DIRECTORS' REPORT TO THE MEMBERS 1. Your Directors are pleased to present the Twenty-seventh Annual Report on the business and operations of the Company along with the Audited Statements of Accounts for the financial year ended March 31, 2016 . Dividend Your Directors recommend for your approval, a dividend of 140 % (Rs. 14 /- per share) for the year ended 31st March, 2016, compared to 110% per share) in the previous year. This will involve an outgo of Rs. 52.46 crores compared to Rs.41.08 crores in the previous year, including dividend distribution tax. 4. Reserves Your Directors have approved a transfer of Rs.10 crores to the General Reserve for the year ended 31st March, 2016, as against an amount of Rs.10 crores in the previous year. 5. Review of Operations The total income during the year under review increased by 27 % from Rs. 853.54 crores in the previous year to Rs.1087.07 crores. The Profit Before Tax (PBT) increased by 52 % from Rs. 155.98 crores in the previous year to Rs.236.34 crores. The Profit After Tax (PAT) increased by 50 % from Rs.102.90 crores in the previous year to Rs. 154.81 crores. During the year under review, your Company for the first time crossed the 1000 crore mark in turnover in rupee terms. This was possible due to the concerted effort in scaling up the embedded product design and industrial design services business coupled with better ultilisation of available resources 6. MANAGEMENT DISCUSSION AND ANALYSIS Industry Outlook As per NASSCOM, Indian IT services have grown by 12%, with IT services and software products maintaining a double digit growth due to higher adoption of SMAC (Social, Mobile, Analytics, and Cloud Services) and IoT (Internet of Things). Also, the presence of a single government has boosted the confidence of the industry in 'Digital India' and 'Make in India' with the domestic market accounting to two-thirds of the revenue addition in FY 16. The fusion of humans and machines is the next big thing for the information and communications technology industries, which will impact almost all industry verticals. Business Analysis Our operations are classified into two business segments, i.e. Software Development & Services and Systems Integration & Support. Software Development and Services This business segment grew by 29% from Rs.781.85 crores in the previous year to Rs. 1008.17 crores in FY16. The segment profit increased by 47% from Rs. 176.33 crores in the previous year to Rs.259.66 crores during FY16. As per NASSCOM, Indian IT exports are expected to grow by 10-12% and Engineering R&D and product development to grow at 12.6% in FY 17. As technologies, industries and markets converge, each intersection presents both challenges and opportunities for companies to innovate and deliver new and enhanced products and services. New services are also emerging from the increasing connectedness of people and devices. This presents us with an unique opportunity to leverage our technology capabilities, user centric design and creative experience, and position ourselves as a complete solutions and service provider. The software development and services segment consists of three distinct business divisions: Embedded Product Design The Embedded Product Design (EPD) division provides technology consulting, new product design, development, and testing services for the broadcast, consumer electronics, healthcare, telecom and transportation industries. Transportation We offer electronics, software development and system design services for the automotive and aerospace industry. Software content in cars is increasing, especially in areas such as in-vehicle infotainment, active safety systems, telematics, electric and hybrid powertrains. We are leveraging our cross-technology expertise in multimedia, imaging, connectivity technologies, and well-established processes for automotive software development, to support both car manufacturers and system suppliers in product development and engineering. We are also working with some leading aerospace OEMs and suppliers for avionics and electronics design. We are also working on emerging requirements for mass transportation and urban mobility solutions for smart cities of the future. Apart from active participation in leading consortiums and technology standards bodies related to the automotive industry, we participated in leading trade shows and events such as the VDI-ELIV Congress in Baden Baden - Germany, showcasing our automotive technology development capabilities and solutions for safety, comfort and infotainment. Broadcast and Communications We address the complete product development lifecycle from R&D, new product development and testing to maintenance engineering for Broadcast, Consumer Electronics and Communications. We engage with leading Broadcast and Communications service providers across the world for the development of value-added applications, and help them reduce engineering costs associated with development and deployment through cost-effective offshore services. Increasingly, major operators are bundling voice, video and data services and providing consumers with a converged triple play service, thereby blurring the lines between a conventional telecom operator and a Pay TV service provider. Emerging technologies such as IoT (Internet of Things) and Analytics are creating new opportunities to drive operational efficiency, reduce costs, deliver new services to consumers and enable new streams of revenues for operators and product