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Directors Report of Voltas Ltd.

Mar 31, 2014

To the Members

The Directors present their Sixtieth Annual Report and the Audited Statement of Accounts for the year ended 31st March 2014.

FINANCIAL RESULTS

Rs.in Crores

Standalone Consolidated

2013-14 2012-13 2013-14 2012-13

2. Revenue from Operations (Gross) 5188 5618 5303* 5584*

Profit for the year after meeting all expenses but before interest, depreciation and exceptional items 295 283 366 329

Interest 16 27 23 33

Depreciation and amortization 19 22 25 28

Profit before exceptional items 260 234 318 268

Exceptional items (Net) (3) 8 22 12

Profit before tax 257 242 340 280

Provision for taxation 76 62 94 73

Profit after tax 181 180 246 207

Minority Interest and Share of (Profit)/Loss of Associate — — (1) 1

Profit after Minority Interest and Share of (Profit)/Loss of Associate 181 180 245 208

Adding thereto:

- Balance brought forward from the previous year 257 159 353 225

- Foreign Exchange Translation Difference — — 9 (3)

- Credit on Dividend Distribution Tax 4 — 4 —

- Reserves and Surplus transferred on divestment of a subsidiary — — — 8

Profit available for appropriations 442 339 611 438 Appropriations:

- General Reserve 20 20 30 22

- Proposed Dividend 61 53 61 53

- Dividend Distribution Tax 10 9 10 9

- Legal and Special Reserve — — 1 1 Leaving a balance to be carried forward 351 257 509 353

* Consolidated turnover is after eliminating inter-company purchase/sales transactions.

DIVIDEND

3. The Company''s dividend policy is based on the need to balance the twin objectives of appropriately rewarding its shareholders with dividend and of conserving resources to meet its future needs. The Directors recommend a dividend of Rs. 1.85 per equity share of Rs. 1 each (185%) for the year 2013-14, including a special Diamond Jubilee dividend of 25% (2012-13: 160%), based on the Company''s performance.

OPERATIONS

4. The year gone by was a mixed one, with continued sluggishness in the Indian economy, impacting the topline, ofset by the Company''s better margins and profitability. With the long-anticipated economic recovery being further delayed, the Index of Industrial Production (IIP) continued to tread in the negatives. For a major part of the year the Indian Rupee, after plunging to new lows, remained in the Sixties to the US Dollar amid excessive volatility. Despite a change of guard at the Reserve Bank of India, there was little respite in terms of interest rates and infation. For the projects business in particular, new investments were few and far between, with some reliable sources reporting that capital outlays lingered at the decade''s lowest levels. The pace of execution also posed challenges, leading to both time and cost overruns that contributed to margin dilution in projects. On the other hand, despite the early onset of monsoons as well as dampened consumer sentiment, the Room AC business (Primary Market) reported growth of 6.5% as against industry-wide AC sales de-growth of around 8%, as per internal estimates. In the Secondary Market, the growth was 19% as against industry growth of 11% as per GFK-Nielsen. The Company''s performance in the overall depressed environment demonstrated its resilience. While Consolidated Sales and Income from Operations was Rs. 5303 crores, as compared to Rs. 5584 crores in the previous year, the profit after Tax & Minority Interest was higher at Rs. 245 crores as against Rs. 208 crores last year.

5. As a direct outcome of adverse macro-economic conditions in India, the Domestic Projects business continued to face headwinds, principally the slow pace of execution and delayed payments, putting a strain on working capital and cash flows. However, due to tight control on costs and various measures taken to improve the margins, the overall profitability improved during 2013-14. The Company has consciously placed emphasis on shoring up its domestic project management skills and has initiated a business efciency improvement program using external consultants.

6. While it was a subdued year for the Water business and Rohini Industrial Electricals Limited (RIEL), their integration under Domestic Projects Group (DPG) has been completed. However, RIEL continued to sufer losses on its low-margin ''legacy'' orders, resulting in a further write-down of Rs. 20 crores in the value of the Company''s investment. Nevertheless, the Company reached a settlement with the erstwhile Promoters, leading to purchase of the residual equity shares of RIEL (16.33% shareholding), thereby making it a 100% subsidiary of the Company.

7. The International projects business, like much of the construction industry in the Middle East, continued to grapple with cost-overruns. The Management conducts periodic techno-commercial reviews across projects and in line with the requirements of AS-7, reckons the cost overruns, if any, required for completion of the projects. Revenues from claims are accounted based on their certification. Execution of some on-going overseas projects was delayed, which resulted in further extension of the completion dates and caused certain contractual disputes. Consequently, there were cost overruns which have been accounted for during 2013-14 and claims for additional revenue and extension of time have been raised. Due to significant upward revision in the total estimated costs to complete a major project in Qatar, the Sidra Medical and Research Centre Hospital (Onerous contract), the Company had in the previous years accounted for the cost overruns in accordance with AS-7. Though the Sidra project is over 93% complete, additional costs to come have been estimated for the revised completion date along with possible enhancement of revenue from variations/claims. At the same time, there continue to be uncertainties in the process of approval of variations and complexities in the nature of the project, putting stress on the cash flows of the project. The final completion schedule and other terms are yet to be finalized between the Main Contractor and the end Customer and could revise the Company''s current cost estimates and entitlements. Nevertheless, the Company is pursuing its entitlements vigorously.

8. Overall, as part of a conscious emphasis to reduce capital employed, the Projects businesses have sustained their focus on pursuing commercial entitlements and closing existing projects. The forward strategy is to remain selective in the choice of new Project undertakings, with due consideration of risk-related parameters. Any push for new orders will largely focus on identified areas of opportunity. The year under review saw some success in the form of good orders being won, both overseas and in India. The consolidated order book for the Electro-Mechanical Projects business was Rs. 3612 crores, per end March 2014, yielding healthy visibility for the

coming year. The Company continues to deal objectively with the challenges faced and has framed an appropriate business strategy to seize future growth opportunities.

