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Directors Report of HMT Ltd.

Mar 31, 2014

Dear Members,

The Board of Directors have pleasure in presenting the 61st Annual Report on the Business & Operations of your Company and the Annual Accounts for the year 2013-14 together with the Auditors'' Report thereon and the Comments of the Comptroller & Auditor General (CAG) of India.

BUSINESS SCENARIO

India''s economic growth rate in the current fiscal was 4.7 percent as against 4.5 percent recorded in the previous year, mainly on account of improved performance in the agriculture and allied sectors. The sub 5 percent growth of economy was primarily a result of the slowdown in industry for second year in succession that registered a growth rate 0.4 percent. Manufacturing sector witnessed contraction of 0.8 percent in 2013-14 as compared to a growth of 1.3% in the previous year. The high inflation and interest rates did not boost the consumer sentiment in the market and thus did not lead to favorable business environment during 2013-14. The domestic market suffered from weak consumer off take and poor industrial production growth.

During Fiscal 2013-14, IIP growth was (0.1) percent as compared to 1.1 percent in April- March 2012-13. Overall growth in the Index of Industrial Production (IIP) was 3.4 per cent during April 2014 as compared to 1.5 per cent in April 2013.

As per the Advance Estimates the growth in Gross Domestic Product (GDP) at factor cost is estimated at 4.9 per cent in 2013-14 with agriculture, industry and services registering growth rates of 4.6 per cent, 0.7 per cent and 6.9 per cent respectively. The GDP growth rate is placed at 4.4 per cent, 4.8 per cent and 4.7 per cent respectively for the first, second and third quarters of 2013-14.

Growth in real fixed capital formation (fixed investment) is estimated at (-) 1.2 per cent in Q1 of 2013-14 as against (-) 2.2 per cent in Q1 of 2012-13. As a ratio of GDP at current market prices, gross fixed capital formation was

28.6 per cent in Q1 of 2013-14 as against 29.9 per cent in Q1 of 2012-13.The rate of growth of private final consumption expenditure was 1.6 per cent. The growth of exports was negative.

Agriculture plays the significant role in the all-round socio economic development of the country; however, its share in GDP has been declining over the years which is

13.7 percent currently. The average annual growth rate of 3.3 percent during the 11th Five Year Plan has fallen short of the 4 percent growth target, but has been much faster than the 9th and 10th Five Year Plan annual average growth rate of 2.5 and 2.4 percent respectively. The growth target set for agriculture for the 12th Five Year Plan is 4 percent. The good monsoons in 2013 14 bode well for strong agricultural output.

The contribution of the capital goods sector for the growth of IIP has been negative during last two years. Declining trends in investment, fall in the growth of credit off take and low level of investment in R&D have contributed reduction in the growth rate of capital goods sector from the high of 48.5 per cent in 2007-08 to contraction of 4.0 per cent and 6.3 per cent in 2011-12 and 2012-13 respectively. During April-June 2013 capital goods production declined by 3.3 per cent. The only capital goods segment that has shown recovery in domestic production is the electrical machinery and apparatus segment showing robust growth of 11.9 per cent during April-June 2013.

On the Company''s main business portfolio of Tractors, the market indicators reveal that the industry recorded growth of 21% in terms of quantity. After seeing volumes in both domestic and export markets shrink by as much as 3 percent in fiscal 2013-14 the domestic tractor industry witnessed strong 18 per cent growth in the last fiscal. Your Company had to face severe pressure on performance during the year due to lack of working capital. Your Company recorded a Production of Rs. 74.11 Crore (1546 Nos. of Tractors) as against Rs. 63.05 Crore (1309 Nos. of

Tractors), in the previous year, and Sales of Rs. 78.45 Crore (1488 Nos. of Tractors) compared to Rs. 99.42 Crore (2005 Nos. of Tractors) in the previous year. HMT Group along with its Subsidiaries achieved an aggregate Production of Rs. 249.41 Crore and Sales of Rs. 270.79 Crore for the year 2013-14.

Riding high on the expectations from the new Government at centre, GDP is expected to grow during 2014-15. As per farm experts Tractor Industry is also expected to witness a growth of 8-10% during 2014-15 on back of sustained agriculture demand. Tractors in higher HP segment will record good growth due to Infrastructure projects.

OPERATING RESULTS

During the year under review, the operations of your Company resulted in a negative Gross Margin of Rs. 150.36 Crore (which includes Rs. 82.75 Crore provision for Holding Company loan and investment in HMT Chinar Watches Ltd) as compared to the negative Gross Margin of Rs. 21.24 Crore in the previous year. The Operations of your Company resulted in a Profit of Rs. 105.82 Crore during the year 2013-14, as compared Loss of Rs. 145.38 Crore recorded in the previous year, which was mainly due to waiver of Interest & Guarantee Fee of Rs. 291.18 Crore as per the Revival Plan approved by GOI. The financial highlights for the year 2013-14, are as under:

FINANCIAL HIGHLIGHTS (Rs. in Crore)

Particulars 2013-14 2012-13

Gross Margin (PBIDT) (150.36) (21.24)

Depreciation & Amortization 3.40 3.55

Finance Cost 14.34 104.03

Profit/(Loss) before PPA (168.10) (128.82)

Add: Exceptional Items 275.00 -

Less: Prior Period Adjustments (PPA) 1.08 16.56

Net Profit/(Loss) before tax 105.82 (145.38)

Tax Provision (Net) 18.61 -

Net Profit/(Loss) after tax 87.21 (145.38)

Net Profit/(Loss) carried to 87.21 (145.38) Balance Sheet

DIVIDEND

As the Company is facing severe financial constraints, the Directors are unable to recommend any dividend on the paid up equity share capital of the Company.

FINANCIAL POSITION

The Company reported positive profit after Tax of Rs. 87.21 Crore due to exceptional items like Interest waiver & Guarantee fee waiver sanctioned as part of the Revival Plans of the Company. During the year 2013-14 the Company has reported Production of 1546 Tractors and Sales of 1488 Tractors.

FUTURE OUTLOOK

Tractor industry is expected to grow by 4-6 percent this fiscal owing to near normal monsoon and improvement in rural economy. The Auto Policy of the Government also encourages this sector favourably.

Although low HP tractors have only a negligible presence even now, the segment has more than doubled its market share in the past three years. There is an inherent expansion in tractor demand in this segment because of shortage of farm labour/increase in wage rates due to alternative employment opportunities available to workers under National Rural Employment Guarantee Act leading to increased tractor viability even for small/medium size land owners.

The other trend that is evident is increased use of tractors in infrastructure and construction sectors which has led to a huge growth in purchase of higher HP tractors. High growth in this segment is expected to continue because of replacement demand turning towards higher HP tractors and increased usage of tractors for non-agricultural applications across India

The Tractor Industry will continue to grow in the year 2014- 15 due to thrust of the Govt. on Agriculture and infrastructure drivers remaining favourable. The growth drivers of Tractor Industry such as boost in rural economy, increased focus on agriculture and rural development, credit availability, shorter replacement cycle, several policy initiatives by the Government, etc., are aiding the growth trends.

The Tractor Business Group of your Company has already initiated a host of measures to improve performance and fuel efficiency. Appointment of new Distributors and Dealers in potential areas/territories, up-gradation of the tractor engines to contemporary requirements, entering into MoU''s with Banks/Financing Agencies for priority loan sanctions for the purchase of HMT Tractors, dynamic business strategies, etc., which are expected to yield results in the current financial year.

The future plans of your Company envisages Plant Modernization and Technology Up-gradation which will contribute to better productivity and give a thrust to the growth trends in the coming years. The Government has approved the Revival and Financial Restructuring Plan for the Company (HMT Ltd) during April, 2013 as recommended by the BRPSE, which envisages financial support, waivers etc., from Government of India. Formal sanctions for Non- cash Assistance i.e., conversion of Government Loans into Equity and waiver of accumulated interest thereon received during the year.

SUBSIDIARY COMPANIES

HMT Machine Tools Limited

The Subsidiary achieved Sales of Rs. 159.02 Crore against Rs. 213.01 Crore in the previous year. Net loss reported is Rs. 52.66 Crore during the year 2013-14 against reported loss of Rs. 43.65 Cr in previous year. Capacity utilization for the year 2013-14 is 53%.

The Subsidiary has implemented the revival plan proposals and plant up-gradation. The Subsidiary is also pursuing with various agencies for extending the reliefs and concessions sanctioned by the BIFR under the Rehabilitation Scheme. Some of these Parties including the Consortium of Banks have preferred appeals against the reliefs and concessions sanctioned by the BIFR, which is being contested by the Subsidiary.

BRPSE reviewed the progress of Revival Plan Implementation and recognised the need for interim measures to propel the growth of HMT Machine Tools Limited. Accordingly, the proposal forwarded to DHI was approved by CCEA during February 2014 and formal sanctions received during 2014-15. Accordingly, the implementation process has been initiated.

HMT Watches Limited

The performance of the Subsidiary showed a decline during the year under review. Major factors affecting the performance of this Subsidiary were paucity of working capital, erosion of trade channel and high cost of borrowings. The Subsidiary could achieve a Sales level of Rs. 7.48 Crore and Production of Rs. 4.70 Crore during the year under review. The Net Loss for the year stood at Rs. 233.08 Crore as compared to Rs. 242.47 Crore incurred during the previous year.

The Revival Plan in respect of this Subsidiary has been submitted to the Government based on the business plans prepared by a reputed Consultancy Firm and is under examination of the Government.

HMT Chinar Watches Limited

The performance of this Subsidiary could not be sustained due to the disturbed situation prevailing in the J&K Valley apart from working capital constraints for production. Majority of the employees have been separated on VRS leaving about 34 employees at Srinagar and Jammu Units of the Subsidiary. The Subsidiary''s Sales was Rs. 0.39 Crore during the year compared to Rs. 0.32 Crore in the previous year, with NIL Production for the year. The Subsidiary incurred a Net loss of Rs. 50.56 Cr against Rs. 51.16 Crore in previous year.

