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Directors Report of Nelco Ltd.

Mar 31, 2016

To

The Members,

The directors have pleasure in presenting their Seventy Third Annual Report on the business and operations of the Company together with the Audited Statement of Accounts for the year ended 31st March 2016.

1. Financial Results (Rs. in lakhs)

Standalone

Consolidated

Sr. No.

Particulars

FY 14-16 18 months

FY 13-14 12 months

FY 14-16 18 months

FY 13-14 12 months

I

Continuing Operations

a

Net Sales / Income from Other Operations

13,370.32

9,172.45

20,043.98

12,326.73

b

Operating Expenditure

11,930.74

8718.28

17,788.67

11,210.34

c

Operating Profit

1,439.58

454.17

2,255.31

1,116.39

d

Add:- Other Income

482.49

320.67

297.44

158.39

e

Less:- Finance Cost

1142.66

619.36

1,293.51

682.23

f

Profit before Depreciation and Tax

779.41

155.48

1,259.24

592.55

g

Less :- Depreciation / Amortization/ Impairment

781.10

512.74

1,409.32

861.28

h

Profit before Tax

(169)

(357.26)

(150.08)

(268.73)

I

Exceptional items

-

1,240.90

-

1,240.90

j

Current / Deferred Tax Expenses

46.68

-

46.68

52.00

k

Net Profit / (Loss) after tax from Continuing operations

(48.37)

883.64

(196.76)

920.17

II

Discontinuing Operations

l

(Loss) from Discontinuing operations (before exceptional item and tax)

(625.63)

(755.02)

(625.63)

(755.02)

m

Add:- Exceptional Profit

162.00

-

162.00

-

n

Tax Expenses

-

-

-

-

o

(Loss) after Tax from Discontinuing operation

(463.63)

(755.02)

(463.63)

(755.02)

III

(Loss) / Profit after tax from total operations

(512.00)

128.62

(660.39)

165.15

p

Less :- Minority Interest

-

-

-

-

q

Add:- Share of profit of Associates

-

-

42.61

27.81

r

Net Profit after Tax, Minority interest and Share of Profit of Associates

(512.00)

128.62

(617.78)

192.96

As required under the Companies Act, 2013, the Company has extended its financial year by 6 months till 31st March, 2016. Accordingly, the financial year 2014-16 is of 18 months from 1st October, 2014 to 31st March, 2016.

2. Dividend

Due to loss, the Board of Directors has not recommended dividend for the year ended 31st March 2016.

3. Financial Performance and the state of the Company''s affairs

3.1 Standalone

On a Standalone basis, your Company achieved revenue of Rs 13,370.32 lakhs in FY 14-16 (18 months) from Continuing Operations as against Rs. 9,172.45 Lakhs in FY13-14 (12 Months). On an annualized basis revenue was lower by Rs 258.00 lakhs mainly due to reduced revenue from Automation and control segment by Rs 1,038.00 lakhs which was partly offset by increase in revenue from Network Management segment by Rs 780.00 lakhs.

Loss before Tax from continuing operation has reduced from Rs 357.26 lakhs in FY 13-14 (12 months) to Rs 1.69 lakhs in FY 14-16 (18 months).This was mainly due to increase in high margin service income of VSAT division.

The segment wise performance (Standalone) for the year was as follows :

Automation & Control earned total revenue of Rs 1,300 lakhs in FY 14-16 (18 months) [Rs 1,906 lakhs in previous year (12 months)] and incurred a segment loss of Rs. 593 lakhs in FY 14-16 (18 months) [loss of Rs. 740 lakhs in previous year(12 months)].

Network Systems earned a total revenue of Rs.12,024 lakhs in FY14-16(18 months) [Rs. 7,241 lakhs in previous year (12 months)] and reported a segment profit of Rs. 3,204 lakhs in FY 14-16 (18 months) [profit of Rs. 2,029 lakhs in previous year (12 months)]

Interest amounted to Rs.1,142 lakhs in FY 14-16 (18 months) [Rs. 619 lakhs in previous year (12 months)]. Other unallocable expenses (net of income) were Rs. 1,471 lakhs in FY 14-16 (18 months) as against un-allocable income (net of expenses) of Rs. 214 lakhs in the previous year (12 months).

3.2 Consolidated

On a consolidated basis, revenue from Continuing Operations stood at Rs 20,043.98 lakhs in FY 16 (18 months) as against Rs.12,326.73 Lakhs in FY14 (12 Months). On an annualized basis revenue of the Company increased by Rs 1,036 Lakhs mainly on account of increased in revenue from Network Management segment by Rs 2,074 Lakhs and revenue from Automation and Control segment reduced by Rs 1,038 Lakhs.

Loss before Tax from Continuing Operations reduced from Rs 268.73 Lakhs in FY 14 (12 months) to Rs 150.08 Lakhs in FY 16 (18 months).

There were no material changes and commitments affecting the financial position of the Company which occurred between the end of the period under review and the date of this Report.

3.3 Operations

Network System consisting of VSAT and SATCOM contributed to 93.49% of the consolidated continuing operations revenue during the 18 months period ended 31st March 2016 as against 84.50 % during 12 months period in FY 13-14.

Automation Control consisting of Integrated Security & surveillance Solutions (ISSS), currently being operated on a restricted mode contributed to 6.51% of the continued operations during this 18 months period ended 31st March 2016 as against 15.50% during FY 13-14 (12 months)

These are discussed in detail in the Management Discussion & analysis which forms a part of this report.

During the period under review, the Members, as a part of restructuring process, approved (subject to other requisite approvals) the transfer of following businesses as a “going concern” on a “slump sale” basis:

- Managed Services business (“MS Business”) which was forming part of Network System segment, to Secures Systems Pvt. Ltd. at a consideration of Rs. 210 lakhs with effect from 1st April, 2015. The transaction was concluded on 31st August, 2015.

- Unattended Ground Sensors business (“UGS Business”) which was forming part of Automation & Control segment, to The Tata Power Co. Ltd. (The Parent Company) at a consideration of Rs. 831 lakhs with effect from 1st October, 2014. The conclusion of the transaction is pending for approval (which has already been applied and pursued) of Ministry of Defense (the Customer).

4. Reserves

The Board of Directors has not proposed any amount for transfer to reserves for the period ended 31st March, 2016.

5. Subsidiary and Associate Company

As on 31st March 2016, the Company had one Wholly Owned Subsidiary viz. Tatanet Services Ltd. and one Associate Company viz. Nelito Systems Ltd. There has been no major change in the nature of business of these Companies. Also none of the then existing Subsidiary or Associate ceased to be Subsidiary/ Associate of the Company during the period under review.

During the period under review, the Company has infused Rs. 484 lakhs in its Wholly Owned Subsidiary by subscribing to the equity shares at par offered by it.

