policy Risk: Telecom is a policy driven sector and any adverse policy may have an impact on the Company. Mitigation: Government Policies actually wrote the success story for Telecom in last decade. Further, with a strong new Government in place, the Company believes that, Government policies shall not make any adverse impact. Internal Financial Controls The Company has in place adequate internal financial controls with reference to financial statements. The Company has adopted accounting policies which are in line with Accounting Standards brscribed in the Companies (Accounting Standard) Rules, 2006 that continue to apply under Section 133 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts), Rules, 2014 and relevant provisions of Companies Act, 1956 to the extent applicable. These are in accordance with generally accepted accounting principles in India. The Company has implemented Project Management Tool for better control of various ongoing/upcoming projects. The Company has also implemented SAP ERP system for EPC contracts. SAP has helped to minimize human errors and plugging the loopholes. The Company also has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and those transactions are authorized, recorded and reported correctly. HFCL has adequate and effective internal audit system, covering on a continuous basis, the entire gamut of operations and services spanning all locations, business and functions. The Audit Committee monitors the Internal Audit System on regular intervals and directs necessary steps to further improve the Internal Control System. Human Resource Development HFCL has a team of experienced and competent professionals. In the ever changing telecom scenario, the Company recognizes the need for training and retaining the talent pool of the Company. Employees have undergone technical trainings to further enhance their skills. Performance reviews of employees are conducted on regular basis to motivate and reward the performers. The total on roll employee strength of the Company as on 31st March, 2015 was 2370.
DIRECTORS' REPORT TO THE MEMBERS, The Directors have pleasure in brsenting the Annual Report and Audited Accounts for the financial year ended 31st March, 2015. DIVIDEND During the year under review, the Board of Directors at its meeting held on 27th January, 2015 has declared and paid first Interim Dividend of Rs.3.25 per share on 80,50,000, 6.5% Cumulative Redeemable Preference Shares (CRPS) of Rs.100/- each. The Board of Directors at its meeting held on 18th May, 2015 also declared second Interim Dividend of Rs.3.25 per shares on above CRPS for financial year ended 31st March, 2015. The Company has made the payment of Rs.6.12 Crore towards interim dividend on CRPS for financial year 2014-15. MANAGEMENT DISCUSSIONS & ANALYSIS (MDA) Management Discussions and Analysis (MDA) Report for the year under review as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is brsented in a separate section forming part of the Annual Report. CONSOLIDATED FINANCIAL STATEMENTS In accordance with the Companies Act, 2013 and Accounting Standard (AS) -21 on Consolidated Financial Statements read with AS-23 on Accounting for Investments in Associates and AS -27 on Financial Reporting of Interests in Joint Ventures, the audited consolidated financial statement is provided in the Annual Report. The Board of Directors of the Company at its meeting held on 18th May, 2015 has approved Consolidated Financial Statements of the Company and its subsidiaries, associates etc. However due to non availability of financial statements of one of the Associates, the same could not be consolidated at that point of time. The financial statements of said Associate were made available subsequently and accordingly the Board of Directors of the Company at its meeting held on 17th August, 2015 has approved the revised Consolidated Financial Results after incorporating the financial statements of said Associates in accordance with Accounting Standard-23 on Accounting for Investments in Associates in Consolidated Financial Statements. The Auditors have therefore issued revised Auditors' Report on the revised Consolidated Financial Statements for the Financial Year ended 31st March, 2015 in supersession to their original Consolidated Auditors' Report dated 18th May, 2015, which hereby stands withdrawn for this purpose. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE COMPANIES M/s HTL Limited and M/s Moneta Finance Private Limited, continue to be the subsidiaries of your Company. During the year under review, M/s HFCL Advance Systems Private Limited became the wholly owned subsidiary of the Company w.e.f. 23rd February, 2015. A separate statement containing the salient features of financial statements of all subsidiaries of your Company forms part of consolidated financial statements in compliance with Section 129 and other applicable provisions, if any, of the Companies Act, 2013. The financial statements of the subsidiary companies and related information are available for inspection by the members at the Registered Office of your Company during business hours on all days except Saturdays, Sundays and public holidays up to the date of the Annual General Meeting (AGM) as required under Section 136 of the Companies Act, 2013. Any shareholder desirous of obtaining the Annual Accounts and related information of the above subsidiary companies may write to the Company Secretary at M/s Himachal Futuristic Communications Ltd. 8, Commercial Complex, Masjid Moth, Greater Kailash - II, New Delhi - 110048 and the same shall be sent by post. The financial statements including the consolidated financial statements, financial statements of subsidiaries and all other documents required to be attached to this report have been uploaded on the website of the Company i.e. www.hfcl.com A report on the performance and financial position of each of subsidiaries, associates and joint venture companies as per the Companies Act, 2013 is provided as "Annexure - A" to the consolidated financial statement and hence not repeated here for sake of brevity. The policy for determining material subsidiaries as approved by the Board of Directors may be accessed on the Company's website at the link: <http://www.hfcl.com/Policy%20for%20determining%252> <http://0> material%20subsidiaries.pdf FIXED DEPOSITS During the financial year 2014-15, your Company has not accepted any deposit within the meaning of Section 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014. DISCLOSURE RELATING TO REMUNERATION OF DIRECTORS, KEY MANAGERIAL PERSONNELS AND PARTICULARS OF EMPLOYEES In accordance with Section 178 and other applicable provisions if any, of the Companies Act, 2013 read with the Rules issued thereunder and Clause 49 of the Listing Agreement, the Board of Directors of the Company at their meeting held on 27th January, 2015, formulated the Remuneration Policy on the recommendations of the Nomination and Remuneration Committee. The salient features covered in the Remuneration Policy have been outlined in the Corporate Governance Report which forms part of this Report. The Managing Director of your Company does not receive remuneration from any of the subsidiaries of the Company. The information required under Section 197 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of Directors/ employees of the Company is set out in "Annexure - A" to this Report and is available on the website of the Company. DIRECTORS & KEY MANAGERIAL PERSONNELS APPOINTMENTS/RE-APPOINTMENTS In compliance with the provisions of Section 149, 152, Schedule IV and other applicable provisions, if any, of the Companies Act, 2013 read with Companies (Appointment and Qualification of Directors) Rules, 2014, Shri M P Shukla was appointed as an Independent Director of your Company at 27th Annual General Meeting (AGM) held on 30th September, 2014 to hold office up to 2 (Two) consecutive years for a term up to the conclusion of the 29th AGM of the Company to be held in the calendar year 2016. At the aforementioned AGM, Shri Arvind Kharabanda, Director (Finance) was re-appointed for 2 (Two) years commencing from 1st June, 2014 to 31st May, 2016. During the financial year 2014-15, the Board of Directors appointed Shri Rajiv Sharma as Nominee Director of IDBI Bank Limited w.e.f. 17th November, 2014. Shri Rajiv Sharma is proposed to be appointed as Non-Executive Director liable to retire by rotation at the ensuing Annual General Meeting. Further, during the year under review the Board of Directors appointed Smt. Bela Banerjee as Additional/Non-Executive Independent Director w.e.f. 18th March, 2015 subject to the approval of shareholder at the ensuing AGM. Your directors recommend their appointments. Shri Arvind Kharabanda, Director (Finance) retires by rotation at this Annual General Meeting and being eligible offers himself for re-appointment. RESIGNATIONS During the year under review, the IDBI Bank Limited vide its letter No. CBG-SSCB.53/270/Nom.8 dated October 29, 2014 withdrew the nomination of Shri S G Nadkarni from the Board of the Company and accordingly he ceased to be a director of the Company w.e.f. 17th November, 2014. During the year under review, Shri Y L Agarwal resigned from the Board w.e.f. 19th March, 2015. The Board places on record its apbrciation for their valuable contributions during their association with the Company. FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS The details of programmes for familiarisation of Independent Directors with the Company, their roles, rights, responsibilities in the Company and related matters are put up on the website of the Company at the link <http://www.hfcl.com/FAMILIARIZATION%20> PROGRAM%20FOR%20INDEPENDENT%20DIRCTORS.pdf. ANNUAL EVALUATION OF BOARD PERFORMANCE In terms of the provisions of the Companies Act, 2013 