CHAIRMAN’S SPEECH 

Dear Shareholders,

1. It is indeed my proud privilege to welcome you all to the 50th Annual General Meeting of the Company.

2.         The Annual Accounts for the year ended 31st March, 2013 along with the Auditors’ Report and Directors’ Report have been with you, and with your permission, I shall take them as read.

PERFORMANCE OVERVIEW

3.         Your deep and abiding trust has enabled team HAL to continuously improve its performance. In the midst of challenging economic conditions, the Company has achieved a turnover of Rs.14,323.63 crore during the financial year 2012-13 as against Rs. 14,204.21 crore in the previous year. The profit before tax has grown by 5.06 percent at Rs. 3,497crore. 

4.         The Directors’ Report showcases the significant achievements of the Company. I would like to take this opportunity to highlight certain noteworthy achievements:    

·         On the financial front, your Company has a consistent track record of dividend payment. The Company has surpassed its previous record of highest payment of dividend which stood at Rs. 814 crore by paying a dividend of Rs.823.70 crore, which is 684 percent of the Paid up capital of Rs. 120.50 crore.

·         The Company has added yet another “Excellent Rating” to its trophy-shelf for the year 2011-12. This is the 12th consecutive year in which the Company’s performance has been rated as Excellent. The performance during the year 2012-13 is also expected to earn the ‘Excellent’ score under the MoU with the Government of India.

·         Significant progress has been made on the Design and Development front such as the Company has achieved the Initial Operation Clearance (IOC) for the weaponised variant of Advanced Light Helicopter (ALH) –Rudra. The maiden flight for Jaguar Darin-III upgrade aircraft on 28thNovember, 2012 was another milestone towards successful indigenous design capability development. The progress made in LCA programme during the year 2012-13 has been very encouraging.

·         “Fly-off and Survive Black Box” for Dornier- 228 Aircraft has been designed, developed and demonstrated for the first time in the country by Korwa Division.

·         Deliveries of Hawk & Do-228 aircraft have been carried out ahead of contracted schedule.

NEW INITIATIVES AND PROJECTS

5.         “Integrity” is one of the seven values that your company continues to achieve in all its business transactions. Keeping in line with the highest standards of corporate governance that the company has set for itself, the Company has signed a Memorandum of Understanding (MoU) with Transparency International India (TII) for bringing more transparency in procurements as well as better compliance with the CVC guidelines on Integrity Pact (IP). It became the first Defence PSU to sign such a MoU with TII.

6.          The Company has also launched a supplier relationship management portal to further strengthen the relations with its business partners. HAL has been holding an Annual International/Global Vendors meet to address issues related to supply chain management. The Purchase Manual has been revised to align with the best practices prevalent in the global aerospace industry.

7.         The other initiatives on this front include procurement / resource management, supply chain preparedness for the year 2013-14 and 2014-15, building the team for better project management and strengthening customer relations.

8.         The Company had deputed its senior executives to the customer bases for a deeper insight on the customer’s requirements and get a direct feedback on HAL’s products and services. The feedback of the exercise “reach out to the customer” was analyzed and necessary action initiated to improve aspects of customer support.

9.         Your company has taken a host of initiatives to strengthen the Human Resource Management, important among them are;

a. For the first time, a leadership development programme for 30 executives at Indian Institute of Management, Ahmedabad is progressing to develop senior management cadre in the company.

b. Release of revised Recruitment Manual to streamline recruitment process in the company.

10.       Another important initiative taken by your Company is to hold “Key Executives’ Meet” at regular intervals. These meetings serve as a platform for sharing of experiences, good practices and learning, followed by presentations from Executives on their short and long-term plans. The “Vichardhara” thus evolved is then passed-on to grass root levels.

11.       HAL has embarked on a modernization and expansion plan while implementing its ongoing and new projects. New production units are planned with enhanced rate of production and reduced production cycle-times by incorporating several advanced aerospace technologies. The Company has drawn up ambitious plans to revamp the capabilities and capacity.

12.       Your Company has made a roadmap for development of key technologies like stealth, advanced sensors, highly integrated avionics suite, enhanced situational awareness, internal carriage of weapons, operation data link application etc while implementing the new co-development/co-production projects and in-house R&D initiatives. The plan also includes bringing in critical and modern technologies in the areas of design, manufacture, maintenance and training by collaborating with leading technology suppliers across the globe.

13.       As part of expansion, your Company has established a state of the art facility at Kasargod in Kerala to manufacture strategic electronic equipment such as critical mission computers as a branch factory to complement Hyderabad facility.

14.       HAL believes that innovation & creativity are the pillars for being competitive in complex aerospace and defence business. HAL has indeed risen to the occasion and your Company has filed 71 patent applications during the last year. The Company has also signed various Technology Co-operative Initiatives to strengthen its R&D Capabilities. Following are noteworthy:

o   With IIT, Madras for establishing a Centre for Aerospace Transmission Systems (CATS),

o   With IIT, Kanpur for developing Aero Elastic Code for predicting Helicopter Rotor Vibrator Loads,

o    Memorandum of Understanding with the Indian Institute of Science (IISc), Bangalore for Micro-UAV,

o   With IIT Roorkee for establishing HAL Chair for R&D in aviation,

FUTURE OUTLOOK

15.       Backed with long experience in military aviation with extensive infrastructure, HAL is focusing on plans to foray into the civil segment which has promising growth potential. Separate operations are planned to handle civil segment including suitable partnerships with private Indian industries and foreign OEMs. It is pertinent to mention that company’s airport at Ojhar, Nasik has been certified by DGCA for Civil operations.

16.       Unmanned Aerial Vehicles (UAVs) are the need of the hour and the demand for these are on the rise. HAL is pursuing its plans to enter into this segment in a big way.

17.       Despite a tough global economic outlook, India continues to be one of the many promising A&D markets in the world. There is a continuous requirement for making Defence Products better, safer and technologically advanced. The Company plans to enter into strategic partnerships with International and Domestic companies to expand and continue to maintain its leadership position.  In line with this thinking, HAL has entered into an MOU with SBI capital markets for financial advice on Project Appraisals, Mergers & Acquisitions etc.

18.       The Company aims to achieve business excellence while pursuing its mandate of nation building. It has plans to add capacity to handle the future programs like Medium Multi-Role Combat Aircraft (MMRCA), Fifth Generation Fighter Aircraft (FGFA), Multi-role Transport Aircraft (MTA), Light Combat Helicopter (LCH) and Light Utility Helicopter (LUH).

19.       HAL, a Navratna Public Sector Undertaking, is ranked 35th among the Top 100 Aerospace Manufacturing Companies and aims to improve its ranking to be in the Top 20 Aerospace Manufacturing Companies in the world. 

18.       In advancement of its forward looking approach, the Company is contemplating disinvestment to the tune of 10 percent of its shares, for the purpose of getting itself listed on the stock exchange in furtherance of achieving the ‘Maharatna’ status in the near future.