The Policy for determining material subsidiaries of the Company has been provided in the following link: http://www.nelco.in/_content/investorrelations/Policy_for_determining_Material_Subsidiaries.pdf

6. Directors and Key Managerial Personnel

In terms of Section 149 of the Companies Act, 2013 (“Act”) the Members, at the 72nd Annual General Meeting (AGM) held on 28th January 2015, appointed the following Independent Directors of the Company till 27th January, 2020:

- Mr. R.R.Bhinge

- Mr. P.K.Ghose

- Mr. R.Savoor

- Mr. K.Raghuraman

- Mr. K.Ramachandran

- Ms. Hema Hattangady

Due to pre-occupation and other commitments, Mr.P.K.Ghose and Mr. R. Savoor, Independent Directors and Mr. V.K.Deshpande and Mr. Sanjay Dube, Non-Independent Directors stepped down from the Directorship with effect from 18th March 2015. The Board places on record its sincere appreciation for their valuable guidance and contribution during their tenure as Directors of the Company.

Pursuant to the “Governance Guidelines for Tata Companies on Board Effectiveness” adopted by the Board of Directors of the Company at its meeting held on 18th March, 2015, Mr. R.R.Bhinge did not fall under the category of Independent Director. Hence, effective from 18th March, 2015, his category/status of Directorship has been changed from Independent Director to Non-Independent Director liable to retire by rotation. Hence, in accordance with the requirements of the Act and the Articles of Association of the Company, Mr. R.R. Bhinge retires by rotation at the ensuing AGM and is eligible for re-appointment. Additional information and brief profile as stipulated under SEBI (Listing Obligations & Disclosure Requirements), Regulations, 2015 with respect to Director seeking re-appointment is annexed to the Notice of AGM.

In terms of Section 203 of the Act, the Board has designated the following persons as Key Managerial Personnel of your Company:

- Mr. P.J. Nath, Executive Director & CEO

- Mr. Uday Banerjee, Chief Financial Officer

- Mr. Girish Kirkinde, Company Secretary

During the period under review, twelve Board Meetings were held. For further details, please refer Report on Corporate Governance.

The Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as prescribed under the Act and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Governance Guidelines:

The Company has adopted Governance Guidelines on Board Effectiveness. The said Guidelines covers aspects related to composition and role of the Board, Chairman and Directors, Board diversity, definition of independence, Director''s term, retirement age and Committees of the Board. It also includes aspects relating to nomination, appointment, induction and development of Directors, Director Remuneration, subsidiary oversight, Code of Conduct, Board Effectiveness Review and mandates of Board Committees.

7. Annual Evaluation of Board Performance and Performance of its Committees and Individual Directors.

As required under the Act and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Board has carried out an annual evaluation of its own performance, performance of the Directors individually as well as the evaluation of the working of its Committees.

The following process was adopted for Board Evaluation:

Feedback was sought from each Director about their views on the performance of the Board covering various criteria such as degree of fulfillment of key responsibilities, Board structure and composition, establishment and delineation of responsibilities to various Committees, effectiveness of Board processes, information and functioning, Board culture and dynamics, quality of relationship between the Board and the Management and efficacy of communication with external stakeholders. Feedback was also taken from every Director on his assessment of the performance of each of the other Directors.

The Nomination and Remuneration Committee (NRC) then discussed the above feedback received from all the Directors.

Based on the inputs received, the Chairman of the NRC also made a presentation to the Independent Directors at their meeting, summarizing the inputs received from the Directors as regards Board performance as a whole, and of the Chairman. The performance of the non-independent non-executive Directors and Board Chairman was also reviewed by them.

Post the meeting of the Independent Directors, their collective feedback on the performance of the Board (as a whole) was discussed by the Chairman of the NRC with the Chairman of the Board. It was also presented to the Board and a plan for improvements was agreed upon.

Every statutorily mandated committee of the Board conducted a self-assessment of its performance and these assessments were presented to the Board for consideration. Areas on which the Committees of the Board were assessed included degree of fulfillment of key responsibilities, adequacy of Committee composition and effectiveness of meetings.

Feedback was provided to the Directors, as appropriate. Significant highlights, learning and action points arising out of the evaluation were presented to the Board.

7.1 Committees of the Board

The Committees of the Board focus on certain specific areas and make informed decisions in line with the delegated authority. The following substantive Committees constituted by the Board function according to their respective roles and defined scope:

- Audit Committee of Directors

- Nominations, HR and Remuneration Committee (NRC)

- Stakeholders Relationship Committee

- Executive Committee of the Board

Details of composition, terms of reference and number of meetings held for respective Committees are given in the Report on Corporate Governance which forms part of the Annual Report.

The details of the familiarization programs for Independent Directors are disclosed on the Company''s website and the web link for the same is: http://www.nelco.in/_content/investor-relations/Familiarisation_Programme.pdf

The Board has laid down separate Codes of Conduct for Non-Executive Directors and Senior Management personnel of the Company and the same are posted on the Company''s website. All Board Members and Senior Management personnel have affirmed compliance with the Code of Conduct. The Executive Director & CEO has also confirmed and certified the same. The certification is enclosed at the end of the Report on Corporate Governance.

7.2 Remuneration Policy for the Directors, Key Managerial Personnel and other Employees.

In terms of Section 178(3) of the Act and Part D of Schedule II of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the NRC is responsible for formulating the criteria for determining qualification, positive attributes and independence of a Director. The NRC is also responsible for recommending to the Board a policy relating to the remuneration of the Directors, Key Managerial Personnel and other employees. In line with this requirement, the Board has adopted the Policy on Board Diversity, which is reproduced in Annexure-I and Remuneration Policy for Directors, Key Managerial Personnel and other employees of the Company, which is reproduced in Annexure-II forming part of this report.

Except the Performance Linked Payment (PLP) which is a part of his Cost to the Company (CTC), the Executive Director & CEO has not received any commission from the Company and also not received any commission / remuneration from its Holding or Subsidiary Company.

7.3 Particulars of Employees and Remuneration

The information required under Section 197 (12) of the Act read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in Annexure - III (A) forming part of this Report.

The information required under Rule 5 (2) and (3) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in the Annexure - III (B) forming part of this Report. In terms of the first proviso to Section 136 of the Act, the Report and Accounts are being sent to the members excluding the aforesaid Annexure III (B). Any member interested in obtaining the same may write to the Company Secretary at the Registered Office of the Company. None of the employees listed in the said Annexure III (B) is related to any Director of the Company.

8. Significant and material Orders passed by the Regulators or Courts or Tribunal

There were no significant and material orders passed by the Regulators / Courts or Tribunal which would impact the going concern status of the Company and its future operations. Further, no penalties have been levied by Regulators during the period under review.

Sales Tax matters of Tatanet Services Ltd. (TNSL) Wholly Owned Subsidiary.