read with Rules issued thereunder and Clause 49 of the Listing Agreement, the Board of Directors on recommendation of Nominations & Remuneration Committee have evaluated the effectiveness of the Board/Director(s) for financial year 2014-15. KEY MANAGERIAL PERSONNELS Shri Mahendra Nahata, Managing Director, Shri Arvind Kharabanda, Director (Finance), Shri V R Jain CFO and Shri Manoj Baid, Associate Vice-President (Corporate) & Company Secretary are the Key Managerial Personnel in accordance with the provisions of the Companies Act, 2013 and Rules made thereunder. PARTICULARS OF EMPLOYEES' AND RELATED DISCLOSURES In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in said rules are given in "Annexure - A" annexed herewith. NUMBER OF MEETINGS OF THE BOARD AND AUDIT COMMITTEE The details of the number of Board and Audit Committee meetings of the Company are set out in the Corporate Governance Report which forms part of this Report. DECLARATAION OF INDEPENDENCE The Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as brscribed under the provisions of Companies Act, 2013 read with the Schedules and Rules issued thereunder as well as Clause 49 of the Listing Agreement. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirements under Section 134(3)(c) of the Companies Act, 2013, the Directors confirm that: (a) in the brparation of the annual accounts for the financial year ended 31st March, 2015, the applicable accounting standards and Schedule III of the Companies Act, 2013, have been followed and there are no material departures from the same; (b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2015 and of the profit of the Company for the financial year ended 31st March, 2015; (c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for brventing and detecting fraud and other irregularities; d) the Directors have brpared the annual accounts on a 'going concern' basis; (e) the Directors have laid down proper internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. AUDITORS AND AUDITORS' REPORT At the 27th Annual General Meeting (AGM) of the Company, Khandelwal Jain & Company, Chartered Accountants (Firm Registration No. 105049W) was appointed as the Statutory Auditors to hold office till the conclusion of the 28th AGM of the Company. Khandelwal Jain & Co., Chartered Accountants, Auditors of the Company retire at the conclusion of the ensuing Annual General Meeting and having confirmed their eligibility, offer themselves for re-appointment. The Company has received necessary letter from them to the effect that their re-appointment, if made, would be within the brscribed limits under Section 141(3)(g) of the Companies Act, 2013 and that they are not disqualified for re-appointment. The Audit Committee and the Board of Directors, therefore, recommended re-appointment of Khandelwal Jain & Co., Chartered Accountants as Auditors of the Company for the financial year 2015-16 till the conclusion of next AGM, for the approval of the Shareholders. The observations in the Standalone Auditors' Report are self explanatory and do not call for any further comments. The Statutory Auditors in the Annexure to the Auditors' Report has mentioned about a slight delay in deposit of statutory dues in few cases. In future, management will make all efforts to deposit the same within time. SECRETARIAL AUDIT Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, your Company has appointed Mr. Baldev Singh Kashtwal, Practicing Company Secretary having Membership No. F3616 to conduct the Secretarial Audit of your Company. The Secretarial Audit Report is annexed herewith as "Annexure - B" to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. EXTRACT OF ANNUAL RETURN The details forming part of the extracts of the Annual Return in Form MGT - 9 in accordance with Section 92(3) of the Companies Act, 2013 read with the Companies (Management and Administration) Rules, 2014 are set out herewith as "Annexure - C" to this Report. RELATED PARTY TRANSACTIONS During the financial year 2014-15, Company has entered into transactions with related parties as defined under Section 2(76) of the Companies Act, 2013 read with Companies (Specification of Definitions Details) Rules, 2014, which were in the ordinary course of business and on arms' length basis and in accordance with the provisions of the Companies Act, 2013, Rules issued there under and Clause 49 of the Listing Agreement. During the year under review, the Company has sold old fixed assets worth Rs.27 lacs to its Subsidiary M/s HTL Limited, a related Party under Section 2(76) of the Companies Act, 2013 with the requisite approval of Audit Committee and Board of Directors. During the financial year 2014-15, there were no transactions with related parties which qualify as material transactions under the Listing Agreement. The details of the related party transactions as required under Accounting Standard - 18 are set out in Note - 43 to the standalone financial statements forming part of this Annual Report. The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company's website at the link <http://www.hfcl>. com/HFCL-Related%20party%20transactions%20policy.pdf LOANS, GUARANTEES AND INVESTMENTS The details of loans, guarantees and investments under Section 186 of the Companies Act, 2013 read with the Companies (Meetings of Board and its Powers) Rules, 2014 are as follows: CORPORATE SOCIAL RESPONSIBILITY (CSR) The Board of Directors of the Company at its meeting held on 18th March, 2015 approved the Corporate Social Responsibility (CSR) Policy for your Company pursuant to the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014. The CSR Policy outlines the CSR vision of your Company. For more information please refer CSR Policy <http://www.hfcl.com/CSR%020Policy.pdf>%0 <http://www.hfcl.com/CSR%020Policy.pdf>20Policy.pdf The Annual Report on CSR activities in accordance with the Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out herewith as "Annexure - D" to this Report. The Company is undertaking CSR activities through its Registered Society i.e. HFCL Social Services Society ("HSSS") established by the Company in the year 1996. VIGIL MECHANISM The Board of Directors of the Company have formulated a Whistle Blower Policy which is in compliance with the provisions of Section 177(10) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The Company, through this policy envisages to encourage the Directors and Employees of the Company to report to the appropriate authorities any unethical behaviour, improper, illegal or questionable acts, deeds, actual or suspected frauds or violation of the Company's Code of Conduct for Directors and Senior Management Personnel. The Policy on Vigil Mechanism/ Whistle blower policy may be accessed on the Company's website at the link <http://www.hfcl.com/Whisle%020Blower%020Policy.pdf>%0 <http://www.hfcl.com/Whisle%020Blower%020Policy.pdf>20Blower <http://www.hfcl.com/Whisle%020Blower%020Policy.pdf>%0 DEPOSITORY SYSTEMS The Company's scrip has come under compulsory dematerialization w.e.f. 29th November, 1999 for Institutional Investors and w.e.f. 17th January, 2000 for all Investors. So far, 99.96% of the equity shares have been dematerialized. The ISIN allotted to the equity shares of the Company is INE548A01028. CHANGE IN REGISTRAR AND SHARE TRANSFER AGENT (RTA) During the year under review, the Board of Directors of the Company at its meeting held on 18th March, 2015 has decided to change its existing RTA M/s. MCS Limited to M/s. MCS Share Transfer Agent Ltd. having its office at F-65, First Floor, Okhla Industrial Area, Phase - I, New Delhi 110020. CORPORATE GOVERNANCE A separate Report on Corporate Governance as stipulated under Clause 49 of the Listing Agreement along with the Auditors' Certificate on its Compliance is given as a part of the Annual Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS/ OUTGO The information on conservation of energy, technology absorption and foreign exchange earnings and outgo as stipulated under Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 is set out herewith as "Annexure - E" to this Report. SIGNIFICANT/MATERIAL ORDERS PASSED BY THE REGULATORS There are no significant/material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of your Company and its operations in future. GENERAL a) Your Company has not issued equity shares with differential rights as to dividend, voting or otherwise; b) Your Company does not have any ESOP scheme for its employees/directors. c) Neither the Managing Director nor the Wholetime Director of the Company receive any remuneration or commission from any of its subsidiaries. Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. CAUTIONARY STATEMENT Statement in the Management Discussions and Analysis describing the Company's projections, estimates, expectations or brdictions may be 'forward looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that would make a difference to the Company's operations include demand supply conditions, raw material prices, changes in government regulations, tax regimes and economic developments within the country and abroad and such other factors. ACKNOWLEDGEMENTS The Directors thank the Central Government, Govt. of Himachal Pradesh, Govt. of Goa, IDBI Bank Limited, State Bank of India, Oriental Bank of Commerce, Punjab National Bank, Bank of Baroda, Union Bank of India and other Banks for all co-operations, facilities and encouragement they have extended to the Company. Your Directors acknowledge the continued trust and confidence you have reposed in this Company. The Directors also place on record their apbrciation for the services rendered by the officers, staff & workers of the Company at all levels and for their dedication and loyalty. For and on behalf of the Board M P Shukla Chairman Date:17th August, 2015 Place: New Delhi |