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Directors Report of HBL Power Systems Ltd.

Mar 31, 2015

Dear Members

The Board of Directors take pleasure in presenting the 29th Annual Report for the financial year ended on 31st March 2015. The financial performance is presented below (stand-alone basis).

(Rs,In Lacs)

S No. Particulars 2014-15 2013-14

1 Net Sales 133007.03 128079.35

2 Other Income 1660.52 1001.53

3 Total Income 134667.55 129080.88

4 Total Expenditure 118462.23 118099.59

5 Profit before interest, depreciation and tax (PBIDT) 16205.32 10981.29

6 Finance Cost 7066.02 7573.87

7 Depreciation & Amortization expenses 5103.85 3850.95

8 Profit/(loss) before Exceptional and Extra-ordinary items and Tax 4035.45 (443.53)

9 Exceptional Items – Income / (expenses) (1503.82) 5653.98

10 Profit before tax (PBT) 2531.62 5210.45

11 Provision for tax & tax adjustment 1069.55 709.40

12 Net Profit after Tax (PAT) for the year 1462.07 4501.05

13 Transfer to General Reserve 500.00 500.00

14 Earnings Per Share (Diluted EPS of Rupees) 0.58 1.78

15 Proposed Dividend (on share of Re 1 each face value) 20% 20%

Performance Review 2014-15:

While the regulatory and procedural reforms undertaken by the new Government since taking office in June last year did help improve the business climate prevailing in the country, weak demand continued to constrain the private sector activity. Economic activity witnessed a steady, albeit slow recovery through the year. Even amidst this scenario, your Company demonstrated resilience to economic cycles. Sales during the year showed a marginal improvement. Greater emphasis was laid on cost control measures and operational efficiencies. This yielded a profit of Rs.4035.45 lacs during the year, compared to a loss of Rs.443.53 lacs in the previous year. After providing for Rs.1503.82 lacs towards exceptional items (compared to Rs.5653.98 lacs income in the previous year), and a suitable provision for depreciation as per rates in Schedule II of the Companies Act 2013 and amortization of expenses, Profit Before Tax (PBT) was Rs.2531.62 lacs as compared to Rs.5210.45 lacs in the previous year. Net Profit after Tax (PAT) tax and adjustments for the year was Rs.1462.07 lacs as compared to Rs.4501.05 lacs in the previous year.

During the year severe damage was caused by Hudhud cycione to stocks, assets and operations in the Company's Lead Acid Plant at Vizianagaram and Nickel and PE Plants at SEZ. Visakhapatnam. The impact of the cyclose was so serve, it resulted in a loss of production for about 30 days and another 30 days partially during restoration. The Company had lodged a claim with the Insurers towards recovery of the losses and also for loss of profit. A suitable provision was made for loss incurred due to damages to Inventory and repairs and restoration expenses including interim settlement in the accounts of the year. Final settlement of the claim is pending with the Insurers.

Current year's performance:

On the whole overall markets have not shown significant growth. Telecom market demand (which constitutes your Company's prime business segment) continues to be stagnant with a modest growth. Delays in Railway and Defence business segments also have an affect on Company's operations. Your Directors have taken necessary corrective steps and barring unforeseen circumstances, performance of the Company in the coming years is expected to be encouraging. The Management Discussion and Analysis section of the Annual Report presents a detailed business review of the Company.

Dividends:

Your Directors are pleased to recommend 20% dividend (ie Re.0.20/- per equity share of Re.1 fully paid up share ) (Previous Year 20%) for the Financial Year 2014-15, subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Corporate Dividend Tax will absorb Rs. 609.01 lacs.

Transfer to reserves

The Company proposes to transfer Rs. 500 lacs to the General reserve out of the amount available for appropriation from current year profits.

Subsidiary Companies:

The Consolidated Financial Statements of the Company and its subsidiaries, prepared in accordance with the Companies Act, 2013 and applicable Accounting Standards form part of this Annual Report. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies, associates and joint ventures.

The Company has four subsidiaries as on March 31, 2015, namely,

1. SCIL Infracon Private Limited

2. HBL Suntech LLP

3. HBL America Inc.

4. HBL Germany GmBH, Germany

There is one associate Company namely Naval Systems & Technologies Pvt Ltd (NSTL) within the meaning of Section 2(6) of the Companies Act, 2013 ("Act"). The Company having one Joint Venture Company namely Gulf Batteries Co. Ltd (JV in the Kingdom of Saudi Arabia -KSA).

There has been no material change in the nature of the business of the subsidiaries. Pursuant to provisions of Section 129(3) of the Act, a statement containing salient features of the financial statements of the Company's subsidiaries in Form AOC-1 is attached to the financial statements of the Company.

Pursuant to the provisions of section 136 of the Act, the financial statements of the Company, consolidated financial statements along with relevant documents and separate audited accounts in respect of subsidiaries, are available on the website of the Company.

During the year, operations of following subsidiaries were reviewed:

SCIL Infracon Private Limited (SIPL):

Considering various alternative options, a proposal was in principle approved for merger of SIPL with its holding company (HBL) to harness business synergy and operational growth, subject to usual procedures and approvals Necessary clearances were obtained from BSE and NSE respectively by way of observation letter for a draft scheme of amalgamation in the nature of merger. Approval of the Hon'ble High Court of Judicature at Hyderabad for AP and Telangana is yet to be obtained.

HBL Suntech LLP

Due to unviable business outlook, the designated partners of HBL Suntech LLP proposed to discontinue further operations of HBL Suntech LLP from April 2014 onwards. Matters related to existing business are being looked at in order to conclude various pending issues.

MATERIAL CHANGES AND COMMITMENTS:

No material changes and commitments have occurred after the closure of the Financial Year 2014-15 till the date of this Report which would affect the financial position of your Company.

Directors' Responsibility Statement:

Pursuant to Section 134(5) of the Companies Act, 2013, the board of directors, to the best of their knowledge and ability, confirm that:

i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures;

ii. they 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 at the end of the financial year and of the profit of the Company for that period;

iii. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. they have prepared the annual accounts on a going concern basis;

v. they have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and operating effectively;

vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory and secretarial auditors and external consultants and the reviews performed by management and the relevant board committees, including the audit committee, the board is of the opinion that the Company's internal financial controls were adequate and effective during the financial year 2014-15.

Directors and key managerial personnel

Dr. A J Prasad has been continuing as Chairman and Managing Director of the Company. He is attaining the age of 70 in the next few months and his term of appointment would expire on 30th September, 2015. The Board, in view of his significant contribution in the development of the Company from inception, recommends for his re-appointment as Chairman and Managing Director of the Company after Complying with the necessary provisions of the Companies Act 2013 and rules made thereunder.

During the year Mrs. Kavita Prasad resigned from the Board and IDBI Bank Limited replaced its nominee Mr. VVS Ravindra with Mr. J Vidya Shankar w.e.f. 14th November, 2014. Subsequent to the date of Balance Sheet, IDBI Bank Limited, at the request of the Company has withdrawn its nomination of Mr. J Vidyashankar also w.e.f. 5th June 2015. Your Board conveys sincere appreciation for their service during their tenure as Directors.

During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company.