9. Despite various hurdles, the Engineering Products business had an eventful year marked by exceptional performance. The Mining & Construction Equipment business continued to face several policy constraints, with mining activities still frozen in some States. As a consequence of global consolidation in the mining industry, the Company had transferred dealership rights for certain products which resulted in an exceptional income of Rs.17 crores. The transfer also brought about a one-time reversal of certain cost provisions earlier made in compliance with conservative accounting practices, thereby resulting in an improvement in the bottom line. Meanwhile, operations largely continued to build on existing client relationships, while focusing on greener pastures overseas. The ongoing Mozambique venture remains lucrative, providing a natural hedge against difficulties faced in India.

10. The revised and restructured Textile Upgradation Fund (TUF) scheme is yet to have the desired impact in boosting the demand and reviving the fortunes of the Textile industry. The prevailing uncertainties and subdued investment climate, coupled with Rupee devaluation and volatility, weakened sentiments and led to postponement of equipment orders. However, there was some respite in cotton and yarn pricing, boosting exports of textiles from India and helping the industry show signs of revival. Meanwhile, the Textile Machinery business continued to ramp up capabilities in its post-spinning segment by adding principals and products. Overall, the Textile Machinery business was able to sustain its performance and strengthen its offerings.

11. The Company''s Unitary Cooling business sustained its hard-won leadership position and its performance was commendable, given the background of unfavorable climate and poor consumer sentiment. Responding to the increased demand in tier 2 and tier 3 towns, as well as the rise in rural demand driven by good monsoons, the business enhanced its penetration, with the number of touch points now exceeding 6500 outlets. The success is also owed to conscious brand development and communication initiatives, which are based on extensive market research. Along with substantial growth in both volume and market share of Room ACs, the business enjoyed the benefits of better traction in Commercial Refrigeration products through sizable OEM orders. Overall, the performance of the business exceeded expectations and ended the year with a substantial improvement vis-a-vis last year in all financial parameters.

FINANCE

12. The Indian economic environment remained lackluster for most part of the year, with key indicators showing a declining trend. From a solid 7 - 8 percent annual increase in gross domestic product (GDP) in recent years, growth slowed down to about 5 percent by the end of the year. Inflation rates also remained high, due to the inability to contain supply side issues and boost production. There has been some respite in the Current Account Deficit, which moderated from a high of 4.7% of GDP in 2012-13 to just 1.7% in 2013-14. The Central bank has maintained high interest rates and tight liquidity conditions with a strong determination to lower inflation.

13. Having realized the critical importance of cash in these difficult times, the Domestic businesses have responded with renewed strategies for cash conservation, despite several challenges. The Unitary Cooling business continues to fare well primarily due to tight control on working capital.

14. The International Projects business continued to remain in the grip of recession, marked by widespread delays in settlements and release of payments. In response, project- specific task forces have been constituted, with clear roles and responsibilities directed towards faster completion and quick settlement of commercial entitlements. The drive towards speedy closure of projects has yielded some results, but there is still much to be done. Some on-going projects like the Sidra hospital at Qatar and other large projects in UAE, continue to impact the cash flows of the Company.

15. Overall, the cash situation has been appropriately managed with a satisfactory liquidity position largely comprising investments in Liquid and Liquid Plus Mutual Funds of Rs. 643 crores (2012-13: Rs. 318 crores). Borrowings specific to overseas projects have also been contained at a level of Rs. 193 crores as compared to Rs. 212 crores last year. The Management continues to focus on cash flow, including inventories and receivables. Furthermore, the surplus funds remain invested in low-risk Debt Mutual Funds and are periodically monitored by the Investment Committee of the Board so as to maximize returns with minimal risk.

TATA BUSINESS EXCELLENCE MODEL (TBEM)

16. The Management has decided to participate in the Tata Group level TBEM External Assessment at the Company level during the financial year 2014-15. Accordingly, the Company has focused on standardizing critical processes to harness various synergies between the Business Units.

17. The Company participated in the Tata Innovista program, a group-level initiative to promote innovation, through six Innovation projects related to either process/product improvements or enhancement of customer experience. Three of these projects were selected for regional rounds, with one project making it through to the final round. The Company also took part in ''Deep Dive Collaborative Benchmarking'' studies conducted by Tata Quality Management Services and two of its processes were selected as ''best practices'' across the Tata Group.

18. To further facilitate its quest for Business Excellence (BE), the Company continues to develop a pool of BE Champions and TBEM assessors. There are over 90 BE Champions, of whom, more than 30 are certified to participate in Tata Group level TBEM External Assessments. The contributions of the Voltas External Assessors won appreciation at the Group level Business Excellence Convention in December 2013, with two assessors being recognized as ''Star Assessors''.

IT INITIATIVES

19. The Company''s IT function focused on critical stakeholders, viz. customers and vendors and undertook major initiatives in Unitary Products Business Group (UPBG) and the Domestic Projects Group (DPG).

20. In order to provide better customer service, UPBG implemented Siebel, a leading software solution in the Customer Relationship Management (CRM) space. This will help closer monitoring of operations and facilitate faster and better service to UPBG customers. Phase I of this project has been successfully completed with service functionality rolled out to all UPBG''s branches and service partners. Phase II of this project is under implementation and would be completed during 2014-15.

21. At the same time, to shorten the bill processing cycle for vendors, DGP has outsourced its Accounts Payable process. Some of the key benefits are faster invoice processing and access to real-time information on the status of Vendor invoices through a self-service portal.

22. Recognizing the critical need for Knowledge Management, the International Operations Business Group has launched a Portal capturing both tacit and explicit knowledge of its workforce. The portal serves as a platform through which employees can collaborate and share knowledge.