Maharashtra Sales Tax Department has issued orders against TNSL demanding payment of MVAT on the entire satellite communication services provided by TNSL on the ground that “The facility to use the transponders is property, is commercial in nature and goods and therefore, transaction of lease of facility to use the transponders is a deemed sale and accordingly MVAT is applicable”. The orders issued for financial year 2006-07 to 2010-11 and aggregate amount under dispute is Rs 38.36 crs. The Company has filed writ petition in Bombay High Court and outcome of judgment is being awaited.

As per legal opinion sought by Company, it has very strong case. Since TNSL provide only services to its customers and pays service tax, there are no goods or right to use of goods are involved in it.

Income Tax matters of Nelco Ltd:-

Income Tax Department has reduced certain liabilities of Rs.1,893.00 lakhs while computing long term Capital Gain which was not related to business sold under slump sale for Assessment Year 2011-12 due to which a Tax demand of Rs 631 lakhs has been raised on the Company. As per legal opinion sought by Company, it has a very strong case. Matter presently lying with Commission of Appeal.

8.1 Corporate Governance

Pursuant to SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 and relevant provisions of the Act, a Management Discussion and Analysis Statement, Report on Corporate Governance and Auditors'' Certificate, are included in the Annual Report.

8.2 Vigil Mechanism

The Company believes in the conduct of the affairs of its constituents in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. In line with the Tata Code of Conduct (TCOC), any actual or potential violation, howsoever insignificant or perceived as such, would be a matter of serious concern for the Company. The role of the employees in pointing out such violations of the TCOC cannot be undermined.

Pursuant to Section 177(9) of the Act, a vigil mechanism has been established for Directors and employees to report to the management the instances of unethical behavior, actual or suspected, fraud or violation of the Company''s code of conduct or ethics policy. The Vigil Mechanism provides a mechanism for employees of the Company to approach the Chief Ethics Counselor (CEC)/ Chairman of the Audit Committee of the Company.

9. Risks and Concerns

The Company is faced with risks of different types, all of which need different approaches for mitigation. Details of various risks faced by the Company are provided in Management Discussion & Analysis.

9.1 Risk Management Framework and Internal Financial Controls

Risk Management framework: The Company and its Subsidiary have Risk Management framework to inform the Audit Committee and Board members about risk assessment and minimization procedures and periodical review to ensure that Executive Management controls risks by means of properly designed framework.

The Company has also established a risk management policy based on which risks are identified and assessed across its businesses. The Risk Management Committee which comprises of the CEO, CFO and key business and operations heads, ensures that existing and future risk exposures of the Company are identified, assessed, quantified, appropriately mitigated, minimized and managed. The Company''s framework of risk management process provides clear basis for informed decision making at all levels of the organization on an ongoing basis, having duly evaluated likely risks and their mitigation plans being controllable and within risk appetite. There are no elements of risk, which in the opinion of the Board may threaten the existence of the Company.

Internal Financial Control and Systems: The Company has an internal control system, commensurate with size, scale and complexity of its operations. Testing of such control systems form a part of internal audit schedule. The Company has appointed independent Internal Auditors who oversee governance, risks management and internal controls. The scope and authority of internal audit is defined in Audit Committee Charter adopted by the Company. Internal control has been discussed in detail in Management Discussion & Analysis in this report.

10. Sustainability

10.1 Corporate Social responsibility

As per Section 135 of the Act, every Company having a net worth of Rs. 500 crore or more, or turnover of Rs.1,000 crore or more, or net profit of Rs. 5 crore or more during any financial year shall be required to constitute Corporate Social Responsibility Committee (CSRC). As your Company presently does not fall under any of the criterion mentioned above, the CSRC has not been constituted.

10.2 Safety, Health and Environment:

The Company accords high priority to health, safety, and environment treating these as integral part of all its activities. The operations of the Company are not of a hazardous nature. However, the Company emphasizes on maintaining a healthy and safe environment in and around its facilities as well as contract sites where projects are under execution. To ensure success of safety initiatives, the Company involves the line management along with contract workforce in all initiatives rolled out from time to time. Safety Awareness is inculcated through regular Safety Awareness Programs, basic fire safety training, mock drills, regular Safety Committee meetings and capturing employees'' voices through safety observation and near miss reporting. The employees working at project sites are given requisite training for ensuring safety during work. Periodic Safety Audit is carried out and action taken to eliminate unsafe conditions.

11. Human Resources

Some of the major human resource initiatives undertaken by the Company during the period under review to supplement efforts towards organizational growth include:

- Manpower: As on March 31st, 2016, the Company had employee strength of 160. During the period under review, 21 employees were recruited and 42 employees were separated (including those transferred as part of divestment of Managed Services business). None of the employees related to the business were retrenched due to the divestment of business but were transferred with full benefit of service continuity and service conditions not less favorable than the existing employment conditions.

- Employee Engagement: Company''s employee engagement platforms are inclusive and empowering. It connects employees with leaders, their peers and Human Resource function. Forums such as Open house, Employee Connect meetings, Skip level meetings, Manager connect meetings, weekly review meetings like AHM (All Hands Meet) provide interactive platforms for sharing information and feedback and also conferring rewards and recognitions. Various initiatives in the field of Employee Recreation have also been instrumental in taking engagement levels to the next level. The incessant efforts towards empowering people has resulted in overall participation being 96% and overall satisfaction score being 87% for 2016 as compared to 48% last year in the Employee engagement survey conducted by Aon.

- Capability Development: In order to build organizational capability that will enable the Company to sustain competitiveness in the market, a comprehensive exercise was undertaken to map the attributes required to develop Competency Framework for key functions. The training programs for the learning growth of employees have been developed based on the set of these identified competencies.

- Talent Management: As part of efforts for capability building of employees at all levels a personalized coaching on Interpersonal skills for 7 Senior management employees was conducted. Similarly, 8 Hi-potential employees have undergone Online Development Centre (ODC) which was conducted by Tata Power in collaboration with their talent partners CEB-SHL

- Industrial Relations: In the Industrial Relations front, the Company maintained cordial relations with its employees during the period.

- Policy for Prevention, Prohibition and Redressal of Sexual Harassment at work place: The Company has in place a Policy for Prevention, Prohibition and Redressal of Sexual Harassment at Work Place. Appropriate reporting mechanisms are in place for ensuring protection against Sexual Harassment and the right to work with dignity. During the year under review, the Company has not received any complaints in this regard.

12. Credit Rating

During the year, rating agency CRISIL has downgraded its rating on Company''s bank facilities and debt programme to CRISIL BBB /Stable/CRISIL A2 form CRISIL A-/negative /CRISILA2 .