Number of meetings of the board

Four meetings of the board were held during the year. For details of the meetings of the board, please refer to the corporate governance report, which forms part of this report.

Board evaluation

The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc.

The performance of the committees was evaluated by the Board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc.

The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the Board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the Chairman was also evaluated on the key aspects of his role.

In a separate meeting of independent Directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent Directors, at which the performance of the Board, its committees and individual directors was also discussed.

Policy on Directors' appointment and remuneration and other details

The Company's policy on directors' appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report, which forms part of the directors' report.

Audit committee

The details pertaining to composition of Audit Committee are included in the Corporate Governance Report, which forms part of this report. The Board of Directors has accepted all the recommendations of the Audit Committee.

Statutory Auditors

At the 28th AGM held on 27 December 2014 shareholders have appointed, M/s Satyanarayana & Co and M/s. Rao & Kumar Chartered Accountants, as 'Joint Statutory Auditors' (JSA) to hold office until conclusion of next AGM to be held in 2015.

One of the Joint Statutory Auditors, M/s. Satyanarayana & Co, Chartered Accountants (FRN 03680S), after a distinguished service for over 29 years, expressed their unwillingness to seek reappointment at the next Annual General Meeting. Due to certain unavoidable reasons, M/s Satyanarayana & Co expressed their inability to carry out the audit and subsequent certification of the Consolidated Financial Statements and Financial Results for First Quarter ending June 2015. The standalone financial statements of the Company for the year ended on 31 March 2015 were duly approved at the Board meeting held on 29 May 2015 and were then jointly certified by both the auditors.

In this situation, the Management requested M/s. Rao & Kumar, Chartered Accountants to take up the function that would otherwise have to be carried out jointly by both Joint Statutory Auditors, which they have accepted.

In view of this, your Board, while conveying its sincere appreciation for the services rendered by M/s. Satyanarayana & Co. Chartered Accountants on recommendation of the Audit Committee and pursuant to the provisions of section 139 of the Companies Act, 2013 and the Rules made thereunder, proposes to appoint M/s Rao & Kumar, Chartered Accountants (FRN 03089S) Visakhapatnam who are Joint Statutory Auditors of the Company to be re-appointed as Independent Statutory Auditors from the conclusion of the Annual General Meeting (AGM) till the conclusion of the thirty-first AGM to be held in the year 2017, subject to ratification of their appointment at every AGM.

EXPLANATION OR COMMENTS ON QUALIFICATIONS, RESERVATIONS OR ADVERSE REMARKS OR DISCLAIMERS MADE BY THE AUDITORS AND PRACTICING COMPANY SECRETARY IN THEIR REPORTS:

The Board has considered the observations/ queries as raised by the Statutory Auditors and the explanations are as under. Report of the secretarial auditor is given as an annexure which forms part of this report.

Comments of the Auditors Board's reply

Basis for Qualified Opinion There is a regular practice of circulating balance Reference is drawn to Note No.31. Some of the year end confirmation letters every year. Some of the parties, balances appearing under the heads referred to therein mostly Government department customers are confirmation / reconcilia- have not tion and consequential responded in time. Such letter says that the balance is adjustments. In the absence of (a) Confirmation of deemed confirmed or accepted if the reply is not received Balances; (b) Cause wise analysis of such balances and in a stipulated time. The Company believes there will (c) details of counter claims, if any, from the customers, not be any material impact of such balances or claims we are not in a position to ascertain the quantum and even if the letters are received. its consequential overall impact on the financial statements.

Emphasis of Matters

Some of the vendors who come under the purview of

1) We draw attention to Note 8.1 to Financial statements MSMED Act 2006 have a continuous which states that interest on business. delayed payments to parties, relationship with the Company for a long time. No claims registered as MSME under the MSMED Act, 2006, is not were received by the Company for interest. If any such provided for, as in the absence of any claim from the said claims are received, they will be treated on cash basis. parties, they are reckoned as 'not due' by the company.

2) We draw attention to Note 15.3 to Financial Statements The Company has already taken a suitable legal recourse in respect of repudiation, by the Insurers, of a claim in this matter and the outcome is made awaited. by the company, in respect of which the company had initiated legal action for recovery, the outcome of which is uncertain at this stage.

Our opinion is not qualified in respect of the above matters.

Report on other legal and regulatory requirements Gulf Batteries Co Ltd is a JV in the KSA in which the Company holds 40% shareholding. The JV Company has

2(d)In our opinion, the aforesaid standalone financial since given the audited financial statements for the year statements comply with the Accounting Standards specified ended 31 December 2014 (which is the financial year of under Section 133 of the Act, read with Rule 7 of theJV Company in that country) and unaudited financial Companies (Accounts) Rules, 2014 except for the disclosure reports for the quarter ended 31 March 2015. These to be made in pursuance of Accounting Standard AS-27, reports have been used to prepare the Consolidated for the reasons detailed in Note No. 34.8. Financial Statements,

iii) As on the date of the Balance Sheet, there was a This was since transferred by the Company in April 2015. delay in transferring Un- claimed / Un- paid Dividend amount. The amount of Rs. 2.15 lakhs relating to Financial Year 2006-07 which is required to be transferred, to the Investor Education Protection Fund in November 2014 was actually transferred by the Company in April 2015.

INTERNAL FINANCIAL CONTROLS

Pursuant to Section 134 of the Companies Act 2013, the Directors state that the Board, through the operating management has laid down Internal Financial Controls to be followed by the Company. To the best of their knowledge and ability and inputs provided by various assurance providers confirm that such financial controls are adequate and were operating effectively.

Particulars of loans, guarantees and investments

The particulars of loans, guarantees and investments have been disclosed in the financial statements.

Transactions with related parties

None of the transactions with related parties falls under the scope of Section 188(1) of the Act. Information on transactions with related parties pursuant to Section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure I in Form AOC-2 and the same forms part of this report. Related party transactions are in the ordinary course of business and on arm's length basis.

Corporate social responsibility

The Company has a Board-level committee that supervises its Corporate Social Responsibility (CSR) activities. The brief outline of the CSR Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure II of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Extract of annual return

As provided under Section 92(3) of the Act, the extract of annual return is given in Annexure III in the prescribed Form MGT-9, which forms part of this report.

Particulars of employees

The information required under Section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

1. Employee Name Mr. Suresh Kalyan

2. Total CTC Paid (Rs,lacs) Rs. 37.50 lacs

3. Designation and Nature of Duties Chief Operating Officer (COO)

4. Qualification BSc., Chartered Accountant

5. Exp.(Yrs.) 26

6. Date of commencement of employment 17.11.2014

7. Age 51

8. Last employment held before Joining the Company Amara Raja Batteries Limited, Hyderabad, as President – Finance

a. The ratio of the remuneration of each Non-Executive director to the median remuneration of the employees of the Company for the financial year: Not Applicable as none of the Non-Executive was paid any remuneration.

b. The percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary in the financial year:

Please refer para (h) below

c. The percentage increase in the median remuneration of employees in the financial year: 16 %

d. The number of permanent employees on the rolls of Company: 2458 (as at 31 March 2015)

e. The explanation on the relationship between average increase in remuneration and Company performance:

On an average, employees received an annual increase of 16%. The individual increments varied from 4% to 25%, based on individual performance. As per the remuneration policy of your Company, employees are compensated broadly in comparison with the median of the comparator basket, on the basis of performance, potential and criticality for achieving competitive advantage in the business. Salary increases during the year were in line with your Company's performance as well as per inflation and motivational factors.

f. Comparison of the remuneration of the key managerial personnel against the performance of the Company:

Aggregate remuneration of key managerial personnel (KMP) in FY2014-15 (Rs,lacs) 242.83

Revenue ( lacs)) 134667.55

Remuneration of KMPs (as % of revenue) 0.18

Remuneration of KMP (as % of PBT) 9.59

g. Variations in the market capitalisation of the Company, price earnings ratio as at the closing date of the current financial year and previous financial year:

Particulars March 31, 2015 March 31, 2014 % Change

Market Capitalisation (Rs. crores) 1209.30 247.18 489.24

Price Earnings Ratio 87.93 5.49 1601.64



h. Comparison of each remuneration of the key managerial personnel against the performance of the Company:

Amount in Rs. lacs.