23. Many improvements were carried out to ensure a robust and secure IT infrastructure. Compliance and security remain important considerations for Voltas. IT has consequently partnered with all Business Units to help stabilize their Governance & Risk Compliance (GRC) implementation and has been regularly delivering improvements in the Company- wide SAP Access and Authorization environment.

COMMUNITY DEVELOPMENT

24. The Company actively pursued its core commitment to serving its communities, with a focus on empowering under-privileged young job-seekers through ''Employability'' initiatives, designed to impart opportunity. The Company thus, provides training to less fortunate youth in Air Conditioning and Refrigeration. Its long-standing association with Joseph Cardijn Technical School and Bosco Boys Home (Mumbai) and GMR Varalakshmi Foundation (at 5 centers in diferent locations) are expressions of the Company''s Corporate Sustainability mission to create a talent pool, serving Specific targeted markets. Two initiatives are also in the pipeline for partnering with Indian Hotels to start similar training centers with ITI Lonavala and ITI Chindwara.

25. Similarly, in partnership with ICICI Academy of Skills, the Company has extended support in establishing a Central Air Conditioning Centre at Coimbatore. This Centre will provide vocational training to 120 youth per year across Tamil Nadu, Kerala, Karnataka and Andhra Pradesh.

26. The Company has simultaneously embedded Afirmative Action in its HR policy and in other business activities. Voltas also supports the education of the children of the Kathkari tribe in partnership with local institutions, by providing mid-day meals, books and stationery as well as funding after-school coaching activities.

27. The Company continued with its volunteering initiatives as a means for employees to personally make societal contributions, allowing them to engage together with a shared purpose. More than 200 volunteers signed on for the Tata Sustainability Group''s newly-launched initiative, Tata Engage and have contributed their time for volunteering. Some innovative drives also took shape, such as ''Safety from electricity'', conducted in the remotest of villages in MP and ''Women''s Safety and Hygiene Campaign'' targeting Kathkari women.

28. Under the aegis of Tata Group, a new campaign was launched with the theme of ''Jaago Re - Power of 49'' (PO49), intended to empower women by helping them realize their right of 49% electoral representation in India. The Textile Machinery Division of Voltas at Coimbatore, reached out to women mill workers in and around the Tamil Nadu belt, to help them get registered for voting. Special care was taken to run a party-neutral campaign focused on creating awareness about the importance of exercising one''s vote.

GLOBAL COMPACT AND CARBON DISCLOSURE PROJECT

29. The Company isa signatory to the UN Global Compactand is committed to adhere to its principles. The Communication on Progress for the financial year 2013-14 has been uploaded along with the letter of Support on the Global Compact website.

ENVIRONMENT & SAFETY

30. The Company continued to address matters related to Health, Safety and Environment (HSE) through a variety of initiatives. The Executive Committee, together with the COOs, are responsible for delivering improved HSE performance. The Board has constituted a Safety, Health and Environment Committee comprising three Directors, including the Managing Director for reviewing HSE performance of operations.

31. To improve the consistency of the organization''s approach and the resilience of its Safety controls, the Company implemented OHSAS 18001 and introduced a series of global standards, principles and practices that each operation should adopt. Audits were conducted against these standards and improvements are ongoing. These initiatives have complemented the process of organizational learning, including sharing the lessons based on incidents and best practices.

32. Improving Safety performance continues to be a priority for the Company. This is evidenced by four more businesses attaining ISO 18001 accreditation and four others achieving OHSAS 14001 certification. ISO 18001 is also being implemented atthe Company''s Thane and Dadra Plants.

33. Improvements have been made in the methods of internal communication, knowledge sharing and reporting on Safety matters.There has been adequate worker participation in Safety meetings at project sites, yielding valuable inputs pertaining to the workforce segment. Safety awards have been instituted at project sites and manufacturing locations. Health-related initiatives such as yoga camps and medical checkups have been carried out for employees.

STATEMENT OF EMPLOYEES'' PARTICULARS

34. The information required under Section 217(2A) of the Companies Act, 1956 and the Rules made thereunder, is provided in an Annexure forming part of this Report. In terms ofSection219(1)(b)(iv)ofthesaid Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid Annexure. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary of the Company.

APPOINTMENT OF COST AUDITOR

35. The Central Government has approved the appointment of M/s. Sagar & Associates, Cost Auditors, for conducting cost audit for the year ended 31 st March, 2014.

36. The due date for filing the Cost Audit Report with the Ministry of Corporate Affairs for the year ended 31 st March, 2013 was 30th September, 2013 and the Cost Audit Report was filed by the Cost Auditors on 23rd September, 2013.The due date for filing the Cost Audit Report for the year ended 31st March, 2014 is 30th September, 2014.

SUBSIDIARIES AND JOINT VENTURES

37. Pursuant to the Accounting Standard AS-21 issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented by the Company include the financial information of subsidiary companies. The Central Government has by General Circular No.2/2011 dated 8th February, 2011, granted general exemption to companies from attaching the accounts of subsidiary companies, subject to certain conditions. As the Company has complied with all the conditions, the annual accounts and other documents of the subsidiary companies are not attached with the Balance Sheet of the Company. Details of capital, reserves, total assets, total liabilities, turnover/income, etc., of the aforesaid subsidiaries form part of the Consolidated Financial Statements. The Annual Accounts of the subsidiary companies are open for inspection by any member/investor and also available on the website of the Company - www.voltas.com. The Company will make the documents/details available, upon request by any member of the Company or its subsidiaries interested in obtaining the same.

38. The slow-down in the economy, especially in the Middle East region, continued during the whole of the year. However, some of the Company''s overseas subsidiaries/joint venture companies performed better in 2013-14 as compared to the previous year and secured good orders to sustain the growth. Thefinancial performance and other details of majoroperating subsidiaries/joint venture companies are given below.