Revised rating done by CRISIL based on their criteria on notching up rating for parent support. The downgrade reflects reassessment of the strategic importance of Nelco to the parent, The Tata Power Company Ltd. (TPCL), while continuing to factor the support that Nelco receives from TPCL and other Tata group companies.

13. Loans, Guarantees, Securities and Investments (LGSI)

Details of LGSI covered under Sec 186 of the Act are given in Annexure - IV forming part of this report.

14. Foreign Exchange - Earnings and Outgo Rs. In lakhs

Particulars - Standalone

Period ended 31st March 2016 (18 Months)

Year ended 30th September 2014 (12 Months)

Foreign Exchange Earnings

174.40

190.36

Foreign Exchange Outflow

3,178.44

1,903.12

15. Auditors

M/s. Deloitte Haskins & Sells LLP (DHS LLP), who are the statutory auditors of your Company, hold office until the conclusion of the Seventy Fifth AGM to be held in the year 2018, subject to ratification of their appointment at every AGM. The Members, year on year, will be requested, to ratify their appointment as Auditors and to authorize the Board of Directors to fix their remuneration. In this connection, the attention of the Members is invited to Item No.4 of the Notice.

16. Auditors'' Report

The consolidated financial statements of the Company have been prepared in accordance with Accounting Standard 21 on Consolidated Financial Statements and Accounting Standard 23 on Accounting of Investments in Associates issued by the Council of The Institute of Chartered Accountants of India. The Notes to the Accounts referred to in the Auditors'' report are self-explanatory and therefore do not call for any further clarification under section 134(3)(f) of the Act.

17. Cost Auditors and Cost Audit Report

M/s. PD. Dani & Co., Cost Accountants was appointed Cost Auditors of your Company for the period ended 31st March, 2016. In accordance with the requirement of the Central Government and pursuant to Section 148 of the Act, your Company carries out every year, an audit of cost accounts relating to Telecommunication (ISP) activities and Electronics Products. The Cost Audit Report and the Compliance Report of your Company for the Financial Year ended 30th September 2014, which was due for filing by 31st March 2015, was filed on 25th March 2015 with the Ministry of Corporate Affairs through Extensive Business Reporting Language (XBRL) by M/s PD. Dani & Co., Cost Accountants.

18. Secretarial Audit Report

M/s. Bhandari & Associates, Practicing Company Secretaries, were appointed as Secretarial Auditors to conduct Secretarial Audit of records and documents of the Company for the period ended 31st March, 2016. The Secretarial Audit Report confirms that the Company has generally complied with the provisions of the Act, Rules, Regulations, and Guidelines, etc. The Secretarial Audit Report is given in Annexure -V forming part of this report. There are no remarks, qualifications or reservations in the Secretarial Audit Report.

19. Conservation of Energy and Technology Absorption

The information on conservation of energy and technology absorption stipulated under Section 134 (3) (m) of the Act read with Rule 8 of The Companies (Accounts) Rules, 2014, is attached as Annexure - VI forming part of this report.

20. Related Party Transactions

The transaction of sale and transfer of Company''s Defense business consisting mainly of the UGSs to the Parent/Promoter Company, The Tata Power Co. Ltd. (being a related party) was entered on an arm''s length basis, based on the valuation arrived at by an independent value. However, since this transaction could be construed as being outside the ordinary course of business, the approval of the Members of the Company under section 188 of the Act was sought by way of a Special Resolution. The details of the said transaction are given in Form AOC-2 (Annexure - VII forming part of this report) as required under Section 134 (3)(h) of the Act.

All related party transactions entered into during the period under review were on an arm''s length basis and were in the ordinary course of business. There were no other materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel and Body Corporate(s) which had a potential conflict with the interest of the Company at large. Accordingly, the disclosure of these Related Party Transactions as required under Section 134 (3)

(h) of the Act in Form AOC 2 is not applicable for the period under review. The Directors draw attention of the Members to Note no. 32 to the Financial Statements which sets out related party disclosures.

In line with the requirements of the Act and the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Company has formulated a Policy on Related Party Transactions and the same is uploaded on the Company''s website: http://www.nelco.in/_content/investor-relations/Related_Party_Transaction_Policy.pdf.

21. Deposits

The Company has not accepted any deposits from the public during the period under review.

22. Extract of Annual Return

Pursuant to Section 92 of the Act and Rule 12 of The Companies (Management and Administration) Rules, 2014, the extract of Annual Return in Form MGT-9, is provided in Annexure-VIII forming part of this report.

23. Directors'' Responsibility Statement

Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory, cost auditors, secretarial auditors and external consultants and the reviews performed by Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company''s internal financial controls were adequate and effective during the period under review.

Accordingly, pursuant to Section 134(5) of the Companies Act 2013, the Board of Directors, to the best of their knowledge and ability, confirm that:

a) in the preparation of the annual accounts for the period ended 31st March, 2016, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b) they have, in the selection of the accounting policies, consulted the Statutory Auditors and have 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 for the period ended 31st March, 2016 and of the loss of the Company for that period;

c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) they have prepared the accounts for the period under review on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

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

24. Acknowledgement

On behalf of the Directors of the Company, I would like to place on record our deep appreciation to our Shareholders, Customers, Business Partners, Vendors, Bankers and Financial Institutions. The Directors are thankful to the Government of India and the various Ministries and Regulatory Authorities. We appreciate and value the contributions made by all our employees.

On behalf of the Board of Directors,

R.R.Bhinge

Chairman

Mumbai, 31st May, 2016


Sep 30, 2014

Dear Members,

The Directors present their Seventy second Annual Report together with the Audited Statement of Accounts for the year ended 30th September, 2014.

1. Financial Results

The summarized financial results (Standalone) are indicated below:-

(Rupees in Lakhs)

Particulars For the year ended For the year ended 30.09.2014 (Rs.) 30.09.2013 (Rs.)

Net Sales / Income from Operations 10,276.45 10,971.86

Operating Expenditure 10,251.75 11,215.70

Operating Profit /(Loss) 24.70 (243.84)

Add : Other Income 320.67 131.33 Less : Interest 886.91 954.91

Profit / (Loss) Before Tax & Depreciation and Exceptional items (541.54) (1,067.42)

Less : Depreciation 570.74 569.37

Profit / (Loss) Before Tax and Exceptional items (1,112.28) (1,636.79)

Exceptional Items

Add:- Decreetal dues received including interest & cost ** 1,240.90 -

Profit / (Loss) Before Tax 128.62 (1,636.79)

Less : Provision for Tax (including provision for Deferred Tax and Fringe Benefit Tax) - -

Net Profit / (Loss) After Tax 128.62 (1,636.79)

Balance Brought Forward (1,623.77) 13.02

Balance available for appropriation (1,495.15) (1,623.77)

Appropriated as under :

Proposed Dividend - -

Tax on Dividend - -

Transfer to General Reserve - -

Balance to be Carried Forward (1,495.15) (1,623.77)

** Refer to note no. 27 on notes to accounts.

Due to inadequacy of profits, the Board of Directors has not recommended any dividend for the year ended 30th September, 2014.