HMT (International) Limited

The Subsidiary which is the export arm of the Company, achieved a turnover of Rs. 25.08 Crore as against Rs. 34.09 Crore recorded in the previous year, i.e. 2012-13 due to demand depletion. The Order procurement during the year was Rs. 22.23 Crore as against Rs. 24.10 Crore achieved in the previous year. The Subsidiary reported a Profit Before Tax (PBT) of Rs. 0.50 Crore as against Rs. 6.85 Crore reported in previous year. The Subsidiary has maintained its consistent dividend payment record and has recommended a dividend of 10% for the year 2013-14 on its Paid-up equity share capital

HMT Bearings Limited

During the year under review, the Subsidiary significantly improved its performance and was able to achieve a Sales of Rs. 14.36Crore, against the Previous Year''s Sales of Rs. 10.89 Crore. In terms of Production, the Company achieved Rs. 15.04 Crore compared to the Previous Year''s Production level of Rs. 11.73 Crore. The Company has incurred a net loss of Rs. 15.98 Crore as against Rs. 2.07 Crore reported during 2012-13.

The Revival Plans of this Subsidiary submitted to DHI/ BRPSE was recommended by the BRPSE during its meeting held in May 2013 and is under the consideration of the Government.

ASSOCIATE /JOINT VENTURE COMPANY

SUDMO-HMT Process Engineers (India) Limited

This Joint Venture Company could not transact any business during the year under review. For the financial year 2013-14, this Company showed a Profit after tax of Rs. 0.93 Lakhs on account of the interest income of Rs. 3.68 Lakhs, on the fixed deposits kept with the Banks.

Gujarat State Machine Tools Corporation Ltd

This Company a Joint Venture between HMT and GIIC Ltd has discontinued its operations since long. It is therefore proposed to divest from this Associate Company jointly with the JV Partner. The process of disinvestment from this Company is under consideration by the Company in consultation with the JV Partner.

CONSOLIDATED FINANCIAL STATEMENTS

As required under the Listing Agreement, Consolidated Financial Statements of the Company along with that of the Subsidiaries for the financial year 2013-14, conforming to the applicable Accounting Standards, are attached to this Report along with the Auditors'' Report on the same.

In terms of the General Circular No. 2/2011 dated 8th February, 2011, issued by the Central Government in terms of Section 212(8) of the Companies Act, 1956, the Directors have consented not to attach copy of the Balance Sheet, Statement of Profit and Loss, Report of the Board of Directors and Auditors of the five (5) Subsidiary Companies viz., HMT Machine Tools Limited; HMT Watches Limited; HMT Chinar Watches Limited; HMT Bearings Limited and HMT (International) Limited to the Balance Sheet of the Company (Holding Company). However, these documents will be made available upon request of any member of the Company. Further, in compliance with the conditions of the above referred Government circular, the financial information of each of these subsidiary Companies have been furnished as part of the Consolidated Balance Sheet of the Company. The annual accounts and other detailed information of each of the Subsidiary companies will be available for inspection by any member at the Registered Office of the Company. A statement pursuant to Section 212(1) of the Companies Act, 1956, in respect of each of the Subsidiary Companies is attached to this report.

HUMAN RESOURCE

Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees), Rules, 1975, as amended, is NIL for the year 2013-14.

The employee strength of the Company as on March 31, 2014, stood at 1434 Nos. as compared to 1442 at the end of the previous year. There are 291 employees in the Officer Cadre and 1143 Non-Executive in Workmen cadre. The breakup of the number of employees on the rolls of the Company in categories like SC/ST, Ex-servicemen, Physically Handicapped and Women Employee etc. as on March 31, 2014 is detailed below:

Scheduled Castes 320

Scheduled Tribes 47

Other Backward Classes 105

Ex-Servicemen 4

Persons with Disabilities 15

Women employees 44

Minorities 217

INDUSTRIAL RELEATIONS

The overall Industrial Relations situation in the Company during the year remained cordial.

IMPLEMENTATION OF OFFICIAL LANGUAGE

The efforts towards implementation of Official Language Act, Rules & Policy as per the directives of the Government in the Company is continuous. The Official Language

Implementation Committee is constituted in all the Units of the Company and the Subsidiaries, including the Corporate Office at Bangalore to monitor implementation of Official Language Act, Rules, Policy, etc. meets at regular intervals in every quarter.

In order to propagate the usage of Hindi as Official Language, "HINDI DIWAS/HINDI FORTNIGHT" was observed during the month of September, 2013. Various competitions in Hindi such as Hindi Story Writing, Hindi News Paper Reading, Hindi Quiz Writing, Hindi Conversation, Hindi Antyakshari, etc., were organized and participants were awarded prizes. A workshop was organised during the above period. The Hindi Magazines/Newspapers are being procured to propagate the usage of Hindi among employees. The concerned Officials of the Company regularly take part in the meetings of the Town Official Language Implementation Committee.

VIGILANCE ACTIVITIES

The Chief Vigilance Officer appointed by the Government of India heads the Corporate Vigilance Department of the Company. Chief Vigilance Officer is assisted at Unit level by exclusively appointed Vigilance Officers.

The Corporate Vigilance Department carries out vigilance functions in the Holding Company as well as its Subsidiary Companies. The vigilance functions in the manufacturing Units and Marketing Offices are looked after by Vigilance Officers, under the guidance of Chief Vigilance Officer.

All the Unit Vigilance Officers send their monthly Vigilance / Inspection Reports and Surprise Inspection reports to CVO. The reports so received are scrutinized at CVO Office for further action. Unit Vigilance Officers also verify Annual Property Returns submitted by the Unit level Officers.

Apart from regular inspections by Unit Vigilance Officers, CVO conducts CTE type surprise and regular inspections of high value purchase/contracts and systems by visiting various Subsidiaries and Units.

Violations of rules and procedures observed during the inspection of files by CVO/Unit VOs were pointed out and comments of the concerned officers on the same were obtained. Wherever required, appropriate action against the concerned officers were recommended, instructions were issued to the effect that the violations of rules and procedures pointed out by the Vigilance Department should not be repeated.

Emphasis was laid on preventive vigilance by striving towards strict adherence to all rules and procedures and all norms of transparency in tendering process. Based on CVC''s guidelines for ‘Improving vigilance administration by leveraging technology and increasing transparency through effective use of websites, necessary directions were given by CVO for implementation of the same. Some of the systems put in place by the Company are:

1. Hosting of all open tenders and high value Limited Tenders on www.tenders.gov.in (Website of GOI). All Manufacturing Units and Offices generally observed compliance.

2. Publishing details regarding all purchase orders / contracts concluded during the month and above the threshold value (presently Rs. 5.00 lakhs). Implemented by all Units except Food Processing Machinery Unit, Aurangabad, CSD Division, Bangalore and Corporate Office, Bangalore under HMT Limited.

3. Application form for vendor registration along with list of items required by different Units of HMT Limited and Subsidiaries are made available on Company Website so as to enable the interested vendors to download the application form and submit the same to the Unit of their choice. Efforts are being made for periodical uploading of status of every vendor application on website. Presently 5 Units have uploaded the status.

4. Efforts are being made to persuade all Unit Managements to adopt e-payment mode for remittance of all payments including supplier payments. At present the HMT MTL Kalamassery Unit has adopted e-payment mode for making all payments. In many of the Units partial payments are being done by e payment mode.

Quarterly vigilance workshops were organized at all manufacturing units to enhance the level of vigilance awareness among the employees and other stakeholders. Vigilance Awareness Week 2013 was observed in all Units and Offices of HMT Limited and Subsidiary Companies as per the guidelines of CVC.

The number of inspections including surprise inspections carried out by CVO and Unit Vigilance Officers along with the number of property returns scrutinized between April 2013 to March 2014 is tabulated below :-

Inspection

Total carried out between April 2013 – March 2014 (by Unit Vigilance Officers)

Periodic Inspection of Purchase Files 1464

Surprise Inspection 306

Scrutiny of Annual Property Returns 1120

Inspections done by CVO (April 2013 to March 2014)

(i) Watch Show Room in Bangalore (HMT Bhavan) (ii) HMT Machine Tools Hydrabad Unit, Praga Tools, Hyderabad and HMT Bearings Limited, Hyderabad. (iii) HMT MTL Bangalore Complex (MBX) (iv) HMT International Limited, Bangalore. (v) All HMT Units having the facility of dedicated Residential Colony for employees are directed to verify for cases of sub-letting on the basis of inspection at Bangalore. (vi) Surprise inspection at HMT WL Watch Factory, Bangalore.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a Report on the Corporate Governance is annexed as part of this Report along with the Compliance Certificate from the Auditors. A Report on Management Discussion and Analysis is also appended to this Report separately. Further, a declaration by the Chairman & Managing Director for having obtained affirmation of compliance of the Code of Conduct by the Board Member (s) and Senior Management for the year ended March 31, 2014, is also appended.

The Audit Committee could not be reconstituted as per Cl. 49 of the Listing Agreement in the absence of Independent Directors to be appointed by the Government on the Board.

The Register of Members and Share Transfer Records both in respect of the shares held in physical and depository form are maintained by Karvy Computershare Private Limited, the Registrars & Share Transfer Agents of the Company.

INFORMATION REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under the Companies (Disclosures of Particulars) Rules, 1988, are annexed to this Report.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies Act, 1956 the Board of Directors confirm that:

- In the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

- accounting policies have been selected and applied consistently 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 of the profit/loss of the Company for that period;

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- The annual accounts have been prepared on a going concern basis.

AUDITORS

M/s S.R.R.K.Sharma, Bangalore, were appointed as Statutory Auditors of the Company for the year 2013-14 by the Comptroller & Auditor General of India. Three firms of Chartered Accountants were also appointed as Branch Auditors for the other Units/Divisions of the Company.