manufacturers. We are investing in developing capability to support customers in these new technologies and help them in their digital transformation journey. We continue to participate in leading international industry events and standards bodies, to strengthen our leadership position and keep abreast of technology trends in concerned industry sectors. Tata Elxsi was featured with a keynote session titled 'New Disruptors - the Internet of Things revolution' at the International Broadcasting Convention (IBC), the leading event for the broadcasting and communications industry, in Amsterdam in September 2015. Industrial Design (ID) The Industrial Design division helps customers develop endearing brands and products by using design and technology as a strategic tool for business success. This division services a broad spectrum of industries including automotive, consumer electronics, retail & consumer goods and healthcare. We have worked for leading Metro projects in India, including the Chennai & Kochi Metro to enhance the passenger experience in the use of the metro services, right from design of signage systems to branding, coach interiors and station aesthetics. Products designed by us have been awarded the I Mark, which signify good design not only in terms of form and aesthetic appeal, but also in terms of product quality, functionality, safety, sustainability, usability and social responsibility. We participated in the 'Make in India Week', which aimed to showcase the potential of design, innovation and sustainability across India's manufacturing sectors in the coming decade. This event also showcased products with the I Mark to the international community. We conducted an annual design event 'Connect D' in order to promote design thinking amongst the next generation of designers and help them create new connected experiences. The event is intended to engage with students and help them to think critically about the latest technology and its implications for the present and future. The 4th edition of the contest received an overwhelming response from design students from across the country, which concluded in June 2015. Visual Computing Labs (VCL) VCL provides high-end content and 3D Animation services, addressing content development for feature films, television, advertising commercials and custom corporate content. VCL has been awarded with FICCI BAF 2016 for the 'Best VFX in a Commercial' in the Afterlife Series. Our work for feature films, including 'Neerja' which was released in February 2016, has won much appreciation and critical acclaim. Systems Integration and Support During the year under review, our Systems Integration & Support segment reported a turnover of Rs.67.03 crores and profit of Rs.6.72 crores. We implement and integrate complete systems and solutions for High-Performance Computing, CAD/CAM/CAE/PLM, Broadcast, Virtual Reality, Storage, and Disaster Recovery. We also provide Professional Services for maintenance and support of IT infrastructure in India and overseas. We continue to focus on increasing the share of software sales and support services in this segment, for improved margins. Threats, concerns and risks According to NASSCOM, despite the political uncertainty across major economies of the world, currency fluctuations and changing nature of the business, the industry has still sustained a double digit growth and may continue to do so with the emergence of new technologies such as internet of things, analytics, and social media. Our revenues are well distributed amongst various currencies and geographies, thereby reducing the impact from any single geography or currency to some extent. Protectionist government policies in key markets such as the US and Europe may create barriers in on-site deployment of India-based talent. Economic uncertainty aggravated by plunging oil prices, plummeting Chinese markets hurt the Indian IT sector. We are focusing on maximizing offshore execution of projects and having a presence in multiple industries to mitigate the impact of such policies and risks caused by the cyclical nature of any one industry segment Internal Control Systems and their adequacy We believe that internal control and risk management are necessary prerequisites of the principle of governance. Our Management is committed to ensuring an effective internal control environment, commensurate with the size and complexity of the business, which provides assurance on the efficiency of operations and security of assets. We have an effective internal control system, which is assessed and strengthened with new/revised standard operating procedures and which ensures that all our assets are safeguarded and protected against any losses. We have co-sourced the internal audit function. We have entrusted quarterly internal audits to a reputed Audit firm -Ernst & Young. In addition, the in-house internal audit team also regularly carries out audits of specific processes. Their annual audit plans are approved by the Audit Committee of the Board. Based on the internal audit reports, process owners undertake corrective actions in their respective areas and thereby strengthen the controls. Internal Audit Reports along with corrective actions are discussed with the Management and are reviewed by the Audit Committee of the Board, which also reviews the adequacy and effectiveness of our internal controls. Human Resources As a technology-led design company we continue to attract and retain top talent. Leadership