2. Financial Highlights

During the period under review, the total income was Rs. 10,276.46 lakhs as against Rs. 10,971.86 lakhs in the previous year. The Company reported a profit after tax of Rs.128.62 lakhs as against a loss after tax of Rs. 1636.79 lakhs in the previous year.

The segment wise performance (Standalone) for the year was as follows :

Automation & Control earned total revenue of Rs. 2,430 lakhs (Rs 3,356 lakhs in previous year) and incurred a segment loss of Rs. 746 lakhs (loss of Rs. 1,164 lakhs in previous year). In order to reduce further losses, the Board had decided to explore various options of restructuring including restricting the operations of this Business Segment which comprises of Integrated Security & Surveillance Solutions (ISSS) and Unattended Ground Sensors (UGS) solutions for Defense.

Network Systems earned a total revenue of Rs. 7,821 lakhs (Rs.7,599 lakhs in previous year) and reported a segment profit of Rs. 1,547 lakhs (profit of Rs. 1,520 lakhs in previous year)

Interest amounted to Rs. 824 lakhs (Rs. 887 lakhs in previous year). Other un-allocable income (net of expenses) is Rs. 151 lakhs as against un-allocable expenses (net of income) of Rs. 1,106 lakhs in the previous year.

The Notes forming part of the Accounts referred to in Auditors'' Report of the Company are self-explanatory and, therefore, do not call for any further explanation under Section 217(3) of the Companies Act, 1956.

3. Subsidiary Company

Tatanet Services Ltd. (TNSL) is a Wholly Owned Subsidiary of the Company. It holds the requisite licenses for providing the Shared Hub VSAT services. For the financial year ended 31st March, 2014, TNSL has posted revenue from operations of Rs.4,626.39 lakhs as against Rs. 4,039.00 lakhs in the previous year and profit after Tax of Rs.83.45 lakhs as against loss after Tax of Rs.116.29 lakhs in the previous year.

Vide General Circular No.: 2/201 1 dated 8th February, 2011, the Ministry of Corporate Affairs, Govt. of India has granted a general exemption to companies from attaching the Balance Sheet, the Statement of Profit and Loss and other documents referred to in Section 212 (1) of the Companies Act, 1956 in respect of its subsidiary companies, subject to fulfillment of the conditions mentioned therein.

Accordingly, the said documents are not being attached with the Balance Sheet of the Company. A gist of the financial performance of Tatanet Services Ltd. ("TNSL"), the subsidiary company is contained in the report. The Annual Accounts of TNSL are open for inspection by any Member / Investor and the Company will make available these documents / details upon request by any Member of the Company or to any Investor of TNSL who may be interested in obtaining the same. Further, the Annual Accounts of TNSL will be kept open for inspection by any investor at the Company''s Registered Office and that of the TNSL and would be posted on the website of the Company www.nelco.in.

4. Human Resource Management

The company believes that employees are its most valuable resource and has implemented effective Human Resource management practices, which has helped in making the Organization robust, progressive and dynamic. The company as a step towards nurturing talent and building competencies, has introduced a new E-learning initiative, "GyanJyoti", in collaboration with Tata Management Training Centre (TMTC) and Harvard Business Publishing (HBP) for employees. This self paced E-learning system covers 44 modules in General Management in the areas of managing Self, Others and Business. An Employee Engagement & Satisfaction survey was conducted by AON Hewitt. Engagement Action Planning (EAP) workshops were conducted across the company to communicate the survey findings and facilitate formulation of action plans for improving engagement. The Company launched "HR Connect" to provide a formal structured process for better engagement. The Company emphasizes Ethics, Safety and Innovation as part of its work culture. Its entry, "Unmanned Aviation Pilot weather briefing system", last year had been selected for the Final National round of Tata Innovista - 2014 which is a popular, annual, Group wide program to showcase and recognise the best innovations. The Company maintained cordial industrial relations during the period under review.

5. Internal Controls and Systems

The Company has an adequate system of internal controls to ensure that all assets are safeguarded and accounted for and business transactions are authorized and recorded. An external established audit firm carries out internal audit. This audit is based on an Annual Audit Plan and includes regular reviews by the Audit Committee of Directors to ensure adequacy of controls and adherence to laid down procedures and systems. The Board of Directors also carries out Company Wide Risk Assessment and Management on a systematic and regular basis.

6. Quality Systems

The Company''s manufacturing facility has been approved & certified by Directorate General of Quality Assurance (DGQA), an establishment under Ministry of Defence, Govt. of India through their regular Audits verification System. The Company''s in-house Development Department has been recognized by the Department of Science and Industrial Research (DSIR), an establishment under Ministry of Science & Technology Govt. of India. The company has been certified for ISO 20000 & ISO 27001 and its wholly owned subsidiary - Tatanet Services Ltd., with TL 9000.

7. Public Fixed Deposits

The Company has neither accepted nor renewed any public fixed deposits during the period under review. However, there were deposits amounting to Rs. 0.05 lakhs as on 30th September, 2014 which remain outstanding as some of the deposit holders have not claimed the repayment. In accordance with the provisions of Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2011, unclaimed deposits with interest aggregating to Rs. 0.48 lakhs were transferred during the financial year 2011-12 to the Investor Education and Protection Fund.

8. Safety, Health and Environment

The Company accords high priority to health, safety, and environment, treating these as integral part of all its activities. The operations of the Company are not of a hazardous nature. However, the Company emphasizes on maintaining a healthy and safe environment in and around its facilities as well as contract sites where projects are under execution. To ensure success of the safety initiatives, the Company involves the line management along with contract workforce in all initiatives rolled out from time to time. Safety Awareness is inculcated through regular Safety Awareness Programs, basic fire safety training, mock drills, regular Safety Committee meetings and capturing employees'' voices through safety observation and near miss reporting. The employees working at project sites are given requisite training for ensuring safety during work. Periodic Safety Audit is carried out and action taken to eliminate unsafe conditions.

9. Disclosure of Particulars

Particulars required by the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are given in the prescribed format as Annexure "A" to the Directors'' Report.

Particulars of Employees: In terms of the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of the employees are set out in the Annexure "B" to the Directors'' Report. However, having regard to the provisions of Section 219 (1 )(b)(iv) of the Companies Act, 1956, the Annual Report is being sent to all Members of the Company excluding the aforesaid information. Any Member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

10. Directors

Ms. Hema Hattangady was appointed as an Additional Director with effect from 1st October, 2014 in accordance with Article 125 of the Articles of Association of the Company and Section 161 of the Companies Act, 2013 (the Act). Ms. Hattangady holds office only upto the date of the forthcoming AGM and a Notice under Section 160(1) of the Act has been received from a Member signifying his intention to propose Ms. Hattangady''s appointment as a Director.