Particulars Dr. AJ Prasad Mr. MSS Mrs. Kavita Srinath Prasad

Designation CMD Executive Executive Director Director (upto 14 Feb 2015)

Remuneration in FY 41.28 18.36 15.30 2014-15

Commission on profit 113.14 - -

Revenue 134667.55 134667.55 134667.55

Profit before Tax (PBT) 2531.62 2531.62 2531.62

Remuneration as % 0.11 0.01 0.01 of Revenue

Remuneration 6.09 0.72 0.60 (as % of PBT)



Particulars Mr. MVSS Mr.K Mahidhar Kumar

Designation Company Vice President Secretary Finance

Remuneration FY 24.75 30.00 2014-15

cOMMISSION on Profit - -

Revenue 134667.55 134667.55

Profit before Tax (PBT) 2531.62 2531.62

REMUNERATION as % 0.01 0.02 of Revenue

Remuneration (as % of 0.97 1.18 PBT)

j. The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: 41%

Disclosure requirements

As per Clause 49 of the listing agreements entered into with the stock exchanges, corporate governance report with auditors' certificate thereon and management discussion and analysis are attached, which form part of this report.

The Company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees including directors of the Company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and the revised Clause 49 of the Listing Agreements with stock exchanges.

Deposits from public

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo:

Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in the Annexure hereto.

Corporate Governance:

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section titled "Report on Corporate Governance" is attached to the Annual Report.

Cost Auditors:

Your Board has appointed M/s K. Narashima Murthy & Co., Hyderabad, Cost Accountants as Cost Auditors of the Company for conducting the audit of cost records of the Company for the financial year 2014-15. Your Board proposes to re-appoint them as Cost Auditors for 2015-16 subject to the approval from Central Government.

Secretarial Auditors:

Your Board has appointed Mr. Naresh Kumar Chanda (MS No.6094 and CP No.8153)) Practicing Company Secretary as a Secretarial Auditors for the financial year 2014-15.

Acknowledgements:

Your Directors take this opportunity to thank all the Company's Bankers and Financial Institutions, the concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services.

The Board of Directors also thanks all its Shareholders for the confidence reposed in the Management.

For and on behalf of the Board

Dr. A J Prasad

Place :Hyderabad Chairman and Managing Director

Date : 14th August, 2015


Mar 31, 2014

Dear Members

The Board of Directors take pleasure in presenting the 28th Annual Report for the financial year ended on 31st March 2014. The financial performance is presented below (stand-alone basis).

(Rs. In Lacs)

S No. Particulars 2013-14 2012-13

1 Net Sales 1,28,079.35 1,19,741.69

2 Other Income 1,001.53 913.19

3 Total Income 1,29,080.88 1,20,654.88

4 Total Expenditure 1,18,099.59 1,04,773.27

5 Profit before interest, depreciation and tax (PBIDT) 10,981.29 15,881.61

6 Finance Cost 7,573.87 9,339.84

7 Depreciation & Amortization expenses 3,850.95 4,008.50

8 Profit/(loss) before Exceptional and Extra-ordinary items and Tax (443.53) 1,754.70

9 Exceptional Items - Income 5,653.98 778.56

10 Profit before tax (PBT) 5,210.45 2,533.26

11 Provision for tax & tax adjustment 709.40 488.84

12 Net Profit after Tax (PAT) 4,501.05 2,044.42

13 Transfer to General Reserve 500.00 500.00

14 Earnings Per Share (Diluted EPS of Rupees) 1.78 0.81

15 Proposed Dividend (on face value of share Re 1 each) 20% 15%

Performance Review 2013-14:

The total operating income for the year was Rs.1,29,80.88 lacs representing a growth of approximately 7% as compared to previous year income of Rs.1,20,654.88 lacs. However due to various predominant reasons attributed to the industry concerned particularly cost of raw material, the expenditure was also increased by 12.7%. This has resulted in deceased PBIDT for the year which stood at Rs. 10,981.29 lacs compared to Rs. 15,881.61 lacs in the previous year. After suitable provision for depreciation and amortization of expenses, PBT for the year was Rs. 5,210.45 lacs compared to Rs. 2,533.26 lacs in the previous year and after making a provision of Rs. 709.40 lacs for tax and tax adjustments for the year; the net profit (PAT) for the year was Rs. 4,501.05 lacs as compared to Rs. 2,044.42 lacs in the previous year.

Current year''s performance:

Due to macro economic factors overall markets have not shown significant growth. Telecom market demand (which constitutes Company''s prime business segment) continued to be stagnant. Delays in Railway and Defence business also have an affect on Company''s operations. The combined factors have put pressure on Company''s performance during 2014-15. Your Directors have taken necessary corrective steps and barring unforeseen circumstances, performance of the Company in the coming years is expected to be encouraging.

Dividends:

Your Directors are pleased to recommend a dividend of Rs. 0.20/- per equity share of Rs. 1/-fully paid up share @20% (Previous Year 15%) for the Financial Year 2013-14, subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Corporate Dividend Tax will absorb Rs. 591.99 lacs.

Investment/divestments in Subsidiary/ Joint Venture/Associate Companies and LLP:

Divestments:

During the year your Company divested its entire stake in Agile Electric Sub-assembly Private Limited and Sankhya Infotech Limited. This fetched an extraordinary income by way of profit from sale of investments, amounting to Rs. 5,644.64 lacs.

SCIL Infracon Private Limited (SIPL):

Members are aware that from October 2012 performance was affected by an unjustified stoppage by workmen of the company. This continued throughout the year 2013-14. After exhausting all means of fair discussion and negotiations, the matter was referred to Labour Department, Government of Andhra Pradesh. A final settlement was reached on 28 March 2014 in the presence of Additional Commissioner of Labour, Hyderabad and Joint Commissioner of Labour, RR Zone. The issue was closed after full and final settlement was since made by the Company.

As a result, financial results for the year showed a down trend. Considering various alternative options, a proposal was in principle approved for merger of SIPL with its holding company HBL to harness business synergy and operational growth, subject to usual procedures and approval of the Hon''ble High Court of Judicature at Hyderabad for AP and Telangana. A legal suite and an arbitration petition filed by former promoter of Shakti Concrete Industries Limited (SCIL) is pending before the Hon''ble Court.