CORPORATE GOVERNANCE

19.       Your Company has implemented the guidelines on Corporate Governance enunciated by the Department of Public Enterprises. HAL is continuously working for the optimum benefit of its Stakeholders and has thus moulded its corporate conduct to fulfill these responsibilities. HAL believes and endeavors to transcend beyond the basic regulatory framework and strives to be the benchmark for corporate citizenship.  A detailed report on Corporate Governance is annexed to the Directors’ Report.

ACKNOWLEDGEMENT

20.       I, on behalf of team HAL, take this opportunity to thank you for the support and hope to receive the same encouragement in the days to come.

21.       I extend my sincere gratitude to the Department of Defence Production, Defence Acquisition, Defence Finance, Department of Civil Aviation, our valued customers viz., the Indian Air Force, Army, Navy &Coast Guard, Global Aviation Majors and other Countries which have shown trust in HAL products and given us an opportunity to serve them.

22.       I sincerely thank and acknowledge all the agencies who are partners in running our enterprise viz., DGAQA, CEMILAC, DGCA, Principal Director Commercial Audit, C&AG, Statutory and Branch Auditors, Legal Advisors, Collaborators and Partners, Suppliers, Bankers and other Government Agencies for their support.

23.       I am grateful to my colleagues on the Board for their valuable guidance. I take this opportunity to place on record appreciation for the dedication and commitment displayed by the Employees at all levels.            

(Dr. R. K. Tyagi)

Chairman

Place: Bangalore

Date: 27th September 2013

Management Discussion & Analysis Report

1          Industry scenario

1.1         Global Scenario

1.1.1     The Global Aerospace and Defence (A&D) Sector has continued to see a decline in the revenues for the third consecutive year, due to continued global economic challenges and decrease in military spending. However, the commercial aircraft industry is continuing to look up with increased production rates, introduction of new generation aircraft and growing orders. The industry is witnessing declining revenues on the whole, resulting in overall low growth for the entire sector.

1.1.2     In the defence segment, the decline in the revenue because of the budget reductions in the US, UK and the rest of Europe is partially offset with smaller aggregate increases, principally in Russia, China, India, Saudi Arabia, UAE and Brazil. The decline will be more pronounced, if the US Budget Control Act automatic cuts, referred to as ‘Sequestration’ (additional budget reduction of 492 BUSD over a period of nine years, over and above the 487 BUSD budget reduction in 10 years which is under implementation) also comes into effect. In view of the declining revenues, the defence segment is likely to witness streamlining of its cost structure, divestiture of non-core assets and game- changing acquisitions.

1.1.3     The impact of budget cuts in the US on the global defence segment can be gauged by the following data.The military expenditure database of SIPRI (Stockholm International Peace Research Institute) indicates that the global defence expenditure for the year 2012 is estimated at 1.74 Trillion USD. The United States military expenditure at 682.5 BUSD is nearly four times the defence spending of China and is around 40 per cent of the total defence expenditure in the world.

1.1.4     In response to the declining overall sales, it is assessed that the Aerospace & Defence companies in the US and Europe will strengthen their marketing and competitive positioning in the emerging markets especially in India, Brazil, South Korea, Saudi Arabia, Japan and the UAE. This will provide an opportunity to the emerging markets to leverage for better prices and technologies.

1.1.5     However, the growth in the commercial aircraft segment is expected to achieve record levels in 2013, based on increased production rates and the introduction of next generation aircraft. According to some estimates, the Airbus and Boeing have, on an average, a seven year order backlog. This trend is being driven by growth in passenger travel demands particularly in Asia and the Middle East as well as the need for more fuel-efficient aircraft.

1.2         The Indian Scenario

1.2.1     The Indian Aerospace & Defence market is continuing with the trend of growth in line with the emerging markets due to an increased demand from both the armed forces and growing air traffic in the civil sector.

1.2.2     The Indian defence budget allocation for the year 2013-14 is Rs. 2.04 lakh crore which is 5.3 per cent more than the previous year’s budget of 1.93 lakh crore.The growth in the defence budget is nominal when compared to the growth rates of 17.6 per cent and 15.50 per cent in the previous two budgets. This reduction in growth of defence allocation is due to the challenging economic environment and the government’s drive to check the fiscal deficit. However the defence allocation may see a significant growth to provide for the global inflation and adverse Rupee-Dollar exchange rate and to continue with the expansion and modernisation plans of the armed forces. India continues to be among the top 10 defence spenders in the world and is one of the largest importers of conventional defence equipment.

1.2.3     Milestones in certain deals are expected to be reached during the current financial year, such as submarines, missiles and the Medium Multi-Role Combat Aircraft (MMRCA) programs.

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Deals worth about 25 BUSD are expected to be closed during the current fiscal 2013-14 by the Government.  Furthermore, there is an emerging demand for Helicopters and Unmanned Aerial Vehicles (UAVs) from various Defence Services.

1.2.4     India not only offers an attractive market, but also provides cost advantages in basic Design, Engineering and Manufacturing services. This could lead to the integration of foreign OEMs with the local manufacturing sector for supplies to the Indian Armed Forces.

1.2.5     At the same time, the Indian defence expenditure has grown significantly to support modernisation and expansion plan of the Armed Forces. It is estimated that during the next decade India is likely to import defence equipment, worth USD 100 Billion.

1.2.6     In order to strengthen the defence manufacturing base in the country, accelerate the pace of indigenization, and to provide a level playing environment to the Indian defence industry, major changes were made in Defence Procurement Procedure (DPP) 2013. The changes that would have a significant impact on the industry are:

·                     Preference for indigenous procurement by according higher preference to BUY (INDIAN), BUY & MAKE (INDIAN) and MAKE categories.

·                     Selection of Maintenance ToT partners no longer on nomination basis.

1.2.7   It is assessed that preference for ‘BUY (INDIAN)’ and ‘BUY & MAKE(INDIAN)’ categories will provide huge opportunities to the Indian defence industry. The industry could witness formation of Joint Ventures with foreign OEMs to vie for the Indian defence market. The companies which will adapt to the changing business environment and collaborate with the right partners to make them more competitive will win the market. HAL is in the process of developing strategies to adapt itself to these business environment changes and has to align its procedures and operations to partnerships, Mergers & Acquisitions.

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1.2.8 The concept of Defence Offsets has provided a huge business opportunity for Public and the Private sector companies in the country. Considering the estimated capital acquisition of around 100 BUSD by the Indian armed forces, in the next decade, the offset opportunity will be to the tune of 30 BUSD. It is expected that the revised offset guidelines issued in Aug 2012 will give an impetus to the growth of Micro Small and Medium Enterprises (MSMEs) in the defence sector and Technology infusion in the manufacturing sector to begin with, more so in the Systems, Equipment and Accessories Segments.