DIRECTORS

Vide Presidential Order No.5(8)/2010-P.E.X dated 17th December 2013 issued by the Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises, Shri Rajesh Kumar Singh, has been appointed as the Part time Official Director of the Company with immediate effect, until further orders vice Shri Harbhajan Singh.

And Vide Presidential Order No.5(8)/2010-P.E.X dated 20th May 2014 issued by the Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises Shri S.K Bahri, has been appointed as the Part time Official Director of the Company with immediate effect, until further orders vice Ms. Kusumjit Sidhu.

The Board of Directors had approved their appointment as Directors with effect from 17th December 2013 and 20th May 2014 in terms of Article 67(4) of the Articles of Association read with Section 262 of the Companies Act, 1956 and 161 of the Companies Act, 2013. Shri Rajesh Kumar Singh & Shri S.K Bahri, are proposed for appointment as Directors in terms of Article 67(4) of the Article of Association of the Company read with Sections 160 of the Companies Act, 2013, for which a notice has been received from a Member.

Shri Antony Chacko who was appointed as Director of the Company resigned from the Company and he has been relived from services with effect from 20.05.2014.

The Government has given additional charge of the Post of Chairman & Managing Director of the Company to Shri S.Girish Kumar, Managing Director, HMT (International) Ltd. with effect from 1.12.2013 vice the then Chairman & Managing Director Shri Harbhajan Singh.

The Board of Directors had approved the appointment of Shri S.Girish Kumar as Director with effect from 1st

December, 2013 in terms of Article 67(4) of the Articles of Association read with Section 262 of the Companies Act, 1956. Shri S.Girish Kumar, is proposed for appointment as a Director in terms of Article 67(4) of the Article of Association of the Company read with Sections 160 of the Companies Act, 2013, for which a notice has been received from a Member.

ACKNOWLEDGEMENTS

Your Directors are thankful to the various Departments and Ministries in the Government of India, particularly the Department of Heavy Industry, Ministry of Corporate Affairs, Comptroller and Auditor General of India, Principal Director- Commercial Audit, Statutory and Branch Auditors, various State Governments, Foreign Collaborators, the Subsidiary Companies, Suppliers, Reserve Bank of India, the Consortium of Banks lead by UCO Bank and the valued Customers of the Company both in India and abroad for their continued co-operation and patronage.

Your Directors would also like to take this opportunity to express their appreciation for the contributions made by the Company''s employees and look forward to their continued services in pursuit of building a world class Indian Company.

For and on behalf of the Board of Directors

( S. Girish Kumar)

Chairman & Managing Director

Place: Bangalore Date: 11-08-2014


Mar 31, 2013

To The Members of HMT Limited

Bangalore

Dear Members,

The Annual Accounts of the Company for the year 2012-13 along with the Auditors'' Report and the Comments of the Comptroller & Auditor General of India are attached to this Report.

CORPORATE PERFORMANCE

The growth of the Indian economy, as per the Provisional Estimates, in terms of Gross Domestic Product (GDP) is estimated at 5.0 per cent in 2012-13 with agriculture, industry and services registering growth rates of 1.9 per cent, 2.1 per cent and7.1 per cent respectively. The growth in GDP is placed at 4.8 per cent in the fourth quarter of 2012-13.

The Exports decreased by 1.1 per cent and imports increased by 7.0 per cent, in US dollar terms during May 2013 over May 2012. According to the World Bank''s latest India Development Update, a bi-annual report on the Indian economy, India is expected to record 6.1 per cent gross domestic product (GDP) growth in the current fiscal. The growth is expected to increase further to 6.7 per cent in 2014-15. Prospects for agriculture are encouraging since monsoon for the year 2013-14 is near normal and is expected to spur agricultural growth resulting in demand for Company''s Products. The macroeconomic and industrial scenario in the Country during the year under review was extremely demanding and continues to be same during the current year so far.

In the Company''s main business portfolio of Tractors, the market indicators reveal that the industry recorded growth of 4% in terms of quantity, but there was a negative growth in value terms to 10% during the year under review. Your Company had to face severe pressure in its performance parameters during the year due to lack of working capital during peak season which effected the production activities during such crucial periods. Your Company could record a

Production of only Rs. 63.05 Crore (1309 Nos. of Tractors) during the year as against Rs. 182.98 Crore (4453 Nos. of Tractors), in the previous year, and Sales of Rs. 100.95 Crore (2005 Nos. of Tractors) compared to Rs. 161.12 Crore (3639 Nos. of Tractors) in the previous years, which was the lowest achieved in recent times. During the year under review, the Company had to reconcile the sales registered in the previous year 2011-12 and give effect to the same in the accounts, due to certain practices followed by the Tractor Unit which were not in accordance with the established Accounting Standards/practices. Necessary corrective measures have been taken in this regard to establish proper accounting norms as per the Accounting Policies and Accounting Standards in vogue.

The HMT Group Companies including the Subsidiaries achieved an aggregate Production of Rs. 306.86 Crore and Sales of Rs. 383.70 Crore during the year 2012-13.

OPERATING RESULTS

During the year under review, the operations of your Company resulted in a negative Gross Margin of Rs.21.24 Crore as compared to the Gross Margin of Rs.11.77 Crore in the previous year. The Operations of your Company resulted in a Net Loss of Rs. 145.38 Crore during the year 2012-13, when compared with Rs. 82.20 Crore recorded in the previous year, which was mainly due to lower capacity utilization in the Tractor business and the higher interest burdens on account of Loans availed from the Govt of India under various heads. The financial highlights for the year 2012-13, are as under:

FINANCIAL HIGHLIGHTS

(Rs.in Crore)

Particulars 2012-13 2011-12 Gross Profit/(Loss) (PBIDT) (21.24) 11.77

Depreciation & Amortization 3.55 4.40

Finance Cost 104.03 89.55

Profit/(Loss) before PPA (128.82) (82.187)

Less: Prior Period Adjustments 16.56 0.02 (PPA)

Net Profit/(Loss) before tax (145.38) (82.20)

Tax Provision (Net)

Net Profit/(Loss) after tax (145.38) (82.20)

Net Profit/(Loss) carried to (145.38) (82.20)

Balance Sheet

DIVIDEND & PROVISIONS

Owing to the losses incurred during the year, the Directors are unable to recommend any dividend on the paid up equity share capital of the Company. In view of the losses incurred during the year, no reserve has been created for Bonds redemption as required.

FINANCIAL POSITION

Due to the sub-optimal performance during the year under review, the Net Loss for the year to increased to Rs. 145.38 Crore, adversely affecting the Net Worth position of the Company. Further, on account of the loans of India during the year, the interest liability also shot up, adversely affecting the bottom line.

During the year 2012-13 the Tractor Division reported Production of 2523 Tractors and Sales 3333 Tractors in order to report increased performance and after the comprehensive audit taken up by the Company through a special team of Auditors, Production 1214 Nos of Tractors and Sales of 1328 Nos of Tractors had to be reversed. As a result of such inflated reporting of performance by the Unit, the Company''s overall performance was severely affected and created an aberration and disciplinary action was initiated against senior executives of the Tractor Division as well as against the Chief executive of the Company. All necessary steps have since been taken during last few months to set right the systems and procedures in the Unit in accordance with guidelines of the Company and prevailing accounting norms. Both administrative and organizational changes have been effected at various levels in the Unit to strictly ensure that instances of incorrect reporting of Production and Sales are not repeated in future.

FUTURE OUTLOOK

The Tractor industry is expected to grow by 6-8 percent this fiscal owing to near normal monsoon and improvement in rural economy. The Auto Policy of the Government also encourages this sector favorably. Although low HP tractors have only a negligible presence even now, the segment has more than doubled its market share in the past three years. There is an inherent expansion in tractor demand in this segment because of shortage of farm labour/increase in wage rates due to alternative employment opportunities available to workers under National Rural Employment Guarantee Act leading to increased tractor viability even for small/medium size land owners. Low HP tractors are also affordable for farmers with small land holdings that make them a viable option.

Growth in the segment is expected to remain buoyant because of increased application of lower HP tractors for smaller grounds, narrow spaces, orchards and cropping, etc. The other trend that is evident is increased use of tractors in infrastructure and construction sectors which has led to a huge growth in purchase of higher HP tractors. High growth in this segment is expected to continue because of the following:

- Replacement demand turning towards higher HP tractors.

- Increased usage of tractors for non-agricultural applications across India

The Tractor Industry will continue to grow in the year 2013--14 due to thrust of Govt, on Agriculture and infrastructure. The growth drivers of Tractor Industry such as boost in rural economy, increased focus on agriculture and rural development, credit availability, shorter replacement cycle, several policy initiatives by the Government, etc., are aiding the growth trends.

The Tractor Group of your Company has already initiated a host of measures towards performance corrections, improvements. Appointment of new Distributors and Dealers in potential areas/territories, upgradation of the tractor engines for compliance to new emission norms for all models of tractors, entering into MoUswith Banks/Financing Agencies for priority loan sanction for the purchase of HMT Tractors, dynamic business strategies, etc., which are expected to yield results in the current financial year.

The future plans of your Company envisages plant modernization and technology upgradation which will contribute to better productivity and give a thrust to the growth trends in the coming years. The Government has approved Revival and Financial Restructuring Plan for the Company (HMT Ltd) as recommended by the BRPSE during April 2013, which envisages financial support, waivers etc from Government of India. The salient features of the approved Revival Plans amounting toRs. 1083.48 Cr., to be implemented in a phased manner are as follows:

- Cash infusion of Rs. 447.92 Cr. in the form of issue of 8% redeemable Preference Share Capital of the face value of Rs. 425 Cr. for Plant modernization & capacity augmentation, technology upgradation, working capital, repayment of certain identified liabilities etc. and a Bridge Loan from Government of India at Rs. 22.92 Cr. at 7% interest p.a., over a period of 2 years;

- Non cash assistance in the form of conversion of Government of India Loans into Equity to the extent of Rs. 429.92 Cr. and waiver of accumulated interest of Rs. 205.64 Cr. on Government of India Loans;

- The Government has also approved for implementation of revised Pay Scales/Wages 1997 and revision in the retirement age of employees of the compnay (HMT Ltd.,) from 58 years to 60 years from the date of approval of the Revival Plan by Government i.e. 18.4.2013;

- Government has given permission to sell identified surplus land for redemption of the Preference Share Capital and repayment of bridge loan to Government.