39. Universal Comfort Products Limited (UCPL), a wholly- owned subsidiary of the Company engaged in the business of manufacturing air conditioners, recorded higher turnover of Rs. 928 crores and net profit of Rs. 58 crores for the year ended 31 st March, 2014 as compared to turnover of Rs. 740 crores and profit ofRs. 32 crores in the previous year. UCPL has declared 100% dividend aggregating approx. Rs. 28 crores.

40. Rohini Industrial Electricals Limited (RIEL) is engaged in undertaking turnkey electrical and instrumentation projects for industrial and commercial sectors. RIEL reported turnover of Rs. 99 crores and loss of Rs. 7 crores for the year 2013-14 as compared to turnover of Rs. 81 crores and loss of Rs. 13 crores in the previous year. Voltas purchased the residual shareholding (16.33%), comprising 298211 equity shares, from the Promoters of RIEL and accordingly, RIEL became a wholly-owned subsidiary of the Company with efect from 14th October, 2013.

41. Voltas Oman LLC, a subsidiary of the Company (65% shareholding of Voltas), is engaged in undertaking Engineering, Procurement and Construction (EPC) works for electro- mechanical projects in the Sultanate of Oman. Voltas Oman LLC recorded higher turnover of Omani Rial (RO) 3.519 million and profit of RO 0.053 million as compared to turnover of RO 0.698 million and net loss of RO 0.178 million in the previous year. The economy of Oman has started showing signs of recovery and the Government has budgeted higher expenditure in 2014. Voltas Oman LLC has secured a large and prestigious MEP project for Kempinski Hotel worth RO 17.400 million and expects to sustain the order book position during 2014.

42. Universal Voltas LLC, Abu Dhabi, a joint venture company engaged in the business of electro-mechanical projects and operations & maintenance of electro-mechanical works, recorded higher turnover of AED 154.870 million and profit of AED 24.863 million for the year ended 31st December, 2013 as compared to turnover and profit of AED 136.116 million and AED 24.560 million, respectively in the previous year.

43. Olayan Voltas Contracting Company Limited (OVCL), incorporated on 8th February, 2012, is a joint venture company engaged in the business of electro-mechanical projects in the Kingdom of Saudi Arabia. OVCL has recorded turnover of Saudi Riyal (SR) 102.632 million and profit of SR 9.707 million for the year ended 31st December, 2013 as compared to turnover of SR 130.861 million and profit of SR 11.667 million for the period ended 31st December, 2012.

44. Voltas Qatar WLL (VQ), a joint venture company incorporated on 2nd April, 2012, is engaged in the business of undertaking EPC works for MEP contracts in the State of Qatar. VQ has recorded turnover of Qatari Riyal (QR) 94.677 million and profit of QR 5.363 million for the year ended 31st December, 2013 as compared to turnover of QR 22.887 million and loss of QR 0.244 million for the period ended 31st December, 2012.

45. During the year under review, the Company entered into a joint venture agreement with DOW Chemical Pacifc (Singapore) Private Limited for establishing a joint venture company to tap the growing Water and Waste Water treatment market in the country. The proposed new company, Voltas Water Solutions Private Limited, will have equal capital contribution from Voltas and DOW.

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

46. Information pursuant to Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, relating to conservation of energy and technology absorption is given by way of an Annexure to this Report. As for information in respect of foreign exchange earnings and outgo, the same has been given in the notes forming part of the accounts for the year ended 31st March, 2014.

DIRECTORS'' RESPONSIBILITY STATEMENT

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

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

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

(c) 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 Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

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

CORPORATE GOVERNANCE

48. Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis, Corporate Governance Report and Auditors'' Certificate regarding compliance of conditions of Corporate Governance form part of the Annual Report. A declaration signed by the Managing Director in regard to compliance with the Code of Conduct by the Board Members and Senior Management personnel also forms part of the Annual Report.

DIRECTORATE

49. In accordance with the provisions of the Companies Act, 2013 and the Company''s Articles of Association, Mr. Ishaat Hussain and Mr. Sanjay Johri retire by rotation and being eligible, offer themselves for re-appointment.

INDEPENDENT DIRECTORS

50. Mr. S N Menon, due to his indifferent health, stepped down as an Independent Director of the Company with effect from 19th March, 2014. Accordingly, he also ceased to be a Member of the Board Remuneration Committee. The Directors place on record their sincere appreciation of the valuable advice given by Mr S N Menon during his tenure on the Board/Committee and wish him speedy recovery.

51. In line with the requirements of the Companies Act, 2013, Mr. Nani Javeri and Mr. R N Mukhija, satisfy the criteria of independence under Section 149(6) of the Act and are being appointed as Independent Directors, to hold office as per the tenure mentioned in the Notice of the ensuing Annual General Meeting (AGM) of the Company. At the same time, Mr. Nasser Munjee, has decided to step down with effect from 31st August, 2014 to comply with the requirements of SEBI, which limits directorship in seven listed companies only.

52. Mr. Debendranath Sarangi and Mr. Bahram N Vakil are proposed to be appointed as Independent Directors for a term of 5 years each and the approvals of the shareholders are being sought at the ensuing AGM of the Company. Attention of the Members is drawn to Resolution No. 8 and No.9 of the AGM Notice and its related Explanatory Statements.

AUDITORS

53. At the Annual General Meeting, members will be required to appoint Statutory Auditors of the Company. Messrs Deloitte Haskins & Sells, the present Auditors of the Company have pursuant to Section 139 of the Companies Act, 2013, furnished a certificate regarding their eligibility for reappointment. The approval of the members is also being sought for their appointment as the Branch Auditors of the Company. Attention of the members is invited to Item No. 5 of the Notice of the Annual General Meeting and the relevant Explanatory Statement.

GENERAL

54. The Notes forming part of the Accounts are self-explanatory or to the extent necessary, have been dealt with in the preceding paragraphs of the Report.