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1.2.9 Another initiative towards developing the defence eco-system in the country is the setting-up of a fund to provide financial support to the MSMEs for development of defence equipment. Small Industries Development Bank of India (SIDBI) has decided to earmark an amount of Rs. 500 crores for providing loans, and further, a fund of Rs. 50 crores for equity support out of “India Opportunities Fund”.

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1.2.10  It is expected that the offset business opportunities along with the financial support being planned by the Government will encourage and facilitate the MSMEs to build their capabilities and collaborate with leading OEMs to become potential Tier I & Tier II suppliers/ partners.

1.2.11 Another important policy which can have far-reaching ramifications in the defence sector is the Foreign Direct Investment (FDI) policy. Recently the Government decided against an increase in sectoral FDI cap for defence: however, the cap can be increased on case to case basis with the approval of competent authority in the Government.

1.2.12 It is pertinent to note that defence sector is not pure commerce and has a lot of strategic strings attached to it. There are strategic and geopolitical factors of national security that need to be addressed while dealing with this sector so that a fine balance between national security interest and economic interest can be maintained throughout.

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1.2.13 Further, as a result of the liberalisation and proactive policies during the last decade, several large domestic Private Sector groups and a large number of smaller companies have entered the defence sector. Most of the leading global OEMs from the US and Europe have also established their presence in India.

1.2.14 In the commercial aviation scenario, India is one of the fastest growing aviation markets and is expected to be the third largest domestic market after the U.S. and China by 2020. The commercial aviation market in India during this is expected to grow at a Compound Annual Growth Rate (CAGR) of 18 per cent, and the market for new passenger aircraft in India is expected to be US$150 billion, with 1,320 new aeroplanes delivered over the next 20 years. In addition, the flourishing Indian private general aviation and business jet market is expected to grow to 12 per cent of the global market, surpassing China and Japan. The commercial aircraft segment in India provides a very good business opportunity to the Indian industry. HAL being the leading aeronautical company is well positioned to tap and exploit this business opportunity.

2.         Organisation Structure

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2.1         Presently, HAL has 19 Production / Overhaul Divisions and 10 Research & Development Centres co-located with the production Divisions across the country. These Divisions are organised into five complexes, with each complex headed by a Managing Director / Director, as given below:

Ø   Bangalore Complex   –          Production and ROH of Fixed        Wing Aircraft/ Engines (Indian           & Western origin)

Ø   MiG Complex               –          Production and ROH of Fixed       Wing Aircraft / Engines                        (Russian origin)

Ø  Helicopter Complex       –          Design, Production and ROH of                                             Helicopters

Ø  Accessories Complex   –          Production and ROH of                                                            Accessories and Avionics

Ø  Design Complex            –          Design & Development of Fixed                                             Wing aircraft

2.2         In addition, the Company has three functional directorates responsible for Corporate Planning, Finance and Human Resources who support the Chairman in evolving business strategies, plans, policies and monitoring the performance of the Company vis-a-vis the planned targets.

2.3         The Company has 32,644 employees on its rolls as on 31st March, 2013 including 9,919 executives, 13,641 technicians and 9,084 support staff.

3.         Products & Services

3. 

3.1         The Company has a comprehensive design and development set up and vast experience in design and manufacture of a diversified range of aircraft and its systems. Out of 29 types of aircraft produced by the Company so far, 15 have been of indigenous design.

3.2         The Company has identified additional key technology thrust areas such as UAVs and Civil Aviation which are being pursued earnestly.

4.         STRENGTHS AND WEAKNESSES

4.1       The nation's drive to modernise its armed forces and favourable Offset policies will create huge opportunities for your Company in the defence domain. The rapidly growing civil aviation market fuelled by a growing middle class with disposable income augurs well for the growth of the civil domain, thus providing an opportunity to diversify. The Government's resolve to eliminate the internal security threats will provide the required impetus for the Helicopters and UAVs market.

4.2       To realise its true potential your Company will draw strength from the vast experience it has in the field of aeronautics. Over the years, the Company has accumulated the unique mix of a state-of-the-art infrastructure, sound customer relations based on mutually beneficial associations and a skilled manpower base, trained across the complete range of Aerospace Design, Development, Production, Support and certification process. Despite the current slowdown in the economy, your Company has maintained its sound financial position and is all set to leverage the same towards expanding its capacity and strengthening its capabilities through modernisation.

4.3       With the increasing interest by foreign companies in the Indian defence market at one hand, and the growing policy impetus to promote Private Sector on the other hand, your Company faces the threat of greater competition. Threat of attrition of the work force and obsolescence of Technologies will closely follow the competition.

4.4       To shield itself from the consequences of denial of critical technologies and to create a competitive advantage, the Company needs to overcome its limitations in attracting and retaining talent, evolve a world class R & D culture and develop an indigenous base of niche and critical technologies. In order to pre-empt itself from the vagaries of a limited customer base, your Company intends to diversify its product portfolio.

5.         Product-wise performance

5.1 Keeping in view the nature of its business and the sensitive nature of disclosure, it is considered prudent not to disclose segment-wise information, required as per Accounting Standard-17. Such non disclosure does not have any financial impact on the Accounts of the Company.

6.         Outlook

6.1       The future outlook of the Company is promising and the Company is expected to be on continuous growth path, as new projects are on the threshold of certification / production and indigenous design and development programmes have made significant progress during the year.

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6.2         As R&D is the key to achieve sustainable growth, HAL continues to enhance its Innovation, Design, Development / R&D efforts. HAL has initiated the process of carrying out an audit of its Intellectual Property (IP) to prepare an inventory and also take necessary steps to build its profile of IP. During the current year, HAL has filed 69 patent applications.

6.3    The Company has drawn up a Perspective Plan to realise its ‘Vision’ covering the period from 2012 to 2022 (i.e., up to the end of the 13th Plan).The plans for Technology acquisition, Modernisation, Expansion, have been prepared in line with the overall strategy and are being implemented.

6.4    In order to realise the imminent opportunities in the domain of UAVs and Civil aircraft, investments are planned in this direction. The requirement and application of UAVs in civil airspace is a challenge which HAL is trying to address with interactions with key players in the domain. The Company has forged strategic alliances with National Aerospace Laboratory (NAL) and Aeronautical Development Establishment (ADE) for pursuing these interests.

6.5       HAL, a “Navaratna PSU”, is ranked 35th among the Top 100 Aerospace Manufacturing Companies in the year 2012 as per the survey by the reputed Flight International magazine. It aims to break into the top 20 Aerospace Manufacturing Companies in the world, in the near future.

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7          Measures to tackle Challenges 

7.1 The measures taken by HAL to address the challenges, concerns and risks are as follows:

Technology Development / Acquisition

7.2 The Company has acquired capabilities in Design, Development, Manufacture and Maintenance of Aircraft, Aero-Engines & Accessories through a mix of Licence Production & Indigenous Development. In the process HAL has acquired considerable strength and capabilities. It would be relevant to state that acquisition of latest technologies is becoming increasingly difficult due to strategic denials and / or exorbitantly high costs.