The Company has, pursuant to the provisions of Clause 49 of the Listing Agreements entered into with Stock Exchanges, appointed Mr. R. R. Bhinge, Mr. P K. Ghose, Mr. R. Savoor, Mr. K. Raghuraman, Mr. K. Ramachandran and Ms. Hema Hattangady as Independent Directors of the Company. The Company has received declarations from all the Independent Directors of the Company confirming that they meet with the criteria of independence as prescribed both under sub-section (6) of Section 149 of the Companies Act, 2013 and under Clause 49. In accordance with the provisions of Section 149(4) and proviso to Section 152(5) of the Companies Act, 2013, these Directors are being appointed as Independent Directors to hold office as per their tenure of appointment mentioned in the Notice of the forthcoming AGM of the Company.

In accordance with the requirements of the Act and the Articles of Association of the Company, Mr. S.Ramakrishnan retires by rotation and is eligible for re-appointment.

11. Auditors

Messrs. Deloitte Haskins & Sells LLP (DHS), who are the statutory auditors of your Company, hold office until the conclusion of the forthcoming seventy second Annual General Meeting (AGM). It is proposed to re-appoint DHS as statutory auditors of the Company from the conclusion of the seventy second AGM till the conclusion of the seventy fifth AGM to be held in the year 2018, subject to ratification of their appointment at every AGM. DHS has, under Section 141 of the Act, furnished a certificate of its eligibility for re-appointment. The Members year on year will be requested, to ratify their appointment as Auditors and to authorize the Board of Directors to fix their remuneration. In this connection, the attention of the Members is invited to Item No.3 of the Notice.

M/s P D. Dani & Co., Cost Accountant, was appointed Cost Auditors of your Company for FY14.

In accordance with the requirement of the Central Government and pursuant to Section 233B of the Companies Act, 1956, your Company carries out an audit of cost accounts relating to Telecommunication (ISP) activities and Electronic Products. The Cost Audit Report and the Compliance Report of your Company for the Financial Year ended 30th September, 2013 by M/s P D. Dani & Co, has been filed with the Ministry of Corporate Affairs within the prescribed time.

12. Corporate Governance

Pursuant to Clause 49 of the Listing Agreements with the Stock Exchanges, a Management Discussion and Analysis Statement, Report on Corporate Governance and Auditors'' Certificate, are included in the Annual Report.

13. Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the operating management, confirm that:

1. In the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures therefrom;

2. They have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

3. They have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. They have prepared the annual accounts on a going concern basis.

14. Acknowledgements

On behalf of the Directors of the Company, I would like to place on record our deep appreciation to our Shareholders, Customers, Business Partners, Vendors, Bankers and Financial Institutions. The Directors are thankful to the Government of India and the various Ministries and Regulatory authorities. We also appreciate and value the contributions made by all our employees.

On behalf of the Board of Directors

R.R. Bhinge Chairman

Mumbai, 27th November, 2014


Sep 30, 2010

The Directors present their Sixty Eighth Annual Report together with the Audited Statement of Accounts for the period ended 30th September, 2010.

1. FINANCIAL RESULTS

The summarized financial results are indicated below:-

(Rupees in 000)

For the For the

12 Months 18 Months

Period Ended Period Ended

30.09.2010 30.09.2009

(Rs.) (Rs.)

Net Sales / Income from Operations 1,394,554 3,404,475

Operating Expenditure 1,492,660 3,168,805

Operating Profit /(Loss) (98,106) 235,670

Add : Other Income 33,678 57,979

Less: Interest 127,256 182,528

Profit/(Loss) Before Tax and Depreciation and Exceptional Items (191,684) 111,121

Less: Depreciation 43,696 83,345

Profit/(Loss) Before Tax and Exceptional Items (235,380) 27,776

Exceptional Items

Less: Deferred Revenue Expenditure (Voluntary Retirement Scheme) (10,575) 31,722

Add : Profit on sale of Long term Investments (Associate) - 135,375

Add:- Profit on sale of Business 530,247 -

Profit Before Tax 284,292 131,429

Less : Provision for Tax (including provision for Deferred Tax and

Fringe Benefit Tax 70,270 98,630

Net Profit After Tax 214,022 32,799

Balance Brought Forward 33,216 16,434

Balance available for ]appropriation 247,238 49,233

Appropriated as under:

Proposed Dividend 45,635 13,690

Tax on Dividend 7,580 2,327

Transfer to General Reserve 25,000 -

Balance to be Carried Forward 169,023 33,216

2. DIVIDEND

The Directors of your Company are pleased to recommend for the approval of the shareholders a dividend of 20%, including 10% as special dividend (Rs.2/- per share including Re. 1/- as special dividend) (Previous year 6%).

3. FINANCIAL HIGHLIGHTS

The period under review is for 12 months as compared to the previous years figures which were for 18 months. During the period under review, the total income was Rs. 1,394,554(000) as against Rs. 3,404,475(000) in previous year. The Company reported Profit before tax of Rs. 2,84,292(000) as against Rs.131,429(000) for the previous year. The Profit after tax was Rs. 214,022(000) as against Rs. 32,799(000) in the previous year.

4. SALE OF BUSINESSES

Your Company has constantly faced the challenge of achieving growth in terms of revenue and profitability due to diverse portfolio, limited offerings and lack of critical mass. Despite having core competencies, execution of prestigious projects and references built over the years by Traction Electronics, Industrial Drives, and Supervisory Control and Data Acquisition (SCADA) consisting of Industrial Supervisory Control Data Acquisition System (I-SCADA) and Power Sector Supervisory Control and Data Acquisition System (PS - SCADA) businesses ("Businesses"), these businesses were facing major challenges in achieving sustained viability in the future. The Board of Directors of your Company at its meeting held on 29th April, 2010, approved the transfer of these Businesses as a "going concern" on a slump sale basis to Crompton Greaves Limited ("CGL") for a total consideration not exceeding Rs. 92.00 crores, subject to necessary statutory consents and approval by the Members.

On 14th June, 2010, the Members approved through postal ballot, the sale of these Businesses to CGL by passing an ordinary resolution pursuant to sections 293(1 )(a) and 192A of the Companies Act, 1956, read with the Companies (Passing of Resolution by Postal Ballot), Rules, 2001 .The votes cast assenting to the Ordinary Resolution were 1,16,19,913 shares (99.96%) of the total valid votes polled. On 28th July, 2010 i.e. the Closing Date, the Businesses were transferred as a going concern to CGL on slump sale basis for a consideration of Rs. 81 crores. The additional Rs. 11 crores has not been received as the financial parameters to be met by 30* September, 2010 were not achieved.