The Shareholders of the Company at its Extra Ordinary General Meeting held on June 21,2013, have considered and approved the increase in Authorised Share Capital of the Company from Rs. 1450 Crore to Rs. 2100 Crore. The Board also approved, inter-alia, the issue and allotment of fully paid redeemable cumulative 3.5% Preference Share Capital of the face value of Rs. 443 Cr. in favour of President of India as per the terms of sanction of the investment by Government.

In compliance with the requirement of minimum public shareholding (MPS) of 10% as per Securities Contract (Regulations) (Amendment) Rules, 2010 and SEBI guidelines on MPS, the competent authority has approved the transfer of 67538614 Government shares in the Company held by the President of India of the face value of Rs. 10/- each to the Special National Investment Fund (NIF) for the purpose of making the Company compliant with the MPS norms of 10% which was effected on 7.8.2013.

The Government of India has issued sanction vide F.No. 5(4)/2011-PE.X (Vol.lll) Pt. V dated September 17, 2013 releasing an amount of Rs. 217,00,00,000/- towards subscription to the privately placed issue of preferential shares of the Company for meeting the expenditure on technology upgradation (Rs. 30 Crore), working capital (Rs.45 Crore) and discharge of overdue liabilities (Rs. 142 Crore) for which the Company has to issue 2 year 8% preferential share Capital comprising of 2,17,00,000 shares of the face value of Rs. 100/- each at par in the name of President of India. The shares will be allotted to the Government with the approval of the Board of Directors of the Company. The Govt of India has also sanctioned release of a GOI Bridge Loan of Rs. 11.46 for meeting the expenditure towards additional impact on account of pay revision as per requirement of the revival plan approved by CCEA. Formal Sanction for Non-Cash assistance i.e. conversion of Government loans in to equity & waiver of accumulated interest thereon is still awaited from Government.

SUBSIDIARY COMPANIES

- HMT Machine Tools Limited

The Subsidiary achieved Sales ofRs. 236.23 Crore against Rs. 240.46 Crore achieved in previous year. Net loss reported is Rs. 43.65 Crore during the year 2012-13 against reported loss of Rs. 46.14 Cr in previous year. Capacity utilisation for theyear2012-13is54%.

The Subsidiary has implemented the revival plan proposals and plant up-gradation. The Subsidiary is also pursuing with various agencies for extending the reliefs and concessions sanctioned by the BIFR under the Rehabilitation Scheme. Some of these Parties including the Consortium of Banks have preferred appeals against the reliefs and concessions sanctioned by the BIFR, which is being contested by the Subsidiary.

During recent Meeting, BRPSE reviewed the progress of Revival Plan Implementation and recognized the need for interim measures to propel the growth of HMT Machine Tools Limited which will augur the momentum. Accordingly proposal from HMT Machine Tools Limited has been forwarded to the Ministry for consideration.

- H MT Watches Li m ited

This Subsidiary could not show significant improvement in performance during the year under review. Major factors affecting the performance of this Subsidiary were paucity of working capital, erosion of trade channel and high cost of borrowings. Despite these constraints, this Subsidiary could achieve a Sales level of Rs.11.06 Crore and Production of Rs. 14.03 Crore during the year under review. The Net Loss for the year stood at Rs. 242.47 Crore as compared to Rs. 224.04 Crore incurred during the previous year.

The Subsidiary was able to reduce its manpower by introduction of VRS, funded by Government of India (Gol) Loans. A total of 59 employees have been retired by the Subsidiary under VRS during the year 2012-13 thereby reducing its manpower strength to 1105 as on 31.3.2013.

The Revival Plan in respect of this Subsidiary has been submitted to the Government based on the business plans prepared by a reputed Consultancy Firm and is under consideration of the Government.

- HMT Chinar Watches Limited

The performance of this Subsidiary could not be sustained at optimum levels due to the disturbed situation prevailing in the J&K Valley apart from working capital constraints for production. Majority of the employees have been separated on VRS leaving about 54 employees at Srinagar and Jammu Units of the Subsidiary. Under these circumstances, the Subsidiary''s Sales was limited to Rs. 0.36 Crore during the year compared to Rs. 0.08 Crore in the previous year, with NIL Production for the year. In view of the virtual non operating levels, the Subsidiary incurred a Net loss of Rs. 51.16 Cr against Rs. 44.04 Crore compared to previous year.

- HMT (International) Limited This Mini Ratna Subsidiary achieved a turnover ofRs. 34.09 Crore as against Rs. 32.40 Crore recorded in the previous year, i.e. 2011-12, registering a growth of 5%. The Order procurement during the year is Rs. 24.10 Crore as against Rs. 37.98 Crore achieved in the previous year. Continuing the trend of achieving profits, Subsidiary could report Profit before Tax (PBT) of Rs. 6.85 Crore achieved against Rs. 1.74 Crore reported in previous year. PBT includes earlier bad debts written off realised now amounting to Rs. 4.13 Cr. The Subsidiary has maintained its consistent dividend payment record and has recommended a dividend of 20% for the year 2012-13 on its Paid-up equity share capital.

- HMT Bearings Limited During the year under review, the Subsidiary was able to achieve a Sales of Rs. 12.54 Crore, against the Previous Year''s Sales of Rs. 16.12 Crore. In terms of Production the Company was able to achieve Rs. 11.73 Crore compared to the Previous Year''s Production level of Rs. 14.64 Crore. Profit before Tax is Rs. (-)2.07 Cr. with exceptional Item of interest waiver of Rs.6.38 Cr. against Rs. (-)10.12 Cr. reported during 2011-12.

The Revival Plans of this Subsidiary submitted to DHI/ BRPSE has been approved by BRPSE during its meeting held in May 2013 and forwarded its recommendations to Government

ASSOCIATE /JOINT VENTURE COMPANY

SUDMO-HMT Process Engineers (India) Limited

This Joint Venture Company could not transact any business during the year under review. For the financial year 2012-13, this Company showed a Profit after tax of

Rs. 1.06 Lakhs on account of the interest income of Rs. 3.71 Lakhs, on the fixed deposits kept with the Banks. The Company is in the process of re-starting the operations of this Company.

Gujarat State Machine Tools Corporation Ltd

This Joint Venture Company between HMT and GIIC Ltd has discontinued its operations since long. It is therefore proposed to divest from this Associate Company in favour of the JV Partner. The process of disinvestment from this Company, is under consideration by the Company in consultation with the JV Partner.

CONSOLIDATED FINANCIAL STATEMENTS

As required under the Listing Agreement, Consolidated Financial Statements of the Company along with that of the Subsidiaries for the financial year 2012-13, conforming to the applicable Accounting Standards, are attached to this Report along with the Auditors'' Report on the same.

In terms of the General Circular No. 2/2011 dated 8th February, 2011, issued by the Central Government in terms of Section 212(8) of the Companies Act, 1956, the Directors have consented not to attach copy of the Balance Sheet, Profit and Loss Account, Report of the Board of Directors and Auditors of the five (5) Subsidiary Companies viz., HMT Machine Tools Limited; HMT Watches Limited; HMTChinar Watches Limited; HMT Bearings Limited and HMT (International) Limited to the Balance Sheet of the Company (Holding Company). However, these documents will be made available upon request by any member of the Company and Subsidiary Companies interested in obtaining the same. Further, in compliance with the conditions of the above referred Government circular, the financial information of each of these subsidiary Companies have been furnished as part of the Consolidated Balance Sheet of the Company. The annual accounts and other detailed information of each of the Subsidiary companies will be available for inspection by any member at the Registered Office of the Company. A statement pursuant to Section 212(1) of the Companies Act, 1956, in respect of each of the Subsidiary Companies is attached to this report.

HUMAN CAPITAL

Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees), Rules, 1975, as amended, is NIL for the year 2012-13.

The employee strength of the Company as on March 31, 2013, stood at 1442 Nos. as compared to 1699 at the end of the previous year. There are 295 employees in the Officer Cadre and 1147 Non-Executive in Workmen cadre. The number of employees on the rolls of the Company as on March 31, 2013 in SC/ST, Ex-servicemen, Physically Handicapped and Women Employee Categories etc. is detailed below:

Scheduled Castes 320

Scheduled Tribes 47

Other Backward Classes 105

Ex-Servicemen 4

Persons with Disabilities 15

Women employees 44

Minorities

217 INDUSTRIAL RELEATIONS

The overall Industrial Relations situation in the Company during the year remained cordial.

IMPLEMENTATION OF OFFICIAL LANGUAGE

The efforts towards implementation of Official Language Act, Rules & Policy as per the directives of the Government in the Company is continuous. The Official Language Implementation Committee have been constituted in all the Units of the Company and the Subsidiaries, including the Corporate Office at Bangalore to monitor implementation of Official Language Act, Rules, Policy, etc. which meets at regular intervals in every quarter.

In order to propagate the usage of Hindi as Official Language, "HINDI DIWAS/HINDI FORTNIGHT''was observed during the month of September, 2012. Various Hindi competitions such as Hindi Story writing, Hindi News Paper Reading, Hindi Quiz Writing, Hindi Conversation, Hindi Antyakshari, etc., were organized and participants were awarded prizes. A workshop was organised during the above period. The Hindi Magazines/Newspapers are being procured to propagate the usage of Hindi among employees. The concerned Officials of the Company regularly take part in the meetings of the Town Official Languages Implementation Committee. The Company also sponsors some of the Hindi competitions under Bangalore Town Official Language Implementation Committee

VIGILANCE ACTIVITIES

The Chief Vigilance Officer appointed by the Government of India heads the Corporate Vigilance Department of the Company. The Chief Vigilance Officer is assisted at Unit level by exclusively appointed Vigilance Officers. The

Corporate Vigilance Department carries out vigilance functions in the Company as well as in the Subsidiaries. The vigilance functions in the manufacturing Units and Marketing Offices are looked after by Vigilance Officers, under the guidance of Chief Vigilance Officer.