On behalf of the Board of Directors

ISHAAT HUSSAIN

Chairman


Mar 31, 2013

To the Members

The Directors present their Fifty-Ninth Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2013.

FINANCIAL RESULTS

Rs.in Crores

Standalone Consolidated 2012-13 2011-12 2012-13 2011-12

2. Revenue from Operations (Gross) 5618 5203 5584* 5219*

Profit for the year after meeting all expenses but before interest, depreciation and exceptional items 290 413 335 435

Interest 34 26 39 31

Depreciation and amortisation 22 29 28 34

Profit before exceptional items 234 358 268 370

Exceptional items 8 (151) 12 (151)

Profit before tax 242 207 280 219

Provision for taxation 62 55 73 57

Profit after tax 180 152 207 162

Minority Interest and Share of (Profit)/Loss of Associate - - 1 -

Profit after Minority Interest and Share of (Profit)/Loss of Associate 180 152 208 162

Adding thereto:

- Balance brought forward from the previous year 159 89 225 139

- Foreign Exchange Translation Difference - - (3) 7

- Reserves and Surplus transferred on divestment of a subsidiary - - 8 -

Profit available for appropriations 339 241 438 308

Appropriations:

- General Reserve 20 20 22 20

- Proposed Dividend 53 53 53 53

- Tax on Dividend 9 9 9 9

- Legal and Special Reserve - - 1 1

Leaving a balance to be carried forward 257 159 353 225

* Consolidated turnover is after eliminating inter-company purchase/sales transactions.

DIVIDEND

3. The Company''s dividend policy is based on the need to balance the twin objectives of appropriately rewarding the shareholders with dividend and of conserving resources to meet the Company''s future needs. Taking into consideration the performance of the Company, the Directors recommend a dividend of Rs. 1.60 per equity share of Rs. 1 each (160%) for the year 2012-13 (2011-12: 160%).

OPERATIONS

4. In terms of both domestic and global economic growth, momentum was slower than anticipated. The much- awaited economic recovery was delayed, with an extensive bottoming-out phase. The Indian Rupee sank to new lows due to excessive volatility in exchange rates. Although there was some respite, interest rates and inflation continued to pose serious challenges for major parts of the year. Capital investments in Projects in India were at levels as low as at the year 2004, according to some reports. The pace of execution also posed enormous challenges, leading to cost overruns and margin dilution in projects. Dampened sentiment impacted consumer behaviour, with the Room AC industry reporting a de-growth. Despite an overall depressed environment, the Consolidated Sales and Income from Operations for the financial year 2012-13 was higher by 7% at Rs. 5584 crores compared to Rs. 5219 crores in the previous year. Consolidated Profit after Tax and Minority Interest was also higher by 28% at Rs. 208 crores, as against Rs. 162 crores, last year.

5. The performance of electro-mechanical projects business, both in international and domestic geographies, was below par, also symptomatic of the endemic downtrend in the Projects industry. Execution of projects has been plagued by elongated schedules and delayed clearances. These problems were especially severe in the Company''s project for the Sidra Medical & Research Centre, under execution at Qatar. Revenue from variations is foreseen, and will be accounted in subsequent periods based on their realization. Nevertheless, the Company continues to deal objectively with the challenges faced, and frame a longer-term business strategy for future growth opportunities.

6. Similar adversity was faced by the Domestic Projects business, coupled with delayed payments, putting strain on working capital and cash flows. Several mitigation efforts are under way, including measures laid down in the previous year to reduce operational and administrative costs. The business has also adopted various IT initiatives and process changes to curb the dilution of margins that is now endemic across the Projects Industry landscape.

7. The Domestic Projects business continues its endeavour to extract synergies from the Water business and Rohini Industrial Electricals Limited (RIEL), under the integrated banner of the Domestic Projects Group (DPG). There have, however, been a number of challenges. The low-margin ''legacy'' orders have again impacted RIEL''s performance. The Management has conservatively written down the value of investment in this business to the extent of Rs. 17 crores. Nevertheless, the business continues to aggressively pursue profitable orders in its consolidated DPG identity.

8. The consolidated order book for the Projects Business stands at Rs. 3719 crores, yielding healthy visibility for the coming year.

9. The Engineering Products business too suffered its fair share of challenges. Most severe of all has been the ongoing ban on mining activities in several States in India, which deeply cut into the Mining & Construction Equipment business. Such problems have added impetus to the business'' efforts to seek greener pastures overseas. By leveraging its existing client relationships, the business has been successful in converting opportunities arising from overseas pursuits of existing customers. The ongoing Mozambique venture continues to be lucrative, providing a natural hedge against domestic setbacks. Strategically, the Company is investing substantially in expanding and reinforcing its credentials in product support, as well as its Operations & Maintenance capability.

10. The textile industry in India suffered the ill-effects of highly volatile cotton prices, combined with high inflation and interest rates, severe power shortages in South India and of course, the depressed global market. However, in the last few months of the year, the industry showed signs of revival, thanks to rising global and national demand for loom, coupled with the prospect of investment-friendly Governmental policy initiatives. Overall, the Textile Machinery business was well able to sustain its performance and even strengthen its presence in non-spinning segments.

11. In the Unitary Cooling business, the Company enjoyed the No.1 market position for most of the year, attributable largely to brand development and communications based on extensive market research. Along with substantial growth in both volume and market share of Room ACs, the business has benefited from better traction in Commercial Refrigeration products through sizable OEM orders. Growth in the Unitary Cooling business was achieved in the face of markedly more intense competition, as well as unfavourable climatic conditions and poor consumer sentiment. These factors did take a toll on the industry overall, which suffered aggregated sales volume de-growth of around 5%, according to GFK Report.