HBL Germany GmbH

Due to unethical behavior of some local employees, there were some disruptions and losses in this Subsidiary. Necessary corrective steps have been taken by the Company. This has led to the delay in finalizing the Consolidated Financial Statements of the Company.

HBL Suntech LLP

Due to unviable business outlook, the designated partners of HBL Suntech LLP proposed to discontinue further operations of HBL Suntech LLP from April 2014 onwards. Matters related to existing business are being looked at in order to conclude various pending issues.

Events after Balance Sheet date

During October 2014, a very severe cyclonic storm Hudhud caused extensive damage to the city of Visakhapatnam and the neighbouring districts of Vizianagaram and Srikakulam in Andhra Pradesh with wind speeds of over 200 kmph. This resulted in damages to Company''s factories in VSEZ and at Vizianagaram. Production operations at Vizianagaram were since partially restored after a gap of three weeks, while production at VSEZ is expected to be recommenced shortly after restoration of assets into their working condition. The incident was reported to the insurers. The value of damage caused and impact due to stoppage of production is in the process of ascertainment by the Company, which would be apprised by the insurance surveyors and loss adjusters appointed by the insurance company. The Company has in place suitable all risk insurance policies to cover the risks.

Directors'' Responsibility Statement:

In Compliance with the Provisions of Section 217(2AA) of the Companies Act, 1956, your Directors wish to place on record -

1. That in preparing the Annual Accounts, all applicable Accounting Standards have been followed;

2. That the Accounting Policies adopted are consistently followed and the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the State of Affairs of the Company at the end of the Financial Year and the Statement of Profit and Loss of the Company for the Financial Year under review:

3. That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing / detecting fraud and other irregularities; and

4. That the Annual Accounts have been prepared on a Going Concern basis.

Corporate Governance:

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section titled "Report on Corporate Governance" is attached to the Annual Report.

Consolidation of Accounts

In accordance with the requirements of Accounting Standards AS 21 read with AS 27 prescribed by the Institute of Chartered Accountants of India, the Consolidated Accounts of the company and its Subsidiaries/ JVs are annexed in this Annual Report.

In view of general exemption granted by the Ministry of Corporate Affairs under Section 212(8) of the Companies Act, 1956 vide its General Circular No.2/2011 dated 8th February 2011, companies are exempted from the provisions of section 212 of the Companies Act 1956 subject to fulfillment of conditions therein. Accordingly, the Board has passed required resolution in respect thereof for not attaching the Balance sheets of the following subsidiary companies:

1. SCIL Infracon Private Limited

2. HBL Suntech LLP

3. HBL America Inc.

4. HBL Germany GmBH, Germany

5. Gulf Batteries Company Ltd (JV company in KSA)

Hence, in this annual report, the audited financial statements (standalone and consolidated) prepared in compliance with the applicable Accounting Standards, Listing Agreements prescribed by SEBI, have been attached and no individual Balance sheet or other information of subsidiaries is attached or disclosed except to the extent of the information as required to be disclosed under the condition (iv) of the Circular No.2/2011 dated 8th February 2011.

The Company undertakes that the Annual Accounts of the subsidiary Companies and the related detailed information will be made available to any member of the Company who may be interested in obtaining the same. The Annual Accounts of the subsidiary companies will also be kept open for inspection during business hours at the registered office of the Company.

Auditors'' Report:

The Board has considered the observations/ queries as raised by the Statutory Auditors and the explanations are as under.

Our comments on the financial statements for the year are as under (Stand-alone Financial Statements):

Reference is drawn to Note No.30. Some of the year end balances appearing under the heads referred to therein are subject to confirmation/ reconciliation and consequential adjustment, the impact of which is not quantifiable by us.

Our reply: The Company has a practice of sending confirmatory letters every year to all parties. The company has circulated confirmatory letters to various parties during the year. Some of them have not responded in time. Such letter says that the balance is deemed accepted or confirmed if no reply was received in stipulated time.

Our comments on the financial statements for the year are as under (Consolidated Financial Statements):

As per paragraph 26 of AS 21 on Consolidated Financial Statements, the excess and further losses attributable to Minority are to be adjusted against the Majority Interest except to the extent that the Minority has binding obligation and is able to make good the losses. Pending any Contribution from the Minority Partner, we are unable to comment on the treatment accorded (refer note 4.1) in the financial statements.

Our reply: The Company and an individual are designated partners in a Limited Liability Partnership (LLP) Firm. The Minority partner in LLP agreed to contribute 40% towards Capital as per LLP Agreement which is yet to be contributed. Proportionate share of loss in LLP was allocated to the Partner as per LLP Agreement signed by both parties. This is considered as due and recoverable and accordingly shown as minority interest.

Reference is invited to Note No. 37.3, regarding non-provision of depreciation to the tune of Rs.138.22 lakhs in variance to the prescription laid down by the Accounting StandardAS-6 on Depreciation Accounting resulting in overstatement of Profit before tax for the year with a corresponding overstatement of Reserves and Fixed Assets as at 31-3-2014.

Our reply: The Company''s wholly owned subsidiary SCIL Infracon Private Limited (SIPL) operations were affected from October 2012 due to unjustified stoppage of work by workmen. This continued throughout the year 2013-14. A final settlement was reached on 28 March 2014 in the presence of Additional Commissioner of Labour, Hyderabad and Joint Commissioner of Labour, Government of Andhra Pradesh. Depreciation was provided on the basis of actual usage of plant during this period in the individual Company''s financial statements. However in line with Accounting Standard AS-6 on Depreciation Accounting, for the year 2012-13 and 2013-14, Rs.46.85 lacs and Rs. 91.37 lacs were respectively required to be provided for. Had this been provided for, the individual Company''s losses would have been higher to that extent when actually the factory was not in operation during that period.

Directors:

Mrs. Kavita Prasad, Director retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. Mr. J Vidya Shankar was nominated by IDBI Bank Limited in place of Mr. VVS Ravindra who was co-opted with effect from 14th November, 2014. The Board conveys appreciation for the advice and guidance of VVS Ravindra during his tenure.

Pursuant to the provisions of the Companies Act, 2013 and rules made thereunder, Mr. J Vidya Shankar holds office upto the date of ensuing Annual General Meeting of the Company. The Board recommends his name for appointment as a Director at ensuing Annual General Meeting of the Company in accordance with the provisions of the Companies Act, 2013.

As per section 149(4) of the Companies Act, 2013 (Act), which came into effect from April 1,2014, every listed public company is required to have at least one-third of the total number of directors as Independent Directors. In accordance with the provisions of section 149 of the Act, Mr. P Ganapathi Rao and Mrs. Preeti Khandelwal, Directors are proposed to be appointed as Independent Directors to hold office as per their tenure of appointment mentioned in the Notice of the forthcoming Annual General Meeting (AGM) of the Company.