The Vigilance Department carried out regular and surprise inspections of a large number of high value contracts / purchases, services contracts etc and verified Annual Property returns submitted by the officers of the Company. Violations of rules and procedures were pointed out and comments of the concerned officers on the same were obtained. Wherever required, appropriate action against the concerned officers was recommended. The Vigilance Officers were given special task such as verification of man power contracts. This was done across all Units of the Company & Subsidiary Companies.

In line with CVC''s direction, emphasis was laid on preventative vigilance by striving towards strict adherence to all rules and procedures and all norms of transparency in tendering process. Based on CVC''s guidelines for ''Improving vigilance administration by leveraging technology and increasing transparency through effective use of website'' necessary directions were given by CVO for implementation of the same .some of the systems put in place by the Company are:

1. Hosting of all open tenders and high value Limited Tenders on www.tenders.gov.in (website of Gol).

2. Publishing details regarding all purchase orders / contracts concluded during the month, above the threshold value (presentlyRs.5.00 lakhs).

3. Application form for vendor registration along with list of items required by different Units of the Company and Subsidiaries are made available on Company website so as to enable the interested vendors to download the application form and submit the same to the Unit of their choice. Efforts are being made for periodical uploading of status of every vendor application on website.

4. Units are directed to upload status of vendor applications on the website and update the same once in quarter. Presently 3 Units have implemented this.

5. Payments by electronic mode to suppliers are being done completely by one Manufacturing Unit and partially by all Units. Efforts are being put for complete compliance by all Units

Quarterly vigilance workshops were organized at all manufacturing Units to enhance the level of vigilance awareness among the employees and other stakeholders. Vigilance Awareness Week 2012 was observed in all Units and Offices of the Company and Subsidiaries as per the guidelines of CVO

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a Report on the Corporate Governance is annexed as part of this Report along with the Compliance Certificate from the Auditors. A Report on Management Discussion and Analysis is also appended to this Report separately. Further, a declaration by the Chairman & Managing Director for having obtained affirmation of compliance of the Code of Conduct by the Board Member (s) and Senior Management for the year ended March 31, 2013, is also appended.

The Audit Committee could not be reconstituted as per CI. 49 of the Listing Agreement in the absence of Independent Directors to be appointed by the Government on the Board.

The Register of Members and Share Transfer Records both in respect of the shares held in physical and depository form are maintained by Karvy Computershare Private Limited, the Registrars & Share Transfer Agents of the Company.

INFORMATION REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under the Companies (Disclosures of Particulars) Rules, 1988, are annexed to this Report.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Sub-Section (2AA) of Section 217 of the Companies Act, 1956, the Board of Directors hereby state and confirm that:

- In the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- 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 at the end of the financial year and of the profit/loss of the Company for that period;

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- The Directors have prepared the annual accounts on a going concern basis. AUDITORS

M/s S.R.R.K.Sharma , Bangalore, were appointed as Statutory Auditors of the Company for the year 2012-13 by the Comptroller & Auditor General of India. Three firms of Chartered Accountants were also appointed as Branch Auditors for the other Units/Divisions of the Company. M/s.Khurana & Co Cost Accountants were re-appointed as Cost Auditors for the year 2012-13 in respect of "Tractors" and S.B.Khadke & Co., Cost Accountants were re-appointed as Cost Auditors for "Food processing Unit", Aurangabad for the year 2012-13. Replies to the observations by the Statutory Auditors in their Report are given by way of an addendum to this Report.

DIRECTORS

Vide Presidential Order No.5(8)/2010-P.E.X dated 2nd May 2013 issued by the Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises, Ms. Kusumjit Sidhu, has been appointed as the Part time Official Director of the Company with immediate effect, until further orders vice Shri Vijay Shankar Madan. The Board of Directors has approved her appointment as Director with effect from 2nd May 2013 in terms of Article 67(4) of the Articles of

Association read with Section 262 of the Companies Act, 1956. Ms.Kusumjit Sidhu, is proposed for appointment as a Director in terms of Article 67(4) of the Article of Association of the Company read with Sections 255,257 and 262 of the Companies Act, 1956,for which a notice has been received from a Member.

Shri Antony Chacko who was appointed as Director of the Company, retires by rotation at ensuing Annual General Meeting and is eligible for re-appointment. The Govt has given additional charge of the Post of Chairman & Managing Director of the Company to Shri Harbhajan Singh, Director and Joint Secretary with effect from 15.06.2013.

ACKNOWLEDGEMENTS

Your Directors are thankful to the various Departments and Ministries in the Government of India, particularly the Department of Heavy Industry, Ministry of Corporate Affairs, Comptroller and Auditor General of India, Principal Director-Commercial Audit, Statutory and Branch Auditors, various State Governments, Foreign Collaborators, the Subsidiary Companies, Suppliers, Reserve Bank of India, the Consortium of Banks lead by UCO Bank and the valued Customers of the Company both in India and abroad for their continued co-operation and patronage.

Your Directors would also like to take this opportunity to express their appreciation for the contributions made by the Company''s employees and look forward to their continued services in pursuit of building a world class Indian Company.

For and on behalf of the Board of Directors

Harbhajan Singh

Chairman & Managing Director

Place: Bangalore

Date: 23-10-2013


Mar 31, 2011

Dear Members

The Annual Accounts of the Company for the year 2010-11 along with the Auditors' Report and the Comments of the Comptroller & Auditor General of India are attached to this Report.

CORPORATE PERFORMANCE

The Indian Economy recorded robust growth and steady fiscal consolidation in the year 2010-11. The growth rate of the Economy has been 8.6% in the financial year 2010-11 and is expected to be around 9% in the next fiscal i.e the current year. The growth in the agriculture sector is expected to be around 5.4% while growth in the manufacturing and services sectors has registered impressive gains of 7% and 9.5% respectively.

Taking cue from the strong growth indicators, the tractor industry also recorded an impressive growth of 24% during the year under review. As a result, your Company also showed a marginally better performance during the year, recording growth in terms of both Production and Sales, over that of the previous year. During the year, your Company achieved a Production level of Rs.187.24 Crore (4812 Nos. of Tractors) as against Rs.169.65 Crore (4652 Nos. of Tractors), recorded in the previous year, with a growth of 10%. In terms of Sales also the Company registered a growth of 4% at Rs.200.86 Crore (4920 Nos. of Tractors) compared to Rs.191.64 Crore (4901 Nos. of Tractors) achieved in the previous year.

At the consolidated level, your Company along with its Subsidiaries achieved an aggregate Production of Rs.386.59 Crore and Sales of Rs.449.03 Crore for the year 2010-11. On a comparative basis, the performance was marginally better than that of the previous year.

OPERATING RESULTS

Despite the marginal growth in Sales registered during the year, the Operations of your Company resulted in a Net Loss of Rs.79.24 Crore during 2010-11, when compared with Rs.52.91 Crore recorded in the previous Year, which was mainly due to the additional provisions required to be made owing to the recent enhancement in the ceiling amount of gratuity payable to retiring employees from Rs.3.50 lakhs to Rs.10 lakhs and the higher interest burdens on account of Loans availed from the Govt of India under various heads. The financial highlights for the year 2010-11, are as under:

FINANCIAL HIGHLIGHTS

(Rs. in crore)

Particulars 2010-11 2009-10

Gross Profit/(Loss) (PBIDT) (36.66) (29.26)

Depreciation 3.87 3.92

Interest 38.71 23.57

Profit/(Loss) before PPA (79.24) (52.86)

Less: Prior Period Adjustments

(PPA) - 0.05

Net Profit/(Loss) before tax (79.24) (52.91)

Tax Provision (Net) - -

Net Profit/(Loss) after tax (79.24) (52.91)

Net Profit/(Loss) carried to

Balance Sheet (79.24) (52.91)

DIVIDEND

Owing to the losses incurred during the year, the Directors are unable to recommend any dividend on the paid up equity share capital. Hence, no reserve has been created for Bonds redemption as required.

FINANCIAL POSITION

Due to liquidity constraints, the production volume of Tractors has reduced resulting in a turnover of Rs.200.06 crore during the year under review. Further, the high interest on account of loan availed from Government of India to discharge liabilities, affected the bottom line to a large extent.

FUTURE OUTLOOK

Indian Tractor Industry's Annual growth rate is expected to be around 8-10%; marginally higher than that of the historical average of 6-8%. The growth drivers of Tractor

Industry such as boost in rural economy, increased focus on agriculture and rural development, credit availability, shorter replacement cycle, several policy initiatives by the Government, etc., are aiding the growth trends. Further, due to better irrigation facilities, farmers are resorting to multiple cropping through farm mechanisation for achieving higher productivity and output. All these factors are likely to contribute to a positive growth in its performance in the current Financial Year 2011-12.

In fact, the performance of your Company for the first quarter of the year under review has seen a positive upturn with a 10% growth in production compared to the achievement of the corresponding period of the previous year, with a similar growth of 2% in Sales for the Quarter compared to the same period of the previous year. The Tractor Business Group has already initiated a host of measures towards performance improvement in right earnest, by appointment of new Distributors and Dealers in potential areas/territories, upgradation of the tractors engines for compliance to new emission norms for all models of tractors, setting up of a new paint plant, entering into MoUs with Banks/Financing Agencies for priority loan sanction for the purchase of HMT Tractors, dynamic business strategies, etc., which are expected to yield results in the current financial year.