12. As part of its strategy to focus on core competencies, the Company has, during the year under review, hived off its subsidiary, Simto Investment Company Limited. In view of the transfer of the Materials Handling business to a JV with Kion in the previous year, the Company divested its investment in the JV to the Kion Group, thus exiting the business entirely.

FINANCE

13. Inflation rates remained high, due to the Government''s inability to contain supply side issues and boost production, coupled with the continuing high level of global commodity prices (especially in crude, which forms a major portion of India''s import basket). Further, the large twin deficits - fiscal and current account - posed significant risks to both growth and macro-economic stability, as high deficit and borrowings have a direct bearing on inflation. Accordingly, the Central bank maintained its stance of ensuring tight liquidity conditions. The Domestic Projects business faced the brunt of the resultant tight liquidity, in terms of delays in payments and the increasing numbers of ''days receivables''. However, the Consumer Durables business kept itself largely insulated from this downtrend, thanks to its cash-and-carry model and diligence on credit.

14. The operating geographies of the International Projects business also remained under the grip of recession, causing widespread delays in collections of dues. Nevertheless, there could be no stoppage in the deployment of resources for on-going projects, including the Sidra project at Qatar and other large projects in UAE, thus putting a significant strain on the Company''s finances.

15. With the help of timely mobilization of idle non-core assets, the Management has suitably managed the cash situation, with a satisfactory liquidity position comprising liquid investments of Rs. 318 crores. With WPI inflation at 3-year lows, and the RBI cutting interest rates, it is hoped that the economic situation has completed its ''bottoming-out'' phase, with growth to follow. The Management continues to focus regularly on its cash flow including inventory and receivables. The surplus funds are invested in low risk Debt Mutual Funds and monitored regularly by the Investment Committee of the Board to maximize returns with minimal risk.

TATA BUSINESS EXCELLENCE MODEL (TBEM)

16. In line with the decision taken at the Group level in respect of TBEM assessments, the Company is focusing on carrying out relevant integration activities and findings of past TBEM assessments are being reviewed. The intention is to participate in the TBEM External Assessments in a unified manner i.e. at Company level and not at individual Business Unit level, as hitherto in the past. In addition, the Company has undertaken several ''Continual Improvement Projects'' with the objective of improving operational efficiencies in areas critical to the respective Business Units/Functions. The Company''s unified participation is proposed for the Group Level External Assessment to be held in the next financial year.

17. To support its Business Excellence journey, the Company continues to develop a pool of trained TBEM assessors, and also provides trained assessors for the Group-level TBEM Assessment Process. The Company currently has over 70 TBEM Champions, of whom more than 30 are certified in the most up-to-date TBEM Criteria. During the year, 13 assessors participated in the Group level TBEM assessments and their contribution won the formal recognition at the Group-level Business Excellence Convention held in December 2012.

IT INITIATIVES

18. The Management continued its drive to improve organizational efficiency and productivity by developing appropriate IT-based solutions. During the year, the focus was on automation of business processes, including Project Accounting, Payroll, HR and Customer Relationship Management (CRM).

19. The Project Result Analysis process for Domestic Projects has yielded benefits in terms of better control over project costs, revenue and profitability. The integration of Payroll with the Human Capital Management (HCM) system for overseas employees helped in seamless payroll processing. CRM software was further refined for Unitary Products business, with expectations of quicker closure of dealer and franchisee payments and better customer service.

20. Due to increased emphasis on Compliance and Risk Mitigation, all SAP roles were redesigned and users were properly authorized through SAP''s Governance & Risk Compliance (GRC) Access Control tool. This has minimized the risks and conflicts within the SAP environment, with a suitable strategy for control and mitigation for each conflict identified.

21. In view of critical role of IT in all operations, many improvements were carried out to increase performance, reliability and security of underlying systems. These included: redesign and redeployment of the Disaster Recovery system for all crucial servers; clean-up of Master Data for Customers and Vendors; putting in place new policies and processes for network and end-user security and deployment of IDEA, a software tool to assist the Internal Audit Department for data analysis.

COMMUNITY DEVELOPMENT

22. Contribution to Society is one of the core values of the Company. The Company is continuously reviewing its efforts towards improving the quality of life of the communities it serves through both its Employability Programme and its endeavours in volunteering. During the year under review, employees devoted their time, energy and talent in the service of the less privileged. Volunteers visited homes for the aged, conducted income generation programmes for the differently-abled, mentored less privileged children, held blood donation camps and increased environmental awareness.

23. As a part of its Employability Programme, the Company continues to extend its Core Competency in Air Conditioning and Refrigeration (AC&R) to less privileged youth, primarily drop-outs from formal education who are ill-equipped to secure a sustainable livelihood. The desired outcome is to make the recipient self-reliant and employable, with technical capabilities attested by end-of-course certificates. Soft-skills training programs are also conducted for these youngsters, such as spoken English, customer interaction, personality development, communication skills, time management, value education and goal setting.

24. The course designed for them includes on-the-job- training, assessment and placement support. For Employability Programme, the Company is associated with: The Joseph Cardijn Technical School and Bosco Boys Home (Mumbai), GMR Varalakshmi Foundation (Hyderabad, Bangalore and Delhi), GTTI (Kolkata and Bhubaneswar), ITI (Delhi) and Kumaran ITI (Chennai). Recently, the Company partnered with The Indian Hotels Company Limited, which has set up a comprehensive Centre of Excellence for skills development at the Lonavala ITI in Maharashtra, where short-term vocational training courses are conducted and the Company will offer its course in AC&R for disadvantaged youth from surrounding rural areas.

25. The Company also embraces the Tata Group''s commitment to social equity and supports the Group''s Affirmative Action programme, which is based on the four pillars of Employment, Employability, Entrepreneurship and Aid in Education. The Company promotes ''Supplier Diversity'' through its vendor development initiatives for outsourcing products/services, through the Dalit India Chamber of Commerce and Industry. The Company also extends aid to the Kathkari tribal children studying at the Bethany School run by the Bethany Society in Panvel, Maharashtra, in the form of reimbursing the salary of a special English instructor, and providing mid-day meals for the children. In addition, volunteers of the Company have sponsored the education of six children of the Kathkari tribe.