While your Company transferred the Traction Electronics, Industrial Drives and the I - SCADA businesses to CGL on 28th July 2010, the PS - SCADA business shall be transferred at a later date after obtaining the requisite clearances from relevant Government / Public Sector Authorities. Pending this transfer, the Company received the entire amount of consideration i.e. Rs. 81 crores.

Following the sale of these businesses, the Company intends to focus on building its position in Strategic Electronics, Network Systems (Tatanet) and pursue further synergistic opportunities in related areas.

5. SUBSIDIARY COMPANY

The financial statement and reports of the subsidiary company, Tatanet Services Limited (TNSL) for the financial year 2009-10 are attached. The revenue of TNSL for the year ended 31st March, 2010 was Rs. 289,975(000) [Rs. 252,368(000) for the year ended 31s* March, 2009.

6. HUMAN RESOURCE MANAGEMENT

There is consistent focus on development of Human Resources (HR). HR plans have been defined with appropriate measurement indicators keeping in mind both long term goals and short term requirements. Employeesvoices are captured through Open Houses, the forum through which employees are encouraged to voice their concerns, suggest innovative ideas and also seek answers from the top management on issues of common interest. The Company constantly reviews facilities and benefits to enhance overall employee well being. Employee Satisfaction / Engagement Surveys are carried out through external agency to formally assess the voice of employees. Action plans have been prepared and are being implemented to increase employee engagement.

Since the Company is in the high tech and high visibility areas of telecommunication (Tatanet Division) and Electronic Security and Surveillance (Strategic Electronics Division), maintaining the talent pool and competence building for the core areas of strength and the challenge of attracting and retaining talent continues. The Company has initiated measures like employee referral scheme, competency mapping, providing growth opportunities to existing employees and strengthening the Performance Management System (PMS) to include assessment on Tata Leadership Practices, training need assessment, identification of high potential employees and development plan for employees. Recruitment cycle time has been reduced and the attrition rates have been kept at a manageable level. The PMS recognizes individual and segment wise contribution through performance linked pay, thereby motivating employees ownership and responsibility. RACE (Reward and Recognition for Achievement and Contribution towards Excellence), a comprehensive reward and recognition scheme, has been put in place for motivation of employees for excellence in performance. In Tatanet Division, UNWIND, a monthly informal gathering on the last Friday of each month, has been successfully serving as a forum to foster teamwork in an informal manner.

The Company maintained cordial industrial relations during the period under review. The total manpower employed during the period was 336, after the transfer of the employees of the Businesses hived off to CGL.

7. INTERNAL CONTROLS AND SYSTEMS

The Company has an adequate system of internal controls to ensure that all assets are safeguarded and accounted for and business transactions are authorised and recorded. An external established audit firm carries out internal audit. This audit is based on an Annual Audit Plan and includes regular reviews by the Audit Committee of Directors to ensure adequacy of controls and adherence to laid down procedures and systems. The Board of Directors also carries out Company Wide Risk Assessment and Management on a systematic and regular basis.

8. QUALITY SYSTEMS AND TATA BUSINESS EXCELLENCE MODEL (TBEM)

The Company has focused on continuous improvement through internationally recognized Quality Management Systems viz. TL 9000 and ISO 9001 for Tatanet and ISG respectively. Tatanet has already got certified in ISO 20000 (Information Technology Management System) and ISO 27001 (Information Security Management System). This certification for Tatanet has been a key step towards success in its Managed Services revenue stream. During the period under review,Tatanet has participated as a Strategic Business Unit in TBEM external assessment by Tata Quality Management Services (TQMS). Tatanet implemented Balanced Score Card (BSC), Strategy Deployment Matrix (SDM), Quality Function Deployment (QFD), Process Management and improvement, etc. After the TBEM external assessment,Tatanet has scored 457 points and has been awarded the Serious Adoption Award in TBEM. ISG has been gearing up for revised ISO 9000:2008 certification from the current ISO 9000:2000 certification by Standardization, Testing and Quality Certification (STQC) audit.

9. FIXED DEPOSITS

The Company has neither accepted nor renewed any fixed deposits during the period under review. However, there were outstanding unclaimed deposits amounting to Rs.154,000/-as on 30th September, 2010 which remain outstanding as some of the deposit holders have not claimed the repayment despite follow up by the Company.

In accordance with the provisions of Investor Education Protection Fund (Awareness and Protection of Investors) Rules, 2001, an amount of unclaimed deposits with interest aggregating to Rs. 10,579/- has been transferred during the financial year 2009-10 to the Investor Education and Protection Fund.

10. SAFETY, HEALTH AND ENVIRONMENT

The Company accords high priority to health, safety, and environment. The operations of the Company are not of a hazardous nature. However, the Company emphasizes on maintaining a healthy and safe environment in and around its facilities as well as contract sites where ongoing projects are under execution. Safety Awareness is inculcated through regular Safety Awareness Programs, basic fire safety training, mock drills, regular Safety Committee meetings and capturing employeesvoices through safety observation and near miss reporting. The employees working at project sites are given requisite training for ensuring safety during work. Periodic Safety Audit is carried out and action taken to eliminate unsafe conditions.

There has been no incidence of any accidents reported in the past several years. The Company also has a disaster management system to take care of exigencies.

11. DISCLOSURE OF PARTICULARS

Particulars required by the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are given in the prescribed format as Annexure A to the Directors Report.

Particulars of Employees: Information in accordance with Section 217(2A) of the Companies Act, 1956 (the Act) read with the Companies (Particulars of Employees) Rules, 1975, as amended, regarding employees is given in Annexure B to the Directors Report. However, having regard to the provisions of section 219(1) (b) (IV) of the Act, the Annual Report is being sent to all the Members excluding the aforesaid information. Any Member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

12. DIRECTORS

Mr. Z. J. Engineer retired as an Executive Director of the Company on 29h July, 2010. The Board expresses its sincere gratitude for the guidance and contribution of Mr. Engineer during his long and fruitful association with the Company.

In accordance with the requirements of the Companies Act, 1956 and Articles of Association of the Company, Mr. B. B. Dubash, Mr. S. Ramakrishnan and Mr. P. K. Ghose retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

13. AUDITORS

M/s. Deloitte Haskins & Sells, Chartered Accountants, who are the Statutory Auditors of the Company, hold office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment.

14. CORPORATE GOVERNANCE

To comply with the conditions of Corporate Governance, pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis Statement, Report on Corporate Governance and Auditors Certificate, are included in the Annual Report.

15. DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the Operating Management, confirm that:

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

(ii) they have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

(iii) they have taken proper and sufficient care to the best of their knowledge and information, 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; and

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

16. ACKNOWLEDGEMENTS

Your Directors place on record their appreciation for the support and Co-operation received from customers, vendors, investors, business associates, bankers, regulatory and governmental authorities. The Directors acknowledge the continued support and guidance from the Tata Group. The Directors appreciate the contribution made by employees at all levels.