Auditors:

Statutory Auditors:

Joint Statutory Auditors M/s Satyanarayana & Co., Chartered Accountants, Secunderabad and M/s. Rao & Kumar Chartered Accountants, Visakhapatnam, hold office till the conclusion of the forthcoming AGM and are eligible for re- appointment. Pursuant to the provisions of section 139 of the Companies Act, 2013 and the Rules made thereunder, it is proposed to appoint M/s Satyanarayana & Co., Chartered Accountants, Secunderabad and M/s. Rao & Kumar Chartered Accountants, Visakhapatnam as Joint Statutory Auditors of the Company from the conclusion of the forthcoming AGM till the conclusion of the thirty-first AGM to be held in the year 2017, subject to ratification of their appointment at every AGM.

Cost Auditors:

Your company proposes to re-appoint the cost auditors M/s K. Narashima Murthy & Co., Hyderabad, subject to the approval from Central Government.

Personnel & Industrial Relations:

Your Company continues to enjoy cordial relations with the employees.

No employee of the Company was in receipt of remuneration during the financial year 2013-14 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 as amended from time to time.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo:

Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 217(1)(e) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Acknowledgements:

Your Directors take this opportunity to thank all the Company''s Bankers and Financial Institutions, the concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services.

The Board of Directors also thanks all its Shareholders for the confidence reposed in the Management.

For and on behalf of the Board

Place : Hyderabad Dr. A J Prasad

Date : 14th November 2014. Chairman and Managing Director


Mar 31, 2013

Dear Members

The Board of Directors take pleasure in presenting the 27th Annual Report for the financial year ended on 31st March 2013. The financial performance is presented below (stand-alone basis).

(Rs. In Lacs)

S. No.Particulars 2012-13 2011-12

1 Net Sales 1,19,741.69 1,08,952.93

2 Other Income 913.19 1,647.21

3 Total Income 1,20,654.8 1,10,600.15

4 Total Expenditure 1.04,773.27 96,013.28

5 Profit before interest, depreciation and tax (PBIDT) 15,881.61 14,586.87

6 Finance Cost 9,339.84 8,980.87

7 Depreciation & Amortisation expenses 4,008.50 3,436.12

8 Profit before tax (PBT) 2,533.26 2,169.88

9 Provision for tax & tax adjustment 488.84 1,209.73

10 Net Profit after Tax (PAT) 2,044.42 960.15

11 Transfer to General Reserve 500.00 500.00

12 Earnings Per Share (Diluted EPS of Rupees) 0.81 0.38

13 Proposed Dividend (on face value of share Re 1 each) 15% 15%

Performance Review 2012-13:

Overall Income of the Company for the year 2012-13 was recorded at Rs. 120654.88 lacs as compared to previous year income of Rs.110600.15 lacs showing an increase of 9.09% compared to previous year. This has resulted in an increase in PBIDT for the year which stood at Rs.15881.61 lacs compared to Rs. 14586.89 lacs in the previous year. In spite of an increase in finance cost, after suitable provision for depreciation and amortization expenses, PBT for the year was Rs.2533.26 lacs compared to Rs. 2169.90 lacs in the previous year. This showed a marginal growth. However, after making a provision of Rs. 488.84 lacs for tax and tax adjustments for the year; the net profit (PAT) for the year was Rs.2044.42 lacs as compared to Rs.960.17 lacs in the previous year.

Current year''s performance:

Though demand from telecom sector increased marginally, due to macro economic factors overall markets have not shown a significant growth. Your Board has taken necessary safe guards to increase sales from other non-telecom areas. The efforts are giving returns and barring unforeseen circumstances, it is believed that the current year''s operations will be satisfactory. The Management Discussion and Analysis section of the Annual Report envisages future areas of business growth.

Dividends:

Your Directors are pleased to recommend a dividend of Rs.0.15/- per equity share of Re.1/-fully paid up share @15% (Previous Year 15%) for the Financial Year 2012-13, subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Corporate Dividend Tax will absorb Rs.441.06 lacs.

Investment/divestments in Subsidiary/ Joint Venture/Associate Companies/LLP''s:

Agile Electric Sub-Assembly Private Limited:

During the year your Company continued to hold its shares in Agile Electric Sub-assembly Private Limited during 2012- 13. However, since the date of Balance sheet, the Board of the Company decided to sell the entire stake held by the Company in its subsidiary, Agile Electric Sub Assembly Private Limited to certain Private Equity investors in order to I mobilize cash resources for its core operations. The transaction is expected to be completed shortly.

HBL America Inc:

-1 During the year, your company has invested an amount of Rs. 28.11 lacs (USD 50,000) in its Wholly Owned Subsidiary in USA under the name HBL America Inc. and the total investment was Rs.223.99 lacs.

SCIL Infracon Private Limited (SIPL):

During the financial year 2012-13 the performance of the company was affected by an unjustified stoppage of workmen of the company from October 2012. After exhausting all means of fair discussion and negotiations, the matter was referred to Labour Department, Government of Andhra Pradesh. The conciliation proceedings convened by the Deputy Labour Commissioner and Joint Commissioner have failed. The matter is pending before the Authorities.

Operations in 2012-13 reflected only first six months compared to a full year in 2011-12. Even during the first six months, severe power shortages in the state, order availability on time resulted in production and supply below break-even. As a result, financial results for the year showed a down trend. Presently there are no operations in SIPL and the Board of SIPL is considering various alternative options.

A legal suit was filed by Mr. K Gyan Sagar (Promoter of SCIL) and Shakti Concrete Industries Limited (SCIL) against HBL and Others in City Civil Court, Hyderabad for an arbitration petition. Claim of Petitioners is non-receipt of a consideration of Rs 188.30 lacs for shares sold by them. As informed by HBL''s legal counsel, the claim prima facie is not tenable as the petitioners are making a claim for consideration already received. The case is pending before the Honourable Court.

Autotec Systems Private Limited

During the year, your company disinvested its shareholding of 171216 shares in Autotec Systems Private Ltd (ATS), Bangalore, bought back by its (ATS) promoters.

Interest Free Unsecured Loan from Holding Company, Beaver Engineering & Holdings Ltd. (BEHL)

During the year, the Holding Company (BEHL) raised Equity and Preference Shares aggregating to Rs.150 crore including a premium of Rs.149.74 crore. The Company requested its Holding Company to make an Inter Corporate Loan of Rs. 120 crore for the purpose of Working Capital/repayment of Term Loans. As the funds raised by BEHL are non interest bearing, the Holding Company placed Rs.120 crore with the Company as Interest Free Inter Corporate Loan for a period of 5 years.

Events after Balance Sheet date

Subsequent to the date of Balance Sheet, on 7-4-2013, there was a fire accident in one of the factories of the company resulting in immense damage to Factory Building, Plant & Machinery and loss of property in the nature of Furniture & Fixtures, Inventories etc., and also the records relating to Production/Finance & Accounts. The loss was provisionally estimated at Rs.393 lacs. However, the risk is fully covered by Industrial All Risks Policy and the claim was lodged and the insurance company made an ''on account'' payment of Rs.100 lacs. In the opinion of the Management, this accident has no impact on the financial position as on 31.3.2013 as it had occurred subsequent to the Balance Sheet date.

Directors'' Responsibility Statement:

In compliance with the Provisions of Section 217(2AA) of the Companies Act, 1956, your Directors wish,to place on record -

1. That in preparing the Annual Accounts, all applicable Accounting Standards have been followed;

2. That the Accounting Policies adopted are consistently followed and the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the State of Affairs of the Company at the end of the Financial Year and the Profit and Loss Account of the Company for the Financial Year under review:

3. That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing / detecting fraud and other irregularities; and

4. That the Annual Accounts have been prepared on a Going Concern basis.

Corporate Governance:

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section titled "Report on Corporate Governance" is attached to the Annual Report.