26. The Voltas Organization of Women (VOW) is a Public Charitable Trust founded in 1965. VOW is exclusively run by women and its membership consists of women employees of Voltas and spouses of male employees. VOW supports several causes such as subsidizing the medical and basic education costs of the economically distressed, and raising awareness on issues concerning women.

GLOBAL COMPACT AND CARBON DISCLOSURE PROJECT

27. The Company is a signatory to the UN Global Compact and continues its commitment to adhere to the principles of the Global Compact. The Communication on Progress (COP) for the financial year 2012-13 has been uploaded along with the Letter of Support, on the Global Compact website.

ENVIRONMENT AND SAFETY

28. The Company continues to strive to address matters related to Safety, Health and Environment (S-H-E) through a variety of initiatives. In keeping with its vision of ''Engineering Solutions for a Greener Tomorrow'', the Company pursues the development of eco-friendly products and appropriate engineering solutions. Other environment-related initiatives include discharge of effluents, recycling of waste water, disposal of solid and hazardous waste, rain water harvesting, vermiculture, use of solar energy for water heating and use of environment-friendly refrigerants. The manufacturing plant at Pantnagar as well as overseas Projects have been certified to OHSAS standards and work is under way to secure OHSAS certification for other facilities of the Company. The manufacturing facilities at Pantnagar and Thane are also certified to ISO 14001 standards. In order to give further impetus, a Board-level Committee was constituted to oversee and lend direction in respect of S-H-E matters. Health-related initiatives include organizing yoga camps and conducting medical checkups for employees.

29. The Company proposes to undertake a host of other initiatives including Carbon Footprint Assessment, Safety Audits and numerous measures to foster employee health and well-being. The Company has also tied up with a professional e-waste Management company to address the critical disposal challenge.

STATEMENT OF EMPLOYEES'' PARTICULARS

30. The information required under Section 217(2A) of the Companies Act, 1956 and the Rules made thereunder, is provided in an Annexure forming part of this Report. In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid Annexure. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary.

APPOINTMENT OF COST AUDITOR

31. The Central Government has approved the appointment of M/s. Sagar & Associates, Cost Auditors, for conducting cost audit for the year ended 31st March, 2013.

32. The due date for filing the Cost Audit Report with the Ministry of Corporate Affairs for the year ended 31st March, 2012 was 28th February, 2013 and the Cost Audit Report was filed by the Cost Auditors on 30th January, 2013. The due date for filing the Cost Audit Report for the year ended 31st March, 2013 is 30th September, 2013.

SUBSIDIARIES AND JOINT VENTURES

33. Pursuant to the Accounting Standard AS-21 issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented by the Company include the financial information of subsidiary companies. The Central Government has by General Circular No. 2/2011 dated 8th February, 2011, granted general exemption to companies from attaching the accounts of subsidiary companies, subject to certain conditions. As the Company has complied with all the conditions, the annual accounts and other documents of the subsidiary companies are not attached with the Balance Sheet of the Company. Details of capital, reserves, total assets, total liabilities, turnover/income, etc., of the subsidiaries form part of the Consolidated Financial Statements. The Annual Accounts of the subsidiary companies are open for inspection by any member/investor and also available on the website of the Company - www.voltas.com. The Company will make the documents/details available, upon request by any member of the Company or its subsidiaries interested in obtaining the same.

34. Despite the on-going economic slow down, especially in the Middle East region, many of the Company''s overseas subsidiaries/joint ventures (JVs) performed better in the financial year 2012-13 as compared to last year. The financial performance and other details of operating subsidiaries/joint venture companies are given below:

35. Weathermaker Limited (WML), engaged in the business of manufacturing galvanized iron, aluminium, black mild steel, stainless steel ducts and other speciality air distribution products is a wholly-owned subsidiary of the Company and has its manufacturing facility in Jebel Ali Free Zone, UAE. WML has reported higher turnover of AED 29.527 million and profit of AED 2.616 million for the year ended 31st December, 2012 as compared to turnover of AED 28.638 million and profit of AED 2.086 million in the previous year.

36. Saudi Ensas Company for Engineering Services WLL (Saudi Ensas), a wholly-owned subsidiary of the Company in Jeddah, Kingdom of Saudi Arabia (KSA) is engaged in execution and operations/maintenance of electro-mechanical installations in KSA. Saudi Ensas has recorded higher turnover of SR 14.896 million and net profit of SR 0.243 million for the year ended 31st December, 2012 as compared to turnover of SR 4.218 million and net loss of SR 2.124 million in the previous year.

37. Voltas Oman LLC, a subsidiary of the Company (65% shareholding of Voltas), is engaged in undertaking Engineering, Procurement and Construction (EPC) works for electro-mechanical projects in Sultanate of Oman. Voltas Oman LLC commenced execution of projects during the financial year ended 31st December, 2012 and reported turnover of Omani Rial (RO) 0.698 million and net loss of RO 0.178 million.

38. Lalbuksh Voltas Engineering Services & Trading LLC (Lalvol), a subsidiary of the Company (60% shareholding), is engaged in the business of Water Well Drilling, Water Management and Landscaping in Oman. Lalvol recorded turnover of RO 3.577 million and net profit of RO 0.021 million for the year ended 31st December, 2012 as compared to turnover of RO 3.359 million and net profit of RO 0.278 million in the previous year.

39. Universal Voltas LLC, Abu Dhabi, a joint venture company engaged in the business of electro-mechanical projects and operations & maintenance of electro-mechanical works, recorded higher turnover of AED 136.116 million and Profit of AED 24.559 million for the year ended 31st December, 2012 as compared to turnover and profit of AED 134.635 million and AED 37.043 million, respectively in the previous year.