7.3 HAL has developed a strategy for technology acquisition through licence arrangements, indigenous R&D efforts as well as through acquisition of companies abroad, being a zero debt Company.

7.4 The Company has taken up the task of design and development of a 20 KN engine. With this project, the Company aims to build the design capabilities in the aero engines segment, which would serve as a launching pad to scale up to higher powered engines.

7.5 HAL is further exploring strategic alliances in niche / critical technology areas like the AESA Radar, Software Defined Radios, Avionics, Ultra Light/Heavy Helicopters, small Gas Turbine Engines and Composites etc.

Customer Orientation

7.6 The Company is interacting with its Customers regularly and structured meetings are organised with the principal customers wherein the issues and concerns of the customers are discussed for solution. The feedback given by the customers is analysed and remedial action taken.These meetings are also used to gain insight into the operational and future requirements of the customers, which is used to evolve plans to develop/provide new products/services.

7.7 With a view to improve the Customer Services, a Customer Satisfaction System has been evolved to measure the level of satisfaction of customers. It will help the Company to institute specific remedial measures based on the feedback. Under the System, inputs on various parameters are obtained from the customers and levels of satisfaction evaluated. This system indicates the areas where the Divisions are required to improve and thus device their action plans for specific remedial measures to be taken to further improve the satisfaction level.

7.8 The Company also launched “Voice of Customer”, an IT- based system in March 2013, to facilitate prompt communication by the customers with concerned Divisions through HAL e-mail to render speedy Repair Overhaul / support services.

7.9 Visit by top 50 Officers of the Company to the Customer Bases has enabled an increased level of rapport, which has helped both the customer as well as HAL to appreciate the issues / concerns and resolve them.

7.10 It has been decided to set up Customary Advisory Cells in each complex for better coordination and appreciation of requirements of the Customers during design, development and manufacturing stages.

Business Processes

7.11 The Company has developed, over the years various systems and processes for managing men, products and technology. The human resources are organised either on a functional organisational structure or a project-oriented structure  depending upon the scale of operations of the project and product mix of the Divisions.

7.12 The Enterprise Resource Planning (ERP) system implemented to achieve operational excellence across the Company, has been reviewed for upgradation based on the experience. A state-of-the-art tier – II data center with ISO 27001 certification has been set up to cater to the requirements of ERP infrastructure.

7.13 An enterprise knowledge and information exchange portal has been developed and made operational during the year to streamline document management and exchange of knowledge.

7.14 The current production processes are being thoroughly reviewed to remove bottlenecks and enhance productivity by the addition of suitable machinery / equipment, processes and technology, with an objective to set up world class infrastructure in each Division.

7.15 The Delegation of Powers (DOP) within the organisation was revised and implemented with effect from September 2012 to further empower the senior and middle level management with more authority and accountability in order to facilitate prompt decision making.

7.16 The Purchase Manual and the Stores Manual have been reviewed to weed out non-value adding activities to improve the efficiency and reduce the cycle times. The Purchase Manual has been revised and will be implemented with effect from September 2013.

7.17 The Divisions are being encouraged to enter into Long Term Business Agreements with vendors to supply the material in split quantities at periodic intervals in line with the requirement schedule, to ensure timely supply of the raw materials.

Business Environment 

7.18 Since 2001, Indian A&D Sector has undergone a paradigm shift with the opening up of the industry and the government’s regulatory regime to encourage the participation of the private sector. The Government has introduced a series of policy changes in the defence sector to create a strong industrial base combining both public and private sector, to promote indigenisation, to foster investments and promote the growth of the Indian defence industry. The basic objective is to reverse the ratio of 70:30, between the import content and indigenous manufacture.

7.19   HAL has re-oriented the policy to utilise offsets for business development and exports and conclude business framework / agreement with the OEMs.  

7.20 HAL has drawn a plan to enhance the outsourcing from the current level of around 25 per cent to 50 per cent in terms of the Standard Man Hours (SMH), in a phased manner considering the available infrastructure and capacity, to shift from a vertically integrated industry to an aircraft integrator with established supply chain. This will enable HAL to use its capacity more optimally and focus on core competencies.

7.21 The Company’s focus will continue to be on the upgradation of its facilities, modernisation, optimisation of Supply Chain, Research & Development, Lean Engineering and Cost Reduction in order to be competitive.

Diversification into Civil Aerospace

7.22 HAL has a dedicated Division i.e. Transport Aircraft Division, Kanpur to manufacture Transport Aircraft, where the DO-228 is currently being manufactured.

7.23 Taking into consideration the Market analysis reports and growth prospects in the Civil Aviation Sector, HAL is exploring the avenues to enter this Sector in a big way. Options to co-design/develop Civil Aircraft for regional services are being explored besides other avenues of cooperation in this field.

7.24 The approval of Directorate General of Civil Aviation (DGCA) for civil operations from HAL Ojhar Airport, Nasik has been obtained. In order to exploit the available infrastructure in Nasik, a separate business group is being established to assess the business viability of the MRO business opportunities in the commercial aircraft sector.

8          Internal control systems and their adequacy

8.1       The Company has over a period of time, developed a robust Internal Control Mechanism. Standard procedures, Manuals and Guidelines are issued and updated from time to time to institutionalise best practices in all facets of activities.

8.2       The Systems Audit Department continuously reviews implementation and compliance of the Company’s rules, regulations, policies and procedures under a well defined annual audit programme. In addition, Internal Audit has been outsourcing to firms of Chartered Accountants appointed to focus on transaction audit, verification of stock and fixed assets, confirmation of balances and internal controls etc.

8.3       The Audit Committee reviews the reports of the Systems and Internal Audit. The head of Systems Audit attends all meetings of the Audit Committee.

9. Financial performance

9.1 The financial performance of the Company for the year 2012-13 is summarised here below:

9.2 Analysis of Financial Performance 2012-13:

9.2.1 The Sales registered a marginal growth of 0.84% from Rs.14,204.21 crore to Rs.14,323.63 crore.

9.2.2 The Company has recorded highest profit of Rs.3,496.97 crore during the year as compared to Rs.3,328.52 crore in the previous year.

9.2.3 Gross Margin has increased from Rs.4,050.83 crore to Rs.4,098.30 crore.

9.2.4 Earnings Per Share is Rs.248.71 as against Rs.210.74 in the previous year.

9.2.5 Increase in net worth from Rs.11,338.60 crore to Rs.13,378.19 crore.

10. Human Resource Development

10.1 People being a key resource in the Organisation, the objective of Human Resource Development is to build a vibrant learning Organisation that meets the challenges for its growth. A series of initiatives were taken in this direction during the year:

a)         Assessment Centers

10.2  Competency Mapping is the central theme for various initiatives like Fast track Promotions, Succession Planning, identifying Competency Gaps for Competency-based Training Programmes, etc.