Consolidation of Accounts

In accordance with the requirements of Accounting Standards AS 21 read with AS 27 prescribed by the Institute of Chartered Accountants of India, the Consolidated Accounts of the company and its Subsidiaries/ JVs are annexed in this Annual Report.

In view of general exemption granted by the Ministry of Corporate Affairs under Section 212(8) of the Companies Act, 1956 vide its General Circular No.2/2011 dated 8th February 2011, companies are exempted from the provisions of section 212 of the Companies Act 1956 subject to fulfillment of conditions therein. Accordingly, the Board has passed required resolution in respect thereof for not attaching the Balance sheets of the following subsidiary companies:

1. Agile Electric Sub-Assembly Private Limited

2. SCIL Infracon Private Limited

3. HBL Suntech LLP

4. HBL America Inc.

5. HBL Germany GmBH, Germany

Hence, in this annual report, the audited financial statements (standalone and consolidated) prepared in compliance with the applicable Accounting Standards, Listing Agreements prescribed by SEBI, have been attached and no individual Balance sheet or other information of subsidiaries is attached or disclosed except to the extent of the information as required to be disclosed under the condition (iv) of the Circular No.2/2011 dated 8th February 2011.

The Company undertakes that the Annual Accounts of the subsidiary Companies and the related detailed information will be made available to any member of the Company who may be interested in obtaining the same. The Annual Accounts of the subsidiary companies will also be kept open for inspection during business hours at the registered office of the Company.

Auditors'' Report:

The Board has considered the observations/ queries as raised by the Statutory Auditors and the explanations are as under.

Our comments on the financial statements for the year are as under:

Reference is drawn to Note No.30. The year end balances appearing under the heads referred to therein are subject to confirmation / reconciliation and consequential adjustments, the impact of which is not quantifiable by us.

Our reply: The Company has a practice of sending confirmatory letters every year to all parties. The company has circulated confirmatory letters to various parties during the year. Some of them have not responded in time. Such letter says that the balance is deemed accepted or confirmed if no reply was received in stipulated time.

Reference is drawn to Note No.8.1 regarding disclosure made under section 22 of the MSMED Act, 2006 which is as compiled by the management. Further, the company has neither paid nor provided the applicable interest on such dues from the date the MSMED Act came into force and the amount of which is not ascertained.

Our reply: Some of the vendors who come under the MSMED Act 2006 have been associated with the company for a long time and have a continuous business relationship. The company is usually prompt in servicing these vendors as per mutually agreed payment terms. In view of such longstanding relationship, no claims were received by Company. Interest payment if any will be treated on cash basis. We believe there will not be any impact of this non-provision.

Reference is drawn to Note No. 31.9. The Company has not complied with the requirement of disclosures to be made in terms of the Accounting Standard - AS-27 in respect of Company''s interest in Assets, Liabilities, Income and Expenditure in the Joint Venture Company

Our reply: The JV Company has since given audited balance sheet for the year ended 31 December 2012 (which is financial year of the company in that country) and unaudited financial reports for quarter ended 31 March 2013. These reports have been used to prepared Consolidated Financial Statements.

Directors:

Mr. MSS Srinath, Director retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

Mr. Ajay Bhaskar Limaye was appointed as Additional Director with effect from 14th February, 2013.

Pursuant to the provisions of the Companies Act, 1956 Mr. Ajay Bhaskar Limaye holds office upto the date of ensuing Annual General Meeting of the Company. The Board recommends his name for appointment as a Director at ensuing Annual General Meeting of the Company in accordance with the provisions of the Companies Act, 1956.

Auditors:

Statutory Auditors:

Joint Statutory Auditors M/s Satyanarayana & Co., Chartered Accountants, Secunderabad and M/s. Rao & Kumar Chartered Accountants, Visakhapatnam, retire at the forthcoming Annual General Meeting and are eligible for re- appointment. Audit Committee has recommended for the re-appointment of Joint Statutory Auditors at the ensuing Annual General Meeting. The Company has received a letter from the respective auditors to the effect that their appointment, if made, by the Company for the year 2013-14 will be within the limit prescribed under Section 224(1-B) of the Companies Act, 1956.

The Board of Directors recommends their re-appointment.

Cost Auditors:

Your company proposes to re-appoint the cost auditors M/s K. Narashima Murthy & Co., Hyderabad, subject to the approval from Central Government.

Personnel & Industrial Relations:

Your Company continues to enjoy cordial relations with the employees.

No employee of the Company was in receipt of remuneration during the financial year 2012-13 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 as amended from time to time.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo:

Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 217(1)(e) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Acknowledgements:

Your Directors take this opportunity to thank all the Company''s Bankers and Financial Institutions, the concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services.

The Board of Directors also thanks all its Shareholders for the confidence reposed in the Management. For and on behalf of the Board

Place: Hyderabad Dr. A J Prasad

Date : 14th August 2013 Chairman and Managing Director


Mar 31, 2011

Dear Members

The Board of Directors take pleasure in presenting the 25th Annual Report for the financial year ended on 31st March 2011. The financial performance on Standalone basis is presented below.

(Rs. In Lacs)

SNo. Particulars 2010-11 2009-10

1 Net Sales 99494 110951

2 Other Income 2297 654

3 Total Income 101791 111606

4 Total Expenditure 93306 90569 5 Profit before interest, depreciation and tax 8485 21037

6 Finance Cost 4934 3831

7 Depreciation 3030 2807

8 Profit before tax 521 14399

9 Provision for tax & tax adjustment (145) 4117

10 Deferred tax liability (989) 240

11 Net Profit 1645 10042

12 Transfer to General Reserve - 8000

13 Earnings Per Share (Diluted EPS of Rupees) 0.650 4.065

14 Dividend (on face value of share Re 1 each) 10% 30%

Performance Review 2010-11:

Overall Sales of the Company for the year 2010-11 were recorded at Rs. 99494 Lacs as compared to previous year sales of Rs. 110,951 lacs. This decrease is primarily on account of a reduction in lead acid battery market, due to various macro factors affecting telecom business in the country. The company passed on the reduction in the average cost of lead. This impact was reinforced by lower demand from the telecom sector due to macro economic factors. Profit after tax was Rs. 1645 Lacs for the year 2010-11 as compared to previous year of Rs. 10042 Lacs.

Expansion plans:

For details of expansion plans, please seethe Management Discussion and Analysis section of the Annual Report

Utilization of proceeds of Preferential Issue:

The preferential issue was made to finance the General Corporate Investments in related companies and for other General Corporate purposes.The total Proceeds of preferential issue of capital including share premium was Rs. 3469.51 lacs.