40. Universal Weathermaker Factory LLC (UWF), a joint venture company incorporated in Abu Dhabi, is engaged in the manufacture and sale of air conditioning ducts and other related fixtures. UWF reported lower turnover and profit of AED 16.682 million and AED 0.531 million, respectively for the year ended 31st December, 2012 as compared to turnover of AED 20.065 million and profit of AED 0.667 million in the previous year.

41. Olayan Voltas Contracting Company Limited (OVCL), incorporated on 8th February, 2012, is a new joint venture company engaged in the business of electro-mechanical projects in Kingdom of Saudi Arabia. In its first year of operations, OVCL has recorded turnover of Saudi Riyal (SR) 130.861 million and profit of SR 11.667 million.

42. Voltas Qatar WLL (VQ), a new joint venture company incorporated on 2nd April, 2012, is engaged in the business of undertaking EPC works for the MEP contracts in the State of Qatar. VQ has recorded revenue of Qatari Riyal (QR) 22.887 million in the first year of its operations between 2nd April, 2012 and 31st December, 2012. However, due to initial registration fees, licences and professional fees, loss of QR 0.244 million was reported for the period under review.

43. Universal Comfort Products Limited (UCPL), a wholly- owned subsidiary of the Company, engaged in the business of manufacturing air conditioners, recorded higher turnover of Rs. 740 crores for the year ended 31st March, 2013 as compared to Rs. 486 crores in the previous year. However, due to higher incidence of tax (30% exemption as compared to 100% in the previous year), net profit was Rs. 32 crores for the year under review as compared to Rs. 34 crores in the previous year.

44. Rohini Industrial Electricals Limited (RIEL) is engaged in undertaking turnkey electrical and instrumentation projects for industrial and commercial sectors. RIEL has reported lower turnover of Rs. 81 crores and loss of Rs. 13 crores for the year ended 31st March, 2013 as compared to turnover of Rs. 117 crores and loss of Rs. 26 crores in the previous year.

45. During the year under review, the Company had transferred its entire shareholding in Simto Investment Company Limited (Simto) in favour of Tata Investment Corporation Limited with effect from 31st August, 2012. Accordingly, Simto ceased to be a subsidiary of the Company. Voice Antilles N.V. was closed and liquidated effective 14th September, 2012. The legal process for voluntary liquidation of Voice Antilles N.V. in Willemstad, Curacao (erstwhile Netherlands Antilles) has been completed. The entire equity shareholding (34%) in Voltas Material Handling Private Limited (VMHPL) was transferred on 2nd November, 2012 in favour of Linde Material Handling Asia Pacific Pte Limited, Singapore, an affiliate of KION Group and existing shareholder with balance 66% equity shareholding of VMHPL.

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

46. Information pursuant to Section 217(1 )(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, relating to conservation of energy and technology absorption is given by way of an Annexure to this Report. As for information in respect of foreign exchange earnings and outgo, the same has been given in the notes forming part of the accounts for the year ended 31st March, 2013.

DIRECTORS'' RESPONSIBILITY STATEMENT

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

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

(b) they have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied their recommendations consistently and made judgements 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;

(c) 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 Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

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

CORPORATE GOVERNANCE

48. Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis, Corporate Governance Report and Auditors'' Certificate regarding compliance of conditions of Corporate Governance form part of the Annual Report. A declaration signed by the Managing Director in regard to compliance with the Code of Conduct by the Board Members and Senior Management personnel also forms part of the Annual Report.

DIRECTORATE

49. The Directors report with regret, the sad demise of Mr. Jimmy Bilimoria, who passed away on 3rd May, 2013. Mr. Bilimoria was an Independent Director of the Company since 22nd September, 2008 and also a member of the Board Audit Committee and Chairman of the Investment Committee. Mr. Bilimoria was appointed as the Chairman of the Audit Committee on 9th August, 2010, which position he held till 25th March, 2013. Thereafter, he continued as a member of the Board Audit Committee. Mr. Bilimoria''s financial acumen, mature advice and constructive approach were of great assistance to the Company and the Directors place on record their appreciation of the valuable advice given by Mr. Bilimoria during his tenure on the Board/Committees.

50. In accordance with the provisions of the Companies Act, 1956 and the Company''s Articles of Association, Mr. Nasser Munjee, Mr. Nani Javeri and Mr. N. N. Tata retire by rotation and being eligible, offer themselves for re-appointment.

51. Mr. Thomas Mathew T. was appointed as an Additional Director by the Board of Directors on 10th January, 2013, representing Life Insurance Corporation of India. In accordance with the provisions of the Companies Act, 1956, Mr. Thomas Mathew T. holds office upto the date of the forthcoming Annual General Meeting and Notice under Section 257 of the Act has been received from a member proposing his appointment as Director of the Company. The Resolution seeking approval of the members for appointment of Mr. Thomas Mathew T. as a Director of the Company has been incorporated in the Notice of the forthcoming Annual General Meeting.

AUDITORS

52. At the Annual General Meeting, members will be required to appoint Auditors for the current year. Messrs Deloitte Haskins & Sells, the present Auditors of the Company have pursuant to Section 224(1) of the Companies Act, 1956, furnished a certificate regarding their eligibility for reappointment. The approval of the members is also being sought for their appointment as the Branch Auditors of the Company. Attention of the members is invited to Item No.7 of the Notice of the Annual General Meeting and the relevant Explanatory Statement.

GENERAL

53. The Notes forming part of the Accounts are self-explanatory or to the extent necessary, have been dealt with in the preceding paragraphs of the Report.

On behalf of the Board of Directors

ISHAAT HUSSAIN

Chairman

Mumbai, 20th May, 2013

 
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