10.3  Assessment Centres were re-introduced in the Company during 2012 after a gap of more than three years. M/s KPMG Advisory Services Pvt. Ltd have been selected through Open Tender for design and conduct of Assessment Centres for 2012-2015.

10.4  Assessment Centres were conducted for 282 Officers in Grades VI & VII across the Company during 2012-13.

10.5 Based on the Competency Gaps identified in the Assessment Centers conducted during the earlier years, Competency Development Programmes in Business Excellence, Operational Excellence & Leadership Excellence were conducted at IIMs – Ahmedabad, Bangalore and Calcutta respectively, for 326 Executives.

b)        Employee Satisfaction and Engagement Survey

10.6  A web-based Survey was administered among the Officers of the Company between October and November 2012. A total of 5,967 Officers participated in the Survey (~62%). The Survey was one of the HRM Performance Evaluation Parameters under “Employee Relations & Welfare” of the MoU for the year 2012-13. Several HR interventions have been initiated to improve the levels of employee satisfaction.

c)     Inter Divisional Performance Awards

10.7  The Scheme of Inter Divisional Performance Competition and Awards was re-introduced and the Awards were conferred on 26th January, 2013 to the best Performing Divisions based on factors of Profit Before Tax (PBT) per Employee, Outsourcing to Sales Ratio, Sundry Debtors to Sales Ratio, Inventory to Value of Production (VOP) Ratio, Customer Services Performance, Quality Assurance, etc.

d)        Innovation Awards-2012

10.8  Innovation Awards were institutionalised during the year 2012-13 to encourage and recognise officers contributing Innovation and Innovative Practices in Manufacturing and Design areas.

e)         Continuing Professional Education (CPE):

10.9   The Company has established a Vimanapura Aircraft CPE Study Circle at Bangalore with the approval of the Institute of Chartered Accountants of India (ICAI) for providing Continuous Professional Education to the  Finance Executives as well as to facilitate professional interactions with the fellow professionals for continuous updation of knowledge base.  

f)          Other Initiatives

10.10 HAL has collaborated with the National Law School of India University, Bangalore for conducting training programmes in the areas of Contract Management, Dispute Resolution, Business Negotiation and Legal Advice in Management & Execution of Contracts. A training program on Intellectual Property Rights (IPR) was conducted between 26th and             28th Dec, 2012 and 25 Officers participated in it.

10.11  Introduction of internal communication channels like HAL Connect has helped the Company in fast dissemination of information and the key happenings in the business front. 

11.    Environment Protection and Conservation:

11.1 The Divisions of HAL are certified to ISO-14001-2004 EMS (Environmental Management System) standard.

11.2 Water is an increasingly valuable resource. Many parts of the country have regular water shortages. Saving rain water and using the same is a great help towards environment protection. Realising the same, the Company has installed Rain Water Harvesting Systems in the Divisions. The harvested water is being used thereby reducing consumption of public water supply.

11.3 The Company has conducted energy audits for identifying energy saving potentials. Measures such as the use of solar street lights, replacement of high energy consuming street lights with LED/CFL lights, relining of furnaces etc., have been taken for energy conservation. Shop Floors are installed with transparent sheets for natural lighting. The concept of green building has been adopted for all new constructions.

11.4   As part of Municipal Solid Waste (MSW) management activity, two units of Organic Waste Converters (OWC) were installed at the Senior Officers’ Quarters in Bangalore during the year 2012-13. The OWC will convert kitchen and other organic waste into garden manure. It is a step towards achieving zero waste disposal in the townships.

11.5   In another initiative towards solid waste management, two units of Biogas plants with a capacity of 500kg/day and 1000kg/day each were installed at the Central Test House (CTH) area by Facilities Management Division, HAL, Bangalore. The biogas that is generated is used for cooking.

11.6 The Company has been planting saplings every year. The Division-wise details of saplings planted during the years 2011-12 and 2012-13 are as indicated below:

D I R E C T O R S’    R E P O R T

To,                  

The Members,

Hindustan Aeronautics Ltd.,

Dear Members,                                                                                            

The Board of Directors is pleased to present the 50th Annual Report on the business and operations of the Company together with the Audited Accounts for the year ended 31st March, 2013.

OPERATING RESULTS

2.         Your Company has continued on the growth path and achieved the turnover of Rs.14,324 crore during the financial year 2012-13 and Profit Before Tax of Rs.3,497 crore. While there was marginal growth in the sales, profit grew by 5.06 per cent over the previous year.

3.         The financial highlights for the year ended 31st March, 2013 are summarised as under: -                       

                                                              (Rs. in crore)

DIVIDEND                

4.         The Company has paid interim Dividends of Rs. 823.70 crore, at Rs. 68.36 per share i.e. 684 per cent of Share Capital, in three phases for the year 2012-13.

5.         A table showing the dividends paid by the Company on equity shares for the years 2012-13 and  2011-12 is given below:-

Particulars	Equity Shares (Nos.)	2012-13	2011-12
Dividend   per share of Rs.10/- (in Rs.)	Dividend amount (Rs. in cr.)	Dividend Tax (Rs. in cr.)	Total outflow (Rs. In cr.)	Dividend  per share (in Rs.)	Total outflow including Dividend Tax (Rs. in cr.)
First Interim Dividend	12,05,00,000	4.00	48.20	7.82	56.02	4.00	56.02
Second Interim Dividend	12,05,00,000	63.36	763.45	123.85	887.30	58.05	812.98
Third Interim Dividend	12,05,00,000	1.00	12.05	1.95	14.00	0.00	0.00
Sub-Total		68.36	823.70	133.62	957.32	62.05	869.00
Final Dividend	12,05,00,000	-	-	-	-	5.50	77.06
TOTAL		68.36	823.70	133.62	957.32	67.55	946.06

6.        The total outflow as Dividend on the equity shares of the Company including the Dividend Tax for the year 2012-13 translates to 31.94 per cent of the Profit After Tax.

PERFORMANCE VIS-À-VIS MOU

7.        Your Company’s performance has been rated as “Excellent” in terms of MoU signed with the Government of India for the year 2011-12. The Company has been getting an Excellent rating since 2000-01. The MoU rating for the year 2012-13 is yet to be announced by the Government. However, based on the self assessment, your Company is likely to achieve “Excellent” rating for 2012-13.   

CREDIT RATING / FINANCE 

8.         The Company continues to maintain the highest credit rating for both, short-term as well as long-term debt programme (Bank Loan Facilities) for Rs.1,500 crore from the Investment Information & Credit Rating Agency (ICRA) and CRISIL.

9.         Although HAL is a ‘Zero-Debt’ Company, it has been availing Cash Credit facility from the Bankers to meet its short-term requirements from time to time. The highest credit rating of the Company has enabled it to source funds at the best possible rates.