The future plans of the Company envisages investment in plant modernization and technology upgradation which will contribute to better productivity and give a thrust to the growth trends in the coming years. The Company has engaged the services of a leading consultancy firm to prepare a Business Plans comprising various strategic initiatives to sustain the operations and achieve growth.

SUBSIDIARY COMPANIES

- HMT Machine Tools Limited

This Subsidiary achieved Sales of Rs.209.02 Crore and Production of Rs.177.43 Crore with a Net loss of Rs.93.06 Crore during the year 2010-11. The performance of this Subsidiary was affected mainly due to working capital constraints. The Subsidiary has set a Sales target of Rs.372.96 Cr. for the current financial year 2011 - 12. The Subsidiary has implemented the revival plan proposals and plant upgradation with substantial part of the investments as Capital Expenditure. The Subsidiary is also pursuing with various agencies for extending the reliefs and concessions sanctioned by the BIFR under the Rehabilitation Scheme. Some of these Parties including the Consortium of Banks have preferred appeals against the reliefs and concessions sanctioned by the BIFR, which is being contested by the Subsidiary. The Merger of Praga Tools Ltd, Hyderabad, with the Subsidiary, which was part of the sanctioned Scheme of BIFR has since been completed.

- HMT Watches Limited

This Subsidiary could not show significant improvement in performance. Major factor affecting the performance of this Subsidiary was lack of working capital, absence of a robust trade channel and higher interest burden, with depletion in skilled manpower. Despite these constraints, this Subsidiary could achieve a Sales Rs.8.82 Crore and Production of Rs.10.62 Crore during the year under review. The Net Loss for the year stood at Rs.253.74 Crore as compared to Rs.168.35 Crore incurred during the previous year. The Revival plans in respect of this Subsidiary is under submission to the Government based on the business plans being prepared by the Consultants appointed by the Company. The Subsidiary was able to reduce its manpower by introduction of VRS, funded by Government of India Loan. A total of 462 employees have been retired by the Subsidiary during the year 2010-11 involving an outgo of ^63.98 Crore, reducing its manpower strength to 1417 as on 31.3.2011.

- HMT Chinar Watches Limited

The performance of this Subsidiary could not be sustained at optimum levels due to the ongoing troubled situation in the J&K Valley apart from shortage of working capital to enhance production levels. Majority of the employees have been separated on VRS leaving about 114 employees at Srinagar and Jammu Units of the Subsidiary. Under these circumstances, the Subsidiary could achieve only a meagre Sales of Rs.0.10 Crore during the year compared to Rs.0.73 Crore achieved during the previous year, while in terms of Production, it was at the level of only Rs.0.12 Crore for the year. As a result of the lower levels of operations, the Subsidiary incurred a Net loss of Rs.45.40 Crore during the year. The Subsidiary was able to reduce its manpower by introduction of VRS, funded by Government of India.

- HMT (International) Limited

This Subsidiary exported goods and technical services valued at Rs.27.89 Crore during the year under review as compared to Rs.30.80 Crore achieved in the previous year, and pre-tax Profit of Rs.0.31 Crore for the year. The performance of this Subsidiary in terms of orders, sales and profits during the year under review was marginally less amidst global financial crisis affecting delay/shelving of procurement plans by major customers. The Subsidiary has maintained its consistent dividend payment record and has declared a dividend of 20% on the Paid up equity Share Capital, for the year 2010-11. During the year, this Subsidiary was able to successfully obtain the re-certification of ISO9001-2008 from the certifying agencies.

- HMT Bearings Limited

This Subsidiary achieved a higher Sales turnover of Rs.11.44 Crore during the year under review as compared to Rs.6.84 Crore achieved during the previous year. The achievement in terms of Production during the year was also higher at Rs.11.18 Crore as compared to Rs.5.62 Crore recorded in the previous year. The Subsidiary incurred a Net Loss of Rs.21.32 Crore during the year compared to Rs.15.31 Crore recorded in the previous year, which was mainly due to higher incidence of VRS ex gratia. The Subsidiary was able to reduce its manpower by introduction of VRS, funded by Government of India Loan. A total of 103 employees have been retired by the Subsidiary during the year 2010-11 involving an outgo of Rs.10.67 Crore, reducing its manpower strength to 89 as on 31.3.2011.

The Subsidiary has been referred to the BIFR under the Sick Industrial Companies (Special Provisions ) Act, 1985 as amended and a Rehabilitation Scheme prepared by the Operating Agency viz., Canara Bank is under consideration of the BIFR including the proposal for inducting a strategic partner by divesting the equity.

JOINT VENTURE COMPANY

- SUDMO-HMT Process Engineers (India) Limited

There were no business operations by this Joint Venture Company during the year under review. For the financial year 2010-11, this Company showed a Net Profit after tax of Rs.0.68 Lakhs on account of the interest income of Rs.2.83 lakhs, out of the fixed deposits kept with the Banks.

- Gujarat State Machine Tools Corporation Ltd

This Company which was ordered to be wound up by BIFR, had discontinued its operations since long and is now a defunct Company. It is therefore considered prudent to divest from this JV Company jointly with the JV Partner.

CONSOLIDATED FINANCIAL STATEMENTS

As required under the Listing Agreement, Consolidated Financial Statements of the Company along with that of the Subsidiaries for the financial year 2010-11, conforming to the applicable Accounting Standards, are attached to this Report along with the Auditors' Report on the same.

In terms of the General Circular No. 2/2011 dated 8th February, 2011, issued by the Central Government in terms of Section 212(8) of the Companies Act, 1956, the Directors have consented to not to attach copy of the Balance Sheet, Profit and Loss Account, Report of the Board of Directors and Auditors of the five (5) Subsidiary Companies viz., HMT Machine Tools Limited; HMT Watches Limited; HMT Chinar Watches Limited; HMT Bearings Limited and HMT (International) Limited to the Balance Sheet of the Company (Holding Company). However, these documents will be made available upon request by any member of the Company and Subsidiary Companies interested in obtaining the same. Further, in compliance with the conditions of the above referred Government circular, the financial information of each of these subsidiary Companies have been furnished as part of the Consolidated Balance Sheet of the Company. The annual accounts and other detailed information of each of the Subsidiary companies will be available for inspection by any member at the Registered Office of the Company. A statement pursuant to Section 212(1) of the Companies Act, 1956, in respect of each-of the Subsidiary Companies is attached to this report.

HUMAN RESOURCES

Information in accordance with the provisions of Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is NIL for the year 2010-11.

The employee strength of the Company as on March 31, 2011, stood at 1904 Nos as compared to 2088 at the end of the previous year. There are 381 employees in the Officer Cadre and 1523 Non-Executives in Workmen cadre. The number of employees on the rolls of the Company as on March 31, 2011 in SC/ST, Ex- Servicemen, Physically Handicapped and Women Employee Categories etc is as follows:

Scheduled Castes 450

Scheduled Tribes 71

Other Backward Classes 129

Ex-Servicemen 7

Persons with Disabilities 16

Women Employees 56

Minorities 288

INDUSTRIAL RELATIONS

The overall Industrial Relations situation in the Company during the year remained peaceful. The Company continues to put in sincere efforts to improve and upgrade the skill sets of the employees at different levels and also to recruit manpower in key areas to achieve better and improved productivity in various fields of activities.

IMPLEMENTATION OF OFFICIAL LANGUAGE

The efforts towards implementation of Official Language Act, Rules & Policy as per the directives of the Government in the Company is continuous. The Official Language Implementation Committee have been constituted in all the Units of the Company and the Subsidiaries, including the Corporate Office, Bangalore to monitor implementation of Official Language Act, Rules, Policy, etc. which meets at regular intervals in every quarter.

In order to propagate the usage of Hindi as Official Language, "HINDI DIWAS/HINDI FORTNIGHT" was observed during the month of September, 2010. Various Hindi competitions such as Hindi Story writing, Hindi News Paper Reading, Hindi Quiz Writing, Hindi Conversation, Hindi Antyakshari, etc., were organized and participants were awarded prizes. A workshop was organised during the above period. The Hindi Magazines/Newspapers are being procured to propagate the usage of Hindi among employees. The concerned Officials of the Company regularly takes part in the meetings of the Town Official Languages Implementation Committee. The Company also sponsors some of the Hindi competitions under Bangalore Town Official Language Implementation Committee.

VIGILANCE ACTIVITIES

The Chief Vigilance Officer appointed by the Government of India heads the Corporate Vigilance Cell of the Company and is assisted at the Unit level by the Vigilance Officers.

The Corporate Vigilance Cell carries out vigilance functions in the Holding Company as well as in its Subsidiaries. The vigilance functions in the manufacturing Units and Marketing Officers are looked after by Vigilance Officers, under the guidance of Chief Vigilance Officer.

The Vigilance department carried out regular and surprise inspections of a large number of high value contracts/purchases, property returns, service contracts, etc. In case of violations of rules and procedures, serious irregularities, the matter was investigated and investigation reports prepared for further action. Wherever required, appropriate action against the concerned officers were recommended, instructions were issued to the effect that the violations of rules and procedures pointed out by the Vigilance Department should not be repeated. A lot of emphasis was laid on preventive vigilance by striving towards strict adherence to all rules and procedures and to all norms of transparency in tendering process. Several suggestions were made for systems improvement in various fields. As provided for in the relevant CVC guidelines, requisite emphasis was put on improving vigilance administration by leveraging technology.

Quarterly vigilance awareness workshops and Vigilance awareness week were organized to enhance the level of vigilance awareness among the employees and other stakeholders. A compilation of important CVO's Circulars were prepared and circulated to all Managing Directors, Unit Chiefs and concerned officers for quick reference.

COPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a Report on the Corporate Governance is annexed as part of this Report along with the Compliance Certificate from the Auditors. A Report on Management Discussion and Analysis is also appended to this Report separately. Further, a declaration by the Chairman & Managing Director for having obtained affirmation of compliance of the Code of Conduct by the Board Member (s) and Senior Management for the year ended March 31, 2011, is also appended.