Details of utilisation upto 31.03.2011:

S. Particulars Amount No. Rs. in Lacs

1 Investment in the Equity of M/s. Autotec Systems Pvt. Ltd, Bangalore. 300.34

2 Investment in the Equity of M/s. SCIL Infracon Pvt. Ltd. 651.63

3 Investment in the Equity of M/s. Sankhya Infotech Ltd. 331.04

4 Advance for Equity in M/s. SCIL Infracon Pvt. Ltd. 117.80

5 Advance for Equity in M/s. Sankhya Infotech Ltd 195.38

6 ICD to M/s. Sankhya Infotech Limited 1300.00

7 ICD to M/s. SCIL Infracon Pvt. Ltd. 292.86

Total 3189.06

Unutilised Balance 280.45

Unutilised balance Parked in CC loan account of the Company 279.95

Balance in Current Account 0.50

Dividends:

Your Directors are pleased to recommend a dividend of Rs. 0.10/- per equity share of Re.1/-fully paid up share @10% (Previous Year 30%) for the Financial Year 2010-11, subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Corporate Dividend Tax will absorb Rs. 294.04 lacs.

Investment/divestments in Subsidiary/Joint Venture/associate Companies:

Investments in Subsidiary:

Agile Electric Drives Technologies and Holdings Private Limited (Agile): Rs. 112.88 Crores was invested in the Company during the year for acquisition of 63.91 % equity shares in the Company. Agile is subsidiary of the Company and engaged in manufacturing of motor subassemblies and precision components and providing motors technology.

The Company through its subsidiary Agile acquired 62.94% of the equity in Igarashi Motors India Limited (Igarashi), which is subsidiary of Agile and listed on BSE and NSE. Igarashi is currently engaged in the business of assembling of DC motors and actuation system for various automotive and non-automotive applications and manufacturing sub assemblies that go into DC motors.

SCIL Infracon Private Limited: Rs. 6.52 Crores was invested in the Company as upto 31st March, 2011 for acquiring 50% of the equity holding in the Company. Subsequently negotiation took place with the Investing Company to acquire their remaining 30% holding for Rs. 3 crores. The former promoter also expressed interest to sell his 20% shareholding. After completing these transactions for acquiring additional equity, SCIL Infracon P Ltd will be poised to become a 100% subsidiary of HBL.The Company is engaged in manufacturing of concrete polls, primarily for telecom sector and roof slabs and has increased product range to cover special pile foundation piles, high mast lighting poles with a hydraulic arrangement to lower the lights, 40 and 50 mtr towers for telecom and power transmission. The products are being received well by the customers.

HBL Germany GmBH, Germany: An amount of 25,000 Euros (Rs. 14.91 lacs) was invested in the equity of wholly owned subsidiary in Germany.

HBL Power Systems (M) SDN BHD: There was no further investment in the Company.

Bhagirath Energy Systems Private Ltd (BES) a wholly owned subsidiary in Nepal is in the process of winding up. Provision for diminution in the value of investment has been made based on Official Liquidators certificate of cash available as on 31.03.2005. No further provision is considered necessary, as there is no reduction in cash balance as on 31.03.2011.

Associate Company

Sankhya Infotech Limited (Sankhya): 8,40,482 equity shares being 9.89% of the equity of Sankhya were acquired through open market for an aggregate value of Rs. 3.31 Crores. The Company has also subscribed for allotment of 12,20,000 convertible warrants for an issue price of Rs. 32.03 per warrant aggregating to Rs. 3.91 crores, of which Rs. 1.95 Crores being 50% of the issue price was paid upfront.These warrants will be converted into equal number of equity shares of Rs. 10/- each upon payment of balance 50% of the issue price within 18 months from the date of allotment of such warrants and thereby, post conversion, the Company will hold 14.97% of the equity in Sankhya.

Joint Ventures

HBL ELTA Avionics Systems Pvt. Ltd - During the year, the investment of Rs. 2.25 Crores in joint venture has been divested for a total consideration of Rs.13.66 Crores.

Directors' Responsibility Statement:

In Compliance with the Provisions of Section 217(2AA) of the Companies Act, 1956, your Directors wish to place on record -

1. That in preparing the Annual Accounts, all applicable Accounting Standards have been followed;

2. That the Accounting Policies adopted are consistently followed and the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the State of Affairs of the Company at the end of the Financial Year and the Profit and Loss Account of the Company forthe Financial Year under review:

3. That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing /detecting fraud and other irregularities; and

4. That the Annual Accounts have been prepared on a Going Concern basis.

Corporate Governance:

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section titled "Report on Corporate Governance" is attached to the Annual Report.

CONSOLIDATION OF ACCOUNTS

In accordance with the requirements of Accounting Standards AS 21 read with AS 27 prescribed by the Institute of Chartered Accountants of India, the Consolidated Accounts of the company and its Subsidiaries/ JVs are annexed in this Annual Report.

In view of general exemption granted by the Ministry of Corporate Affairs under Section 212(8) of the Companies Act, 1956 vide its General Circular No.2/2011 dated 8th February 2011, companies are exempted from the provisions of section 212 of the Companies Act 1956 subject to fulfillment of conditions therein. Accordingly, the Board has passed required resolution in respect thereof for not attaching the Balance sheets of the following subsidiary companies:

1. HBL Power Systems (M) SDN BHD, Malaysia,

2. Bhagirath Energy Systems Pvt. Ltd., Nepal,

3. SCIL Infracon Private Limited

4. Agile Electric Drives Technologies and Holdings Private Limited

5. HBL Germany GmBH, Germany

Hence, in this annual report the audited financial statements, (Standalone and Consolidated) prepared in compliance with the applicable Accounting Standards, Listing Agreements prescribed by SEBI, have been attached and no individual Balance sheet or other information of subsidiaries is attached or disclosed except to the extent of the information as required to be disclosed under the condition (iv) of the Circular No.2/ 2011 dated 8th February 2011, which is disclosed in note 10 of the Notes on Accounts of Consolidated Financial Statements.

The Company undertakes that the Annual Accounts of the subsidiary Companies and the related detailed information will be made available to any member of the Company who may be interested in obtaining the same. The Annual Accounts of the subsidiary companies will also be kept open for inspection during business hours at the Registered office of the Company.

Auditors' Report:

The Board noted the contents of the Auditors report. It is observed that some of the comments of the auditors have been continuing in the past also. The necessary rectification (e.g. Capital asset register) has not been fully satisfactory being lack of attention at the Board level.

The Board has, therefore, decided that Mr. M S S Srinath, Director of Accounts-and administration will now spend enough time to ensure that these comments do not repeat in future.

The Board has considered the observations/ queries as raised by the Statutory Auditors and the explanations are as under:

a) Point 4 (a) Reference is invited to Note: 7 of Schedule 20(B) regarding balances appearing under debtors, creditors, advance received/paid which are subject to confirmation / reconciliation and consequential adjustments, the impact of which on these financial statements is not quantifiable by us.

Our Reply: The Company has circulated confirmatory letters to various parties. Some of them have not responded in time, although the letter stipulates that the balance is deemed accepted or confirmed if no reply was received. During the year, we shall endeavour to send interim confirmation letters and upon reply, suitable reconciliation will be undertaken.

b) Point 4 (b) Reference is invited to Note 12 of Schedule 20(B) Managerial remuneration: Based on the approval of the members in the AGM held on 27.09.2010, a remuneration ofRs.25.80 lacs was paid to the Chairman & Managing Director for the year 2010-11. Due to inadequacy of the profits computed under section 349 read with section 198 of the Companies Act, 1956 and in accordance with the Provisions of Schedule XIII of the Act, the remuneration so paid is subject to the approval / ratification by the members by way of special resolution.