On Behalf of the Board of Directors

P. R. Menon

Mumbai, 22nd November, 2010. Chairman


Sep 30, 2009

The Directors present their Sixty Seventh Annual Report together with the Audited Statement of Accounts for the period ended 30th September 2009.

1. FINANCIAL RESULTS

The summarised financial results are indicated below:-

(Rupees in 000)

For the For the 18 Months 12 Months Period Ended Period ended 30.09.2009 31.03.2008 (Rs.) (Rs)

Net Sales / Income from Operations 3,404,475 1,973,474

Operating Expenditure 3,168,805 1,764,913

Operating Profit 235,670 208,561

Add : Other Income 57,979 15,541

Less : Interest 182,528 108,226

Profit Before Tax and Depreciation and Exceptional Items 111,121 115,876

Less : Depreciation 83,345 43,638

Profit Before Tax and Exceptional Items 27,776 72,238 Exceptional Items

Less: Deferred Revenue Expenditure (Voluntary Retirement Scheme) 31,722 12,561 Add : Profit on sale of Long term Investments (Associate) 135,375

Profit Before Tax 131,429 59,677 Less : Provision for Tax (including provision for Deferred Tax and Fringe Benefit Tax) 98,630 15,352

Net Profit After Tax 32,799 44,325

Balance Brought Forward 16,434 (27,891)

Balance available for appropriation 49,233 16,434 Appropriated as under:

Proposed Dividend 13,690 NIL

Tax on Dividend 2,327 NIL

Balance to be Carried Forward 33,216 16,434

With the approval of the Registrar of Companies, Maharashtra, Mumbai, the financial year 2008-09 has been extended for a period of 6 months. Accordingly, the financial year 2008-09 has been for a period of 18 months ending on 30th September, 2009.

2. DIVIDEND

The Directors of your Company are pleased to recommend for the approval of the shareholders a dividend of 6% (Rs.0.60 per share) (FY08 dividend Nil).

3. MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)

This Report includes MD&A as appropriate so that duplication and overlap between the Directors Report and a separate MD&A are avoided and the entire material is provided as a composite and comprehensive document.

4. BUSINESS SEGMENTS

The current business operation is structured along the following business segments: 4.1 Automation and Control: Industrial Systems Division (ISD)

ISD is further sub-structured along the following lines of business (LoB).

a. Strategic Electronics (SE)

Systems and solutions for defence and paramilitary organisations for security and surveillance, such as intrusion detection, integrated security systems, global positioning systems (GPS), automatic weather monitoring systems, scanners etc.

b. Energy Network Management System (ENMS)

Energy management, distribution management, automatic data logging and Supervisory Control and Data Acquisition (SCADA) systems for applications in power, oil and gas industry, railways etc.

c. Traction Electronics (Traction)

Power electronics equipment for the Indian Railways for their freight and passenger electric and diesel locomotives.

d. Drives Systems (Drives)

Integrated AC and DC drives systems for metal, mining, power, paper and process industries for energy optimization, control and automation.

e. Building Management Systems (BMS)

Integrated building management systems including Heating, Ventilation and Air Conditioning (HVAC) controls, fire alarms, access controls and CCTV for comfort, energy saving and security of buildings.

4.2 Tatanet Network Systems (Tatanet)

Tatanet provides solutions for management of network connectivity services and internet services over VSATs for corporates, banking and financial institutions and Small and Medium Enterprises (SMEs) for them to run ERP and other on-line office automation applications. It also provides solutions to manage bandwidth-on-demand services across industry verticals, interactive distance learning connectivity, IP multicast and digital streaming to some niche segments. In addition, the division participates in turnkey satellite communication systems supply and integration projects invited by customers primarily in Government and Public Sector.

5. FINANCIAL OVERVIEW

During the period under review, the total income was Rs.34,624.54 Lakhs (18 Months) as against Rs.19,890.15 Lakhs in the previous year (12 months). The profit before tax was Rs.1,314.29 lakhs (18 months) as against Rs. 596.77 Lakhs in the previous year (12 months).The net profit after tax was Rs.327.99 Lakhs (18 months) as against Rs.443.25 Lakhs in the previous year (12 months).

During the period under review, the Company has sold 5,70,000 equity shares of Rs.10/- each held in Nelito Systems Ltd. (Associate Company) to Af-Taab Investments Ltd. at a price of Rs.280/- per share, aggregating to Rs.1,596.00 Lakhs

6. A) AUTOMATION AND CONTROL DIVISION (ISD)

16. DISCLOSURE OF PARTICULARS

Particulars required pursuant to Section 217 (i) (e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Directors) Rules, 1988 are given in the prescribed format as Annexure A to the Directors Report.

Particulars of Employees: Information in accordance with Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, regarding employees is given in Annexure B to the Directors Report.

17. DIRECTORS

The Central Government vide its letter no. SRN.NO. A49424013-CL-VII dated 3rd June, 2009, as amended, has given an approval for the payment of remuneration to Mr. K. A. Mahashur, Executive Director as approved by the Shareholders at the 66th Annual General Meeting of the Company held on 8th August 2008 for the period from Is September 2008 to 12th June 2012.

The existing term of Mr. Z. J. Engineer as Executive Director of the Company will be expiring on 31st May 2010. The Board of Directors at its Meeting held on 27th November 2009 re-appointed Mr. Z. J. Engineer as Executive Director of the Company for the period from 1st June 2010 to 29th July 2010 subject to approval of the members and the Central Govternment, if required and all other approvals / consents / sanctions / permissions as may be necessary.

In accordance with the requirements of the Companies Act, 1956 and Articles of Association of the Company, Lt. Gen. Davinder Kumar (Retd.), Mr. R. R. Bhinge and Mr. V. K. Deshpande retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

18. AUDITORS

M/s. Deloitte Haskins & Sells, Chartered Accountants, who are the Statutory Auditors of the Company, hold office until the conclusion of the ensuing Annual General Meeting and are eligible for reappointment.

19. REPORT ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND ANALYSIS

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis Report, the Corporate Governance Report and Auditors Certificate on compliance of the conditions of Corporate Governance forms part of this Annual Report.

20. DIRECTORSRESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the Operating Management, confirm that:

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

(ii) they have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the period;

(iii) they have taken proper and sufficient care to the best of their knowledge and information, 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; and

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

21. ACKNOWLEDGEMENTS

Your Directors place on record their appreciation for the support and co-operation received from customers, vendors, investors, business associates, bankers, regulatory and governmental authorities. The Directors acknowledge the continued support and guidance from the Tata Group.The Directors appreciate the contribution r:;,- made by employees at all levels.

On behalf of the Board of Directors

P. R. Menon Mumbai, 27th November 2009. Chairman

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