The Audit Committee could not be reconstituted as per requirements of the Listing Agreement in the absence of Independent Directors to. be appointed toy the Government.

The Register of Members and Share Transfer Records both in respect of the shares held in physical and depository form are maintained by Karvy Computershare Private Limited, Hyderabad, and the Registrars & Share Transfer Agents of the Company.

INFORMATION REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under the Companies (Disclosures of Particulars) Rules, 1988, are annexed to this Report.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Sub-Section (2AA) of Section 217 of the Companies Act, 1956, the Board of Directors hereby state and confirm that:

- In the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- 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 at the end of the financial year and of the profit/loss of the Company for that period;

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- The Directors have prepared the annual accounts on a going concern basis.

AUDITORS

M/s. Dagliya & Co. Chartered Accountants, Bangalore, were appointed as Statutory Auditors of the Company for the year 2010-11 by the Comptroller & Auditor General of India. Three firms of Chartered Accountants were also appointed as Branch Auditors for the other Units/Divisions of the Company. M/s Khurana & Co., Cost Accountants were appointed as Cost Auditors for the year 2010-11 in respect of 'Tractors'.

Replies to the observations by the Statutory Auditors in their Report are given by way of an addendum to this Report.

DIRECTORS

Shri A.V. Kamat, Chairman & Managing Director, vacated the position on 31.3.2011 consequent upon his superannuation from the services of the Company on that date. The Directors wish to place on record the services rendered and contributions made by Shri A.V.Kamat, during his tenure as Chairman and Managing Director of the Company.

Vide Presidential Order No. 5(32)/2009-PE.X(Pt) dated May 13, 2011 issued by the Department of Heavy Industry, Shri S.G.Sridhar, Director (Operations) had been assigned additional charge of the post of Chairman & Managing Director of the Company for a period of three months w.e.f. 01.04.2011.

Shri Saurabh Chandra, Director, retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

ACKNOWLEDGEMENTS

The Directors are thankful to the various Departments and Ministries in the Government of India, particularly the Department of Heavy Industry, Ministry of Corporate Affairs, Comptroller and Auditor General of India, Principal Director-Commercial Audit, Statutory and Branch Auditors, various State Governments, Foreign Collaborators, the Subsidiary Companies, Suppliers, Reserve Bank of India, the Consortium of Banks lead by UCO Bank and the valued Customers of the Company both in India and abroad for their continued co-operation and patronage.

The Directors also sincerely appreciate the contributions made by the employees at all levels in the operations of the Company during the year.

For and on behalf of the Board of Directors

(S. G. Sridhar)

Chairman

Place: Bangalore

Date : 5-9-2011












Mar 31, 2010

The Annual Accounts of the Company for the year 2009-10 along with the Auditors Report and the Comments of the Comptroller & Auditor General of India are attached to this Report.

CORPORATE PERFORMANCE

The year 2009-10 saw a significant resurgence of the Indian economy, in spite of the global meltdown witnessed all round except in respect of the BRIC countries. The growth of 7.9% achieved during the second quarter of 2009-10 was indeed quite encouraging. The subsequent data releases on Industrial production, infrastructure or exports, confirmed the assessment that the economy has been steadily gaining momentum on a strong economic turnaround. Taking cue from the strong growth indicators, the tractor industry also recorded a growth of 26.21% during the year under review.

Your Company also showed a marginally better performance during the year under review, with growth in terms of both Production and Sales, over the previous year. During the year, your Company achieved a Production level of Rs. 169.65 Cr (4652 Nos. of Tractors) as against the Production level of Rs. 134.34 Cr. (3651 Nos Tractors), recorded in the previous year, with a growth of 26%. In terms of Sales also the Company registered a growth of 19% at Rs, 191.64 Cr (4901 Nos. of Tractors) compared to the Sales of Rs. 160.98 Cr. (4109 Nos. of Tractors) achieved in the previous year.

At the consolidated level, your Company along with its Subsidiaries achieved the Production of Rs.381.18 Cr. and Sales of Rs.436.48 Cr. for the year 2009-10, recording a Net Loss of Rs.329.65 Cr. On a comparative basis, the performance was marginally better than that of the previous year despite the lower levels of performance achieved by some of the Subsidiaries viz., HMT Watches Limited and HMT Chinar Watches Limited.

OPERATING RESULTS

As a result of the improved performance achieved during the year 2009-10, the bottom line improved with the Net Loss coming down from the level of Rs.68.98 Cr. recorded in the previous Financial Year 2008-09 to a Net Loss of Rs.52.91 Cr. during the Year 2009-10. The financial highlights for the year 2009-10, are as under:

FINANCIAL HIGHLIGHTS

(Rs. In crore)

Particulars 2009-10 2008-09

Gross Profit/(Loss) (PBIDT) (29.26) (53.24)

Depreciation 3.92 3.40

Interest 1,9.68 12.34

Profit/(Loss) before PPA (52.86) (68.98)

Less: Prior Period Adjustments

(PPA) O05 -

Net Profit/(Loss) before tax (52.91) (68.98)

Tax Provision (Net) - 1.81

Net Profit/(Loss) after tax (52.91) (70.79)

Net Profit/(Loss) carried to

Balance Sheet (52.91) (70.79)

DIVIDEND

In view of the accumulated losses, your Directors are not in a position to recommend any Dividend on the Paid-up Equity Share Capital for the year 2009r10. No appropriation towards Bonds Redemption Reserve has been made as required under the Bonds Issue Guidelines.

The Issued, Subscribed and Paid-up Equity Share Capital of the Company stood at Rs.760,35,01,400/- as on March 31, 2010. An amount of Rs. 443 Cr. is continued to be shown as Application Money pending allotment of the Preference Shares in the name of the President of India.

FINANCIAL POSITION

The financial position of the Company continued to remain precarious during the year under review, mainly due to the losses incurred by the Company and the difficulty in arranging the required resources from the

Banking sector as well as through disposal of surplus assets, as planned. Your Company is evaluating a strategy9 for joint development of identified surplus assets of the Company with help of a reputed professional agency, The thrust will be to raise the required resources from leveraging these surplus assets in order to meet the commitments towards retirement of the outstanding overdue liabilities as well as those falling due for repayment/redemption during the current year.

FUTURE OUTLOOK

With the increased focus on agriculture and rural development, easing of credit availability, etc., in view of certain policy initiatives by the Government, the performance of your Company is likely to show positive growth in the current financial year. Further, due to better irrigation facilities, more and more farmers are resorting to multiple cropping through farm mechanisation for achieving higher productivity and output. In fact, the performance of your Company for the first quarter of the year under review has been up by 24% in production compared to previous corresponding period of previous year. The Sales also increased by 4% when compared to first quarter of the previous year. The Tractor Group of your Company has already initiated a host of measures towards performance improvement in right earnest, by appointment of new Distributors and Dealers in select potential areas/territories, engine upgradation for compliance of new emission norms for all models of tractors, setting up of a new paint plant, entering into MOUs with Banks/Financing Agencies for priority loan sanction for the purchase of HMT Tractors, dynamic business strategies, etc., which are expected to yield positive results during the current financial year.

SUBSIDIARY COMPANIES

- HMT Machine Tools

During the year under review, this Subsidiary achieved a Sales of Rs. 198.45 Cr. (including excise duty) and Production of Rs.194.19 Cr. with a Net loss of Rs.45.80 Cr. The performance of this Subsidiary was affected mainly due to working capital constraints and lower order bookings due to the recessionary trends faced by the Capital Goods segment of the Country for the substantial part of the Year under review. The higher input costs of items like steel also contributed to decline in the performance of this Subsidiary. The Subsidiary has set a Sales target of Rs.403 Cr. for the current financial year 2010-11. This Subsidiary is currently implementing the Rehabilitation Scheme sanctioned by the BIFR during the year 2008 based on the revival plans approved by the Government of India during March 2007. The Subsidiary has implemented the revival plan proposals substantially including substantial portion of the sanctioned investments in Capital Expenditure, which are expected to bear fruit in the ensuing years.

HMT Watches Limited

This Subsidiary could not show any improvement in its performance, during the year under review despite salary support being received from the Government. The Revival Plans prepared by the Company and submitted to the Government is under its active consideration and review by the Ministry. The Major factor affecting the performance of this Subsidiary was lack of working capital, absence of a robust trade channel and higher interest burden, with depletion in skilled manpower. Despite these constraints, this Subsidiarycould achieve a Sales Turnover of Rs.10.54 Cr. and Production of Rs.11.42 Cr. during the year under review. The Net Loss for the year stood at Rs.168.35 Cr. as compared to Rs. 164.05 Cr. incurred during the previous year.

- HMT Chinar Watches Limited

The performance of this Subsidiary could not be sustained at optimum levels due to the ongoing troubled situation in the J&K Valley apart from shortage of working capital to enhance production levels for the market required models of watches. Majority of the employees have been separated on VRS leaving about 145 employees at Srinagar and Jammu Units of the Subsidiary. Under these circumstances, the Subsidiary could achieve only a meagre Sales Turnover of Rs. 0.73 Cr. during the year compared to Rs.0.70 Cr. achieved during the previous year, while in terms of Production, the Subsidiary could achieve the level of only Rs.0.30 Cr. for the year. As a result of the lower levels of operations, the Subsidiary incurred a Net loss of Rs.49.94 Cr. during the year.