training, Performance management, Talent development, Employee engagement and Succession planning form the bedrock of our strategy. Benchmarking, Recognizing contributions, Improving Customer experience, and Keeping pace with changes are the pillars of our value system and help create an atmosphere of oneness and collaboration. Our employees are highly motivated and we develop the necessary capabilities and behaviours so that employees can deliver greater value to our customers and become trusted advisors. Our recent initiates of pre-connecting with colleges before we hire freshers' are helping us to attract the best minds across campuses. Our total headcount including consultants was 4452 as of March 31, 2016. Quality initiatives We have instituted very strong quality processes in the execution of our software development projects, and implemented robust information security management processes to assure our global customer base of the required level of confidentiality and protection of data and information. We have also been assessed and certified organization wide for industry-specific standards such as ISO 9001:2008 and ISO 27001:2013. Additionally, for Medical Engineering BU we have ISO 13485:2012 certification and for Transportation BU we have Automotive SPICE OML5 certification. 7. Directors and Key Managerial Personnel In terms of Section 152 of the Companies Act, 2013 Mr. N.G. Subramaniam retires by rotation and being eligible offers himself for re-appointment. Dr. R. Natarajan, Independent Director, retired from the Board with effect from January 10, 2016 in terms of his appointment. The Board placed on record their appreciation for the valuable contributions and guidance rendered by Dr. Natarajan during his tenure on the Board and the Committees in which he was a member. The Board, on the recommendation of the Nomination and Remuneration Committee, had at its meeting held on January 04, 2016 appointed Prof. M.S. Ananth as an Additional Director (Independent Director) of the Company with effect from January 04, 2016. In terms of Section 161(1) Prof. Ananth holds office upto the date of the ensuing Annual General meeting and being eligible offers himself for re-appointment. Notice has been received from a member u/s 160 of the Companies Act, 2013, proposing Prof. Ananth to the office of the Directorship of the Company. The Board recommends the appointment of Prof. Ananth as an Independent Director to hold office upto November 14, 2020. During the year under review, Six (6) Board meetings were held and have been well attended by the Directors. The calendar of meetings for the year 2016-17 has been circulated to all the directors detailing the schedule of Board and Committee meetings during 2016-17. The Independent Directors have submitted their declaration that they fulfil the requirements as stipulated in Section 149 (6) of the Companies Act, 2013. Pursuant to Clause VII (1) of Schedule IV of the Companies Act, 2013 the Independent Directors had separate meetings on 28th April, 2015 and 15th May, 2015 during 2015-16. Pursuant to the provisions of Section 203 of the Act, the Key Managerial Personnel (KMP) of the Company are -Mr. Madhukar Dev, MD & CEO. Mr. K Ramaseshan, CFO and Mr. G. Vaidyanathan, Company Secretary. There is no change in the KMP during the year. 8. 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 and secretarial auditors including audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company's internal financial controls were adequate and effective during the financial year 2015-16. 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 the applicable accounting standards had been followed along with proper explanations relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of our state of affairs at the end of the financial year and of our profit and loss for that period; (c) the Directors had taken proper and sufficient care, for the maintenance of adequate accounting records, in accordance with the provisions of Companies Act, 2013, for safeguarding the assets of the Company, and for preventing and detecting fraud and other irregularities; (d) the Directors have prepared the annual accounts on a going concern basis; (e) the directors had laid down internal financial controls to be followed by the Company, and that such internal Controls are adequate and were operating effectively; and (f) the Directors have devised proper systems to ensure compliance with provisions of all applicable laws and that such systems were adequate and operating effectively. 9. Particulars on Remuneration The information required under Section 197(12) of the Companies Act 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 forms part of the Directors' Report and have not been attached. However, in terms of first proviso to Section 136 the particulars as referred above are available for inspection at our Registered office during business hours on working days, up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary. Particulars pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 are provided in Annexure-A. Our Board has adopted a Remuneration Policy as also the Charter for the Nomination & Remuneration Committee (NRC). The Policy covers the Policy on remuneration to our Managing Director, Key Managerial Personnel and other officers. The Charter lays down the Rights, Roles and Responsibilities of the NRC. A Policy on Board diversity has also been adopted by the Board. A comprehensive Governance Guidelines for Board effectiveness has also been adopted by the Board on the recommendation of NRC. The Guidelines lay down the following: • Composition and Role of the Board (Role of the Chairman, Directors, size of the Board, Managing Director, Executive Director, Non-Executive Directors, Independent Directors, their term, tenure and Directorship). Board appointment, Industrial Development. • Directors remuneration (Guided by Remuneration policy). • Subsidiary oversight. • Code of Conduct (Managing Director, Executive Director, Non-Executive Directors, Independent Directors). Board effectiveness review. Mandate of the Board Committee. The Remuneration Policy and the Charter for NRC are available at: <http://www.tataelxsi.com/company/board-of-directors/Related>-directors/Related links/Policies. 10. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo The particulars pursuant to section 134 (m) of the Companies Act, 2013 is attached with this report as Annexure-B. 11. Risk Management Policy We have adopted a Risk Management Policy to identify and categorize various risks, implement measures to minimize impact of these risks where it is deemed necessary and possible, and a process to monitor them on a regular basis. More details are given under Section-6 of Corporate Governance Report (page - 37). 12. Corporate Social Responsibility We have constituted a CSR committee for the purposes of recomending and monitoring the CSR initiatives of the Company. The Board on the recommendation of CSR Committee adopted a CSR Policy. The same is available on Company's website at (<http://www.tataelxsi.com/company/corporate-sustainability>). The CSR objectives are designed to serve societal, local and national goals in the locations that we operate in, create a significant and sustained impact on local communities and provide opportunities for our employees to contribute to these efforts through volunteering. The Annual Report on the CSR initiatives undertaken by the Company as per the Companies (Corporate Social Responsibilities Policy) Rules, 2014 is annexed as Annexure-C. The details of the CSR Committee and its composition is given in section-7 of the Corporate Governance Report (page - 38). 13. Closure of wholly owned Subsidiary Company During the year under review the formalities for closure of company's wholly owned subsidiary, Tata Elxsi (Singapore) Pte. Ltd. has been completed. Presently the Company do not have any subsidiary Company. 14. Corporate Governance In terms of Regulation 34(3) and 53(f) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 the Corporate Governance Report, the Management Discussion & Analysis Statement, and the Auditors' Certificate regarding Compliance of Conditions of Corporate Governance are part of this Annual Report. 15. Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Ms. Jayashree Parthasarthy, a Company Secretary-in-Practice, was appointed to undertake the Secretarial Audit. The Report of the Secretarial Audit for the year ended 31st March, 2016 is attached to the Directors' Report at page No. 30. 16. Prevention of Sexual Harassment We have zero tolerance for sexual harassment at workplace and have adopted a Policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder for prevention and Redressal of complaints of sexual harassment at workplace. No concerns have been raised under POSH during the year 2015-16. 17. Vigil Mechanism Our company has established a "Vigil Mechanism" for its employees and Directors, enabling them to report any concerns of unethical behaviour, suspected fraud or violation of the Company's 'Code of Conduct'. To this effect the Board has adopted a 'Whistle Blower Policy' (WBP), which is overseen by the Audit Committee. The policy provides safeguards against victimization of the Whistle Blower. Employees and other stakeholders have direct access to the Chairperson of the Audit Committee for lodging concerns if any, for review. The said policy has been posted on our intranet where all the employees have access. Our Company conducts 'Policies Awarness Campaign' regularly for its employees at its various centres, and the WBP also features in the campaign amongst others. 18. Others There are no loans, guarantees and investments made by us u/s 186 of the Companies Act, 2013 during the year under review. The extract of Annual Return in MGT-9 is attached and forms part of the Directors'report. We have neither accepted nor renewed any deposit during the year under review. The Unclaimed Dividend in respect to the financial year 2008-09 is due for remittance to Investors' Education & Protection Fund (IEPF) on October 13, 2016 in terms of Section 125 of the Companies Act, 2013. There are no material changes and commitments affecting the Company's financial position between the end of the financial year to which this financial statement relate and the date of this report. 19. Auditors Delloitte Haskins & Sells (DHS), Chartered Accountants, the Statutory Auditors, who have been appointed for a period of 3 years and whose re-appointment is to be ratified at the ensuing Annual General Meeting, have confirmed vide their letter dated April 22, 2016 that they are eligible for re-appointment. 20. Acknowledgements Your Directors wish to thank employees, customers, partners, suppliers, and above all, our shareholders and investors for their continued support and co-operation. On behalf of the Board of Directors N.G. Subramaniam Chairman Place : Bengaluru, Date : 28th April, 2016 |