10.       The Untied cash and bank balances at the end of the year under review stood at Rs.5,534.21 Crores.

11. During the year, the Delegation of Powers was revised to facilitate decentralised and prompt decision making at operating levels w.e.f. September 2012. The Purchase and Cost Manuals were updated and revised to bring in more transparency into the system.

SIGNIFICANT ACHIEVEMENTS 

12.      The significant achievements during the year are as follows:-

·         The Company produced more than 50 aircraft and helicopters, more than 100 new engines and their accessories.

·         The Company overhauled more than 200 Aircraft / Helicopters and more than 100 Engines.

·         The maiden flight of the upgraded Jaguar Darin-III aircraft (Maritime) was carried out successfully on 28th November, 2012. The Design and Development work for the upgrade is being carried out indigenously by the Company.

·         The Preliminary Design Phase (PDP) Contract for Design & Development of Multi-role Transport Aircraft (MTA) was signed with UAC-Transport Aircraft, Russia & Multirole Transport Aircraft Ltd. on 12th October 2012 and PDP activities commenced from 1st December, 2012.

·         On the Design and Development front, a major milestone was achieved with the Initial Operation Clearance (IOC) for the weaponised variant of ALH -WSI, christened “Rudra” in February 2013. 

·         The Flight trials of Intermediate Jet Trainer (IJT) on the Anti Spin Parachute, sea level trials and night flying trials were successfully carried out.

·         The Light Combat Aircraft was flown on 31st March 2013 and with this, the focus of LCA production activities would shift towards Series Production programme. Hot weather trials, cold weather trials, high altitude trials and weapon trials on LCA prototypes and LSPs were also carried out.

·         To enhance self-reliance and to overcome obsolescence, 3517 types of spares and equipment of aircraft / engine / accessories were indigenised during the year. The projected Foreign Exchange saving is of the order of Rs. 60.13 crore per annum.

SIGNIFICANT EVENTS

13.       In order to strengthen and restructure HAL, the Government had constituted an Expert Group under the Chairmanship of Shri B.K. Chaturvedi, Member - Planning Commission, in October 2011. The Expert Group had submitted the Report to the Government in September 2012. The Ministry of Defence has communicated its acceptance of the recommendations of the Expert Group along with an Action Plan for its implementation in April 2013. The process of implementation of the recommendations of the Expert Group has begun and will be completed in a time-bound manner.

14.       Your Company is a wholly owned Government of India Undertaking. The Ministry of Defence has communicated the decision of the Government to disinvest 10 per cent from its Shareholding in the Company, in April 2013. The process of Disinvestment has commenced with the kick-off meeting held in May 2013.

EXPORT AND PARTICIPATION IN AIRSHOWS

15.       HAL continued to make strides on the export front with various export promotional initiatives. One Do-228 aircraft configured in Maritime Role was delivered to the island nation of Seychelles much before the contractual delivery date.

16.       Further, the Company produced three Chetak Helicopters in utility role for the Government of Suriname and carried out the Repair and Overhaul of one Chetak Helicopter for the Namibian Defence Forces. 

17.       During the year, the Company developed new export market in the civil sector by securing a trial order for supply of Steel Forgings for the Boeing-787 Dreamliner programme.

18.       The Company continued exports to leading global aviations majors against long term contracts.

19.       Export orders worth Rs.302 crores were secured during the year, including orders for supply of avionics to Russia and 450 ship sets of structural work packages (Up lock Box Assembly) for the Boeing-777 project.

20.       The Company participated in leading international Air shows/ Exhibitions, viz. Eurosatory (2012) at Paris, Farnborough Air Show (2012) in the UK, African Aerospace (2012) in South Africa and Aero India (2013) at Bangalore to showcase its products as well as capabilities and capacities. 

OFFSET BUSINESS

21.       With an objective to maximise export opportunities arising out of Offset programmes linked to Indian Defence acquisition programmes, various strategic initiatives were taken to establish and progress business framework / agreement with the OEMs.

OUTSOURCING AND SUPPLY CHAIN MANAGEMENT

22.       The Company has devised a strategy to achieve higher level of outsourcing by developing Tier-II and gradually Tier-I suppliers over a period of time. With the development of Tier-II & Tier-I vendors, HAL will outsource the  manufacture of sub-assembly and major assemblies along with detailed components to achieve an outsourcing level of 50 per cent in terms of Standard Man Hours (SMH).

23.       The Company has achieved “Excellent” rating by meeting the MoU target for outsourcing of 25 per cent in terms of SMH. The Vendor base was broadened by increasing the number of vendors from 2,323 in the previous year to 2,532 in 2012-13.  

24.       The Company has taken several initiatives to improve its supply chain, namely:-

·         The first Vendors’ meet was organised in July 2012 with a view to understand / address their concerns and difficulties as well as to apprise them about the measures taken by the Company to speed up the process of procurement. It called upon the vendors to play a wider role as HAL’s partner in its progress.

·         An online Bill tracking System for vendors and e-payment was introduced.

·         Introduction of system of e-Procurement for all procurements above Rs.5 lakh. 

25.       The Company has made purchases to the tune of Rs. 172.67 crore from 246 Small Scale Units, during the year.

                     Research & Development (R&D)

26.      Your Company recognises that strong R&D orientation is the key achieving the objective and goal of becoming a significant global player in Aeronautical Industry. Accordingly, the R&D Policy has been reviewed. A Committee of Institutions Network (COIN) under the Chairmanship of Director (D&D) and consisting of Heads of all R&D Centres has been setup for coordination as well as preparation of R&D plans.

27.       The Company has signed MoUs with academic institutions, namely, Indian Institute of Science, Bangalore, Indian Institute of Technology (IITs) - Chennai & Kanpur, for undertaking joint research in the areas of mirco UAVs, Aerospace Transmission System, Aero Elastic Code for predicting helicopter rotor vibrator loads, respectively.

28.       In order to pool R&D resources of the Country in Aviation, the Government has recommended the constitution of a Design & Development Management Board under the Chairmanship of Chairman, HAL with representatives from various R&D Labs from the Defence Research and Development Organisation (DRDO), the Council of Scientific and Industrial Research (CSIR) and the Services. Your Company has initiated the process to set up the Design and Development Management Board.

29.       Considerable progress has been achieved with respect to major R&D / development projects being pursued by the Company.

JOINT VENTURE COMPANIES

30.       Driven by prudent operational stratagem and aimed at facilitating development of new technologies and products, services and risk sharing, your Company has established 11 Joint Venture Companies (JVCs) in collaboration with leading international aviation and Indian organisations.

31.       Of the 11 JVCs, Multirole Transport Aircraft Limited (MTAL) is engaged in the design and development of Multi-role Transport Aircraft, and, yet to commence commercial production. Another JVC, viz., International Aerospace Manufacturing Pvt. Ltd., set up with Rolls-Royce, UK, commenced production activities w.e.f December 2012. Of the remaining nine, five JVCs have reported profitable operation, whereas four have incurred losses.

32.       The Company has made a total investment of Rs. 224.56 crore in the equity capital of the JVCs as on 31st March 2013. During the year under review the total turnover reported by the JVCs is to the tune of Rs. 220.30 crore as per details given below:-

Rs. in crore

* JVCs yet to commence commercial production

   **  Financial year ending 31.12.2012

QUALITY INITIATIVE AND SAFETY

33.       Besides maintaining international quality standards, the Company is continuously striving to maintain enthusiasm of the Quality Circles and encourage the employees to participate in National and International Quality Circle events, with a view to promote self development and synergy at the work place. 

34.       The concerned Divisions have maintained the QMS approvals from international aerospace companies like Boeing, Airbus, Rolls Royce, Snecma, BAe Systems, Israeli Aircraft Industries and Honeywell.

35.   The Company has been regularly interacting with its customers, namely, the Indian Air Force, Indian Army, Indian Navy and Indian Coast Guard to find solutions to the issues of fleet serviceability.

36.  Your Company conducted the first ever Flight Safety Conference in September 2012 at Bangalore, where in representatives of the customers, CEMILAC and DGAQA  participated. The deliberations during the Conference and exposure to the in-built safety measures in the manufacturing process of HAL have created a higher level of confidence amongst them, while enabling HAL to appreciate the concerns of the customers on flight safety.  

HR DEVELOPMENT

37.       Your Company takes pride in its highly efficient and engaged work force, which has been the driving force behind its continuous rise in value added per employee over the years.

38.       The strength of employees as on 31st March 2013 was 32,644. During the year, 135 Design Trainees and 327 Management Trainees were inducted in various disciplines to meet the manpower requirements of the Company. 

39.       Sponsorship for Post Graduate Programmes at Cranfield University, UK; Management Development Institute (MDI), Gurgaon; International Management Institute (IMI), Delhi; Indian Institute of Technology (IITs), Kanpur & Kharagpur and Indian Institute of Management (IIMs) provided opportunities to the Officers to further build their knowledge base and competencies. During the year 2012, 51 Officers were sponsored for higher studies.

40.       A total of 2, 887 Apprentices (including Diploma Holders and Engineering Graduates) have completed their training during the year, under the Apprentices Act 1961.

REPRESENTATION OF SC/ST

41.       Your Company has been complying with Reservation Policy in terms of Presidential Directives and other guidelines issued from time to time by the Government of India with respect to providing reservation in matters of employment to candidates belonging to Schedule Castes (SCs), Schedule Tribes (STs), Other Backward Classes (OBCs) and Persons with Disabilities (PWDs) in Direct recruitment.

42.       The position regarding representation of Scheduled Castes/ Scheduled Tribes (SCs / STs) is as follows:

REPRESENTATION OF SCs & STs IN THE TOTAL STRENGTH OF          THE COMPANY AS ON 1st JANUARY 2012 AND 1st JANUARY 2013  

RECRUITMENTS MADE DURING THE PERIOD 1st JANUARY 2012 TO 31st DECEMBER 2012 AND THE SCs, STs AMONGST THEM

VACANCY- BASED PROMOTIONS MADE DURING THE PERIOD 1st JANUARY 2012 TO 31st DECEMBER 2012 AND SCs & STs AMONGST THEM

EMPLOYEE RELATIONS

43.     It has been the constant endeavour of the Company to establish and maintain meaningful and effective communication between the Management and employees to reduce and progressively eliminate any scope for differences and conflict, resulting in better appreciation of each other’s point of view and thus facilitate maintenance of industrial harmony. The Employee Relations Policy of the Company has contributed effectively for the establishment of mutual trust and understanding between the Management and employees.

44.  The Management holds quarterly meetings with the representatives of the Recognised Unions/Officers’ Associations of the Company. In the Quarterly Meetings with the Unions and Officer’s Association, Physical Production Performance, Financial Performance, Productivity and other issues of concern are discussed and reviewed.  This sharing of information contributes towards sense of belonging and mutual trust.   

45.     To ensure the involvement of employees in decision making process and in the mainstream of organisational operations, various Forums for workers participation viz. Plant / Shop level Committees, Bipartite Forums etc. are active in the Company. In order to address Employee / Public Grievance/ Representations, Grievance Redressal Mechanisms are in place in the Company.

CORPORATE SOCIAL RESPONSIBILITY & SUSTAINABLE DEVELOPMENT (SD) (CSR & SD)

46.       The Company has laid down a policy on Corporate Social Responsibility and Sustainability Development (CSR&SD) modelled on the Guidelines prescribed by the DPE. The CSR&SD Committee headed by an Independent Director, monitors implementation of various CSR Schemes and SD initiatives from time to time.

47.       The Company has adopted a few villages in the surroundings of some of the Divisions. The Company has participated in various Community Development activities over the years, not only in the adopted villages but also in other areas which are in the vicinity of its Divisions. 

48.     During the year, the Company spent Rs. 11.64 crores against an allocated budget of Rs. 11.01 crores towards CSR & SD and undertook specific activities in accordance with the MoU entered with the Government.

49.    HAL has been conferred with the IPE CSR Corporate Governance Award – 2012, instituted by the Institute of Public Enterprises, Hyderabad, for the second consecutive year, in recognition of its contribution to the Society under CSR activities.

RAJBHASHA IMPLEMENTATION

50.    HAL is committed to the implementation of Official Language Policy of the Government of India in the Company.  Various steps have been taken to propagate Hindi in all the Divisions of HAL. Several programmes such as Official Language Conference, Hindi Utsav, Hindi Workshops are organised from time to time to encourage more and more employees to do their Official work in Hindi.  Incentive Scheme for doing work in Hindi is in place to popularise the use of Hindi.

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

51.       The Company has been exempted by the Government from compliance of the provisions of the Company Law regarding disclosure of certain particulars viz. conservation of energy, technology absorption, foreign exchange earnings and outgo in the Report of Board of Directors, as per clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988.

IT INITIATIVES

52.       The Company, as part of its e-Governance initiative, has established a Strategic Centre called AMRIT–Analytics on Measures for Results Improvement & Transformation, which was inaugurated in February 2013. This Centre will spearhead the  Company  into an era of data based decision support systems   such as, Project and portfolio management system, Unique Employee badge number system , a Digital library comprising  of all Office Circulars/Manuals, an Intranet portal for online sharing of views and creating  forums to solve any particular problem online.

53.       A program for integration of ERP System and e-Procurement System was launched to facilitate the Vendors to track their bills’ status, pending deliveries and rejections in real time.

54.       The Company has launched a Supplier enablement programme which brings business intelligence to improving relationship with vendors and suppliers of the Company. The portal enables proactive mail alerts for delivery to the vendors as reminder, analytics on payment status and purchase information on particular item across the Company.

55.       In order to evolve the right skill set utilisation/ deployment for right job and also to automate many HR processes, an HR portal was launched. It is also focused towards generating a unique ID for employees, joining reports, relieving reports and online transfer process for officials from Division to Division.

AWARDS & RECOGNITIONS

56.      The Company has received the following awards / recognitions during the year:

A.           Company level:

o    Conferred with “Platinum Award for Quality and Excellence” from OMAC, France, in recognition of Quality and Business Excellence.

o   “Regional Export Award” from EEPC India for the year 2010-11.

o   “Best Manufacturer / Exporter award 2012” in large category (Gold) from FKCCI.

o   “Digital Inclusion Award - 2012” for ERP and e-procurement implementation across the Company in the silver Category.

o   On the eve of Aero India, SAP Media Worldwide awarded HALthree awards in the following categories :-

·         Outstanding contribution to the Defence Industry

·         Most Influential Company of the year

·         Excellence in Indigenous Technology

o   HAL was selected for Raksha Mantri’s awards for excellence for the year 2010-11 in the following Categories :-

·         Institutional Award – Excellence in Performance

·         Group / Individual Awards – Design Efforts

B.           Divisional level:

o   Engine Division, Koraput: National Safety Award for outstanding performance in Industrial Safety based on the lowest frequency rate for the year 2010.

o   Foundry and Forge Division, Bangalore: 

-   Indian Institute of Metal Quality Award for the year 2011-12 in the category of “Non Ferrous Best Performance Award” for manufacturing of castings and forgings operations.

-   “Best Vendor for the year 2011-12” from Electrical Machine Division BHEL – Hyderabad, in recognition of products supplied and services rendered.

o   HAL Management Academy, Bangalore: Golden Peacock Award 2011-12.

o   HAL Korwa Division: Raksha Mantri Award for Excellence 2010-11 for design and development of indigenous Solid State Flight Data Recorder and Group Support Equipment.

o   National Quality Excellence Awards 2012 were awarded by Stars of the Industry group under the following three categories:

-   Best process improvement Project – Avionics Division, Hyderabad and MCSRDC, Bangalore.

-   Quality Excellence Award in Product Development –- Avionics Division, Hyderabad.

-   Quality Excellence Award in supply chain - Business Process Excellence Award – Nasik Division

o   Quality circle Teams from Avionics Division, Hyderabad and Overhaul Division, Bangalore had participated in “International convention on Quality control circles-2012” held in Kuala Lumpur, Malaysia. Both the teams were awarded the highest 3 stars rating.

C.           Individual level:

o   Shri P. Soundara Rajan, Managing Director (Helicopter Complex) who superannuated on 31st May 2013, was conferred with the prestigious National Aeronautical award in recognition of his unique contribution to Indian aerospace industry. The award was given by Shri M. Pallam Raju, Union Minister for Human Resources Development (HRD).

o   Shri V.M Chamola, Director (HR) was conferred with PRCI Chanakya Business Excellence in HR award for the year 2012, for his outstanding contribution to the profession, industry and society.

o   Dr. A. K. Mishra, Director (Finance) was bestowed with the third annual CFO100 India Roll of Honour in recognition of his exceptional contribution to corporate finance under the category “Winning Edge in Innovation- Revenue Above Rs. 1000 crores”.

o   Shri Prashant Singh Bhadoria, Deputy Project Manager, ARDC won Award in Avionics  for his  work as part of the Individual Research Project titled “Commissioning of the A3SIR BAe146 Rig and IVHM system” at Cranfield University, UK.

o   Shri M.S. Velpari, DGM, Foundry & Forge Division, received the award in the category “Indigenisation of aeronautical equipment” for his path breaking contribution in the field of shape memory alloy. The award was given by Shri M. Pallam Raju, Union Minister for Human Resources Development (HRD).

o   Dr. R. Raghavendra Bhat, CM-Lab of Foundry & Forge Division, Bangalore has been awarded the 'Metallurgist of the Year 2011 Award' instituted by the Ministry of Steel.

o   Indira Gandhi Sadbhavana award was conferred to Smt. V. Sreedevi, Chief Manager (HR), Foundry & Forge Division, Bangalore on November 18, 2012 at New Delhi during the 95th birth anniversary celebrations of the late Smt. Indira Gandhi.

o   Ms. S. M. Kavitha, DM(IT), Helicopter Division, has been awarded “Future Chief Information Officer of India” on 2nd December, 2012 by IT Next Magazine.

VIGILANCE            

57.      The main thrust of vigilance activities in your Company is on preventive actions rather than punitive vigilance activities. In accordance with this objective, routine and surprise checks were carried out, studies conducted and corrective measures suggested.

58.    As a step towards Green endeavour and enhancing the efficiency through leveraging technology, the Vigilance Department has started the process of issuance of Vigilance Clearance online (OLIV).

59.   Vigilance Awareness week was observed throughout the Company from 29th October, 2012 to 3rd November, 2012, with an emphasis on “Participative Vigilance”. In addition, a Vigilance Officers Conference and Vigilance Awareness programmes were held during the year.

BOARD OF DIRECTORS

60.       The following changes took place in the Directorship of the Company:-

61.       Shri V. K. Misra and Prof. N. K. Naik, Independent Directors, ceased to be the Directors with effect from 10th November 2012, consequent to completion of their tenure.

62.       Shri P. V. Deshmukh, ceased to be the Managing Director (MiG Complex) consequent to superannuation on 30th November, 2012.

63.       Shri S. Subrahamanyan was appointed as Managing Director (MiG Complex) with effect from 1st December, 2012.

64.    Shri Kamlesh K. Pant, Joint Secretary (Aerospace) was  appointed as Part-time Official Director with effect from 16th January, 2013 vice Shri Manoj Saunik.

65.       The post of Director (Corporate Planning & Marketing) is vacant. Shri K. Naresh Babu, MD(BC) is holding additional charge of the post of Director(CP&M) since 11th October 2011.

66.       Shri P. Soundara Rajan, Managing Director (Helicopter Complex) superannuated on 31st May, 2013. Shri T. Suvarna Raju, Director (D&D) has been assigned additional charge of the post of MD (HC) with effect from 1st June, 2013.

67.       Shri S. K. Jha, Managing Director (Accessories Complex) superannuated on 31st July, 2013.

DIRECTORS’ RESPONSIBILITY STATEMENT

68.       Pursuant to Section 217 (2AA) of the Companies Act 1956, your Directors confirm that: -

§  In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures.

§  The Directors have selected such Accounting Policies and applied them consistently and made judgements and estimates that were 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 or Loss of the Company for the year under review.

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

§  The Directors have prepared the Annual Accounts for the financial year ended 31st March 2013 on a ‘going concern’ basis.

AUDITORS       

69.       M/s. Dagliya & Company, Chartered Accountants, Bangalore were appointed as Statutory Auditors for auditing the Accounts of the Company