- HMT (International) Limited

This Subsidiary exported goods and technical services valued at Rs.30.80 Cr. during the year under review as compared to Rs.16.36 Cr. achieved in the previous year, registering a growth of 88% and resulting in pre-tax Profit of Rs.3.96 Cr. for the year. The performance of this Subsidiary in terms of orders, sales and profits during the year under review was significantly higher amidst global financial crisis affecting delay/shelving of procurement plans by major customers. The Subsidiary has also successfully obtained the re-certification of ISO 9001-2000. The Subsidiary has also maintained its consistent dividend payment record and h ; declared a dividend of 20% on the Paid up Equity Share Capital, for the year 2009-10

- HMT Bearings Limited

This Subsidiary achieved a lower Sales turnover of Rs. 6.84 Cr. (excluding excise duty) during the year under review as compared to Rs.8.71 Crore during the previous year. The achievement in terms of Production during the year was lower at Rs.5.62 Cr. as compared to Rs.7.17 Cr. recorded in the previous year. This Subsidiary incurred a Net Loss of Rs.15.31 Cr. during the year compared to the Net Loss of Rs.10.68 Cr. during the previous year. As a result of the increase in the Losses incurred during the year, the Accumulated Losses of the Company stood at Rs.81.13 Cr. as a result of which the Net Worth of the Company as at March 31, 2010 showed a negative position at Rs. 43.42 Cr. The Company has been declared as a Sick Industrial Company in terms of Section 3(1) (O) of the Sick Industrial Companies (Special Provisions) Act, 1985, by the BIFR and appointed Canara Bank as the Operating Agency (OA) u/s 17(3) of the Act. The DRS has been submitted by the Subsidiary for the consideration of the BIFR and actions are being initiated in terms of the directions of BIFR for the rehabilitation of the Subsidiary.

CONSOLIDATED FINANCIAL STATEMENTS

As required under the Listing Agreement, Consolidated Financial. Statements of the Company along with that of the Subsidiaries for the financial year 2009-10, conforming to the applicable Accounting Standards, are attached to this Report along with the Auditors Report on the same.

In terms of the approval granted by the Central Government under Section 212(8) of the Companies Act, 1956, a copy of the Balance Sheet, Profit and Loss Account, Report of the Board of Directors and Auditors of the five (5) Subsidiary Companies viz., HMT Machine Tools Limited; HMT Watches Limited; HMT Chinar Watches Limited; HMT Bearings Limited and HMT (International) Limited have not been attached with the Balance Sheet of the Company (Holding Company). However, these documents will be made available upon request by any member of the Company and Subsidiary

Companies interested in obtaining the same. As directed by the Central Government, the financial information of each of these Subsidiary Companies has been furnished as part of the Consolidated Balance Sheet. The annual accounts and other detailed information of each of the Subsidiary Companies will be available for inspection by any member at the Registered Office of the Company and that of the Subsidiary Companies concerned. A statement pursuant to Section 212(1) of the Companies Act, 1956, in respect of each of the Subsidiary Companies Is attached to this report.

ASSOCIATE COMPANY

- SUDMO-HMT Process Engineers (India) Limited

There were no significant operations bythis Associate Company during the year under review. For the financial year 2009-10, this Company made a Net Profit after tax of Rs. 0.59 Lakhs from the interest income of Rs. 3.01 Lakhs out of the fixed deppsits with the Banks. It is expected that the business operations of this Company would be resumed upon implementation of the Government sanctioned Revival Plans, for HMT Ltd.

VIGILANCE ACTIVITIES

The Chief Vigilance Officer appointed by the Government of India heads the Corporate Vigilance Cell of the Company and is assisted at the Unit level by the Vigilance Officers.

The Corporate Vigilance Cell carries out vigilance functions in the Holding Company as well as in its Subsidiaries. The vigilance functions in the manufacturing Units and Marketing Offices are looked after by Vigilance Officers, under the guidance of Chief Vigilance Officer.

The Vigilance department carried out regular and surprise inspections of a large number of high value contracts/purchases, property returns, service contracts, etc. Violations of rules and procedures were pointed out and in cases of serious irregularities, the matter was investigated and investigation reports were prepared for further action. Wherever required, appropriate action against the concerned officers were recommended, instructions were issued to the effect that the violations of rules and procedures pointed out by the Vigilance Department should not be repeated. A lot of emphasis was laid on preventive vigilance by striving towards strict adherence to all rules and procedures and to all norms of transparency in tendering process. Several suggestions were made for systems improvement in various fields. As provided for in the relevant CVC guidelines, requisite emphasis was put on improving vigilance" administration by leveraging technology. Quarterly vigilance awareness workshops and vigilance awareness week were organized to enhance the level of vigilance awareness among the employees and other stakeholders. A compilation of important CVOs Circulars were prepared and circulated to all Managing Directors, Unit Chiefs and concerned officers for quick reference.

PARTICULARS OF EMPLOYEES

Information in accordance with the provisions of Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is NIL for the year 2009-10.

INFORMATION REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under the Companies (Disclosures of Particulars) Rules, 1988, are annexed to this Report.

EMPLOYEES

The employee strength of the Company as on March 31, 2010, stood at 2088 Nos. as compared to 2205 at the end of the previous year. There were 421 employees in the Officer Cadre and 1667 Non- Executives in Workmen cadre. The number of employees on the rolls of the Company as on March 31, 2010 in SC/ST, Ex-Servicemen, Physically Handicapped, Women Employee and Minority Categories is as follows:

Scheduled Castes 484

Scheduled Tribes 92

Other Backward Classes 26

Ex-Servicemen 12

Persons with Disabilities 17

Women Employees 61

Minorities 325

EMPLOYEE RELATIONS

The overall Industrial Relations situation in the Company during the year remained peaceful. The Company continues to put in sincere efforts to improve and upgrade the skill sets of the employees at different levels and also to recruit manpower in key areas in order to achieve better and improved productivity in various fields of activities. Certain performance incentive schemes linked to achieving set targeted performance levels are being formulated to improve the motivation of the employees.

IMPLEMENTATION OF OFFICIAL LANGUAGE

The Company is making all out efforts for. implementing Official Language Act, Rules & Policy as per the directives of the Government. The Official Language Implementation Committee have been constituted in all the Subsidiaries, Units of the Company including Corporate Office, Bangalore to monitor implementation of Official Language Act, Rules, Policy, etc. which meets at regular intervals in every quarter.

In order to propagate the usage of Hindi as Official Language, "HINDI DIWAS/HINDI FORTNIGHT" was observed during the month of October 2009. Various Hindi competitions such as Hindi Story writing, Hindi News Paper Reading, Hindi Quiz Writing, Hindi Conversation, Hindi Antyakshari, etc., were organized and participants were awarded prizes. A three day workshop was organised during the above period. The concerned Officials of the Company in charge of implementation of the Official Languages Act, regularly take part in the meetings of the Town Official Languages Implementation Committee. The Company also sponsors some of the Hindi competitions under Bangalore Town Official Language Implementation Committee.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a Report on the Corporate Governance is annexed as part of this Report along with the Compliance Certificate from the Auditors. A Report on Management Discussion and Analysis is also appended to this Report separately. Further, a declaration by the Chairman & Managing Director for having obtained affirmation of compliance of the Code of Conduct by the Board Member (s) and Senior Management for the year ended March 31, 2010, is also appended.

The Register of Members and Share Transfer Records both in respect of the shares held in physical and depository form are maintained by Karvy Computershare Private Limited, Hyderabad, and the Registrars & Share Transfer Agents of the Company.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Sub-Section (2AA) of Section 217 of the Companies Act, 1956, the Board of Directors hereby state and confirm that:

- In the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- 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 at the end of the financial year and of the profit/loss of the Company for that period;

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- The Directors have prepared the annual accounts on a going concern basis.

AUDITORS

M/s. Dagliya & Co. Chartered Accountants, Bangalore, were appointed as Statutory Auditors of the Company for the year 2009-10 by the Comptroller & Auditor General of India. Three firms of Chartered Accountants were also appointed as Branch Auditors for the other Units/Divisions of the Company. M/s. V. Kumar & Associates, Cost Accountants, were appointed as Cost Auditors for the year 2009-10 in respect of Tractors.

Replies to the observations by the Statutory Auditors in their Report are given by way of an addendum to this Report.

DIRECTORS

Pursuant to Article 67 (4) of the Articles of Association of the Company, Shri Harbhajan Singh, Joint Secretary, Department of Heavy Industry, Ministry of Heavy

Industries & Public Enterprises, has been appointed as Part-time Official Director on the Board of the Company, with effect from January 11, 2010, vice Shri Rajiv Bansal, vide Presidential Order No.5(16)/2009-P.E-X dated January 11, 2010. Shri Harbhajan Singh retires at the ensuing Annual General Meeting and being eligible offers himself for appointment as Director in terms of Section 255 read with 257 and 262 of the Companies Act, 1956, for which notice has been received from a member.

Consequent upon the completion of their term, Dr. N.B. Ballal, Shri S.K. Tuteja, and K. Kipgen, Part- time Non-Official (Independent) Directors ceased to. be Directors with effect from 31.01.2010, 11.02.2010, and 25.06.2010 respectively.

Shri S. K. Kampasi, Director (Finance) ceased to be Directior consequent upon his superanuation from the Company on February 28, 2010.

The Directors wish to place on record the services rendered and contributions made by Shri Rajiv Bansal, Dr. N.B. Ballal, Shri S.K. Tuteja, Shri S. K. Kampasi and Shri K. Kipgen, during their tenure as Directors on the Board of the Company.

Shri S.G. Sridhar, Director (Operations) retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

ACKNOWLEDGEMENTS

The Directors are thankful to the various Departments and Ministries in the Government of India, particularly the Department of Heavy Industry, Ministry of Corporate Affairs, Comptroller and Auditor General of India, Principal Director-Commercial Audit, Statutory and Branch Auditors, various State Governments, Foreign Collaborators, the Subsidiary Companies, Suppliers, Reserve Bank of India, the Consortium of Banks lead by UCO Bank and the valued Customers of the Company both in India and abroad for their continued co-operation and patronage.

The Directors also sincerely appreciate the contributions made by the employees at all levels in the operations of the Company during the year, in spite of the difficult situation faced by the Company.

For and on behalf of the Board of Directors

(A.V. Kamat)

Chairman & Managing Director



 
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