Our Reply: This is being placed in the ensuing Annual General Meeting for approval and ratification of members. The resolution passed at the previous Annual General Meeting was an ordinary resolution. In view of the provisions of Schedule XIII of the Companies Act 1956, whenever there is any inadequacy of profits as computed under section 349 read with section 198 of the Companies Act, a special resolution is necessary.

c) Point 4 (c) Reference is invited to Note 13 of Schedule 20(B) regarding disclosure made under section 22 of the MSMED Act, 2006 which is as compiled by the management and relied upon by us. Further, the company has neither paid nor provided the applicable interest on such dues from the date the Act came into force and the amount of which is not ascertained. According to the Company there is no accrued liability, which requires provision.

Our Reply: Some of the vendors who come under the MSMED Act 2006 have been associated with the company for a long time and have a continuous business relationship. The company is usually

prompt in servicing these vendors as per mutually agreed payment terms. In view of such longstanding relationship, no separate interest provision has been made, as there are no such claims. Interest payment if any will be treated on cash basis.

d) Point 4 (d) Reference is invited to Note 14(1) of Schedule 20(B) regarding non compliance with the disclosure requirements required under A.S.27 relating to Company's interests in Assets & Liabilities and Income & Expenses in the Joint Venture Company.

Our Reply: These reports have since come and the Consolidated Audited Balance sheet was prepared accordingly.

Annexure referred to in Paragraph 3 of Auditors'report (under CARO Report)::

(a) The Company has maintained year wise details of fixed assets acquired by the divisions showing the relevant particulars including original cost at the time of acquisition and there have been instances of shifting and inter divisional transfer of certain assets after acquisition. However the Company is yet to maintain and update the division wise asset register showing the relevant particulars including the original cost, deprecation provided and the written down value of each asset duly reconciled with financial records and also the identification particulars to facilitate physical verification.

Our Reply: Physical verification of assets has been taken up in all the divisions. Steps are being initiated as suggested by auditor to reconcile and update the division-wise register.

(b) According to the information and explanation given to us physical verification of fixed assets except at branches was carried out during the year by the management and the process of reconciliation including identification of differences / discrepancies is reported to be in progress. In the absence of reconciliation, identification of the differences / discrepancies and quantification thereof, we are not in a position to comment on the amount involved and its impact on the financial statements as on 31.03.2011.

Our Reply:This will be initiated as stated above.The company believes that such discrepancies if any may not be very material in nature.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the company and the nature of its business, for purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weaknesses have been noticed in the internal control in respect of these areas. However, the internal control procedures with regard to (a) review of customers and vendors balances including obtaining balance confirmations to identify the differences and (b) capitalization of assets procured including linking of various components of an identifiable asset and linking of additions the assets already in existence needs to be strengthened.

Our Reply: This will be strengthened as suggested by the Auditors.

(vii) The company has appointed three firms of chartered accountants to carry out the internal audit function of the transactions of the company and the scope and coverage of which is generally found to be adequate. We suggest that' systems audit' of the Company's accounting package be carried out and also suggest that proper internal audit system be introduced to cover increasing number of activities and transactions at branches. Further, our opinion, the scope and coverage of internal audit in the areas of review and reconciliation of vendors/ customers accounts and accounting of different components of fixed assets needs to be strengthened to be commensurate with the size of the company and nature of its business.

Our Reply: This will be initiated as suggested by the Auditors.

(xvi) Based on our review of the records, sources and application of funds and term loan drawn and utilization thereof on an overall basis, the loan funds to the extent utilized were prima-facie applied for acquiring fixed assets and unutilized amount of Rs.49.43 crores was kept in current account with the banks. Our review revealed that out of the term loans drawn, a sum of Rs. 69.88 crores was transferred to working capital loan accounts and a sum of Rs. 20.60 crores was utilized for payment of interest on certain old term loans. Thus, in our opinion, Rs. 90.48 crores was utilized for the purposes which were outside the scope of term loans.

(xvii) During the accounting period covered by our report, the Company raised term loans to the extent of Rs.146.10 crores (Net of Rs. 90.48 crores referred to above and increase in unutilized funds of Rs. 28.30 crores kept in current accounts on 31.03.2011) and also generated internal accruals of Rs. 37.89 crores considered as long term sources, aggregating to Rs. 183.99 crores. The Company utilized Rs. 241.56 crores for fixed assets and long term investments and also repaid term loan installments of Rs. 45.20 crores, aggregating to Rs. 286.56 crores. We are of the opinion that the Company has applied Rs.102.77 crores being the difference between sources and utilization from out of short term funds of the Company.

Our Reply: The Company availed a term loan of Rs 60 crores primarily obtained against margin money for meeting capital expenditure incurred. This was initially met from company's internal accruals for ongoing projects and as per intended purpose of term loan. Since it was to recoup the margin money already spent from internal resources, it was transferred to company's cash credit account for overall utilization. The interest on term loans was on ongoing projects, which have not yet been completed, which is in the nature of pre-operative expenditure pending capitalization.

The company generated substantial internal accruals in the past and for the last four years alone such generation was to the extent of ? 341.42 crores, which were kept in cash credit account and some portion was utilized for long term use in the past. The company recognized such internal accruals, which had been deposited in cash credit account and were being utilised partly for working capital and also spent for capital expenditure purposes during the year. Therefore there has been no utilisation of short-term funds for capital purposes.

The Board:

Mrs. Preeti Khandelwal, Director retiring by rotation and being eligible, offer herself for re-appointment. The following Directors have resigned from the Board of the Company. Your Board appreciates their advice during the tenure as a Director of the company.

S. Name of the Director Date of No. resignation

1 Mr. M. S. Ramakrishna 29.05.2010

2 Mr. J. K. Varma 09.07.2010

3 Mr.VivekMundra 14.02.2011

Auditors:

Statutory Auditors:

M/s. Satyanarayana & Co., Chartered Accountants, Auditors of the Company retires at the forthcoming Annual General Meeting and is eligible for re-appointment. Audit Committee has recommended for the re-appointment of M/s Satyanarayana & Co., Chartered Accountants as Auditors at the ensuing Annual General Meeting. The Board of Directors recommends their re-appointment. The Company has received a letter from them to the effect that their appointment, if made, by the Company for the year 2010-11 will be within the limit prescribed under Section 224(1-B) of the Companies Act, 1956.

Cost Auditors:

Your company proposes to re-appoint the cost auditors M/s. K. Narashima Murhty & Co., Hyderabad, subject to the approval from Central Government.

Personnel & Industrial Relations:

Your Company continues to enjoy cordial relations with the employees.

No employee of the Company was in receipt of remuneration during the financial year 2010-11 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo:

Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 217(1 )(e) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Acknowledgements:

Your Directors take this opportunity to thank all the Company's Bankers and Financial Institutions, the concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services.

The Board of Directors also thanks all its Shareholders for the confidence reposed in the Management.

For and on behalf of the Board

Dr. A J Prasad Chairman and Managing Director Place: Hyderabad Date: 27 July 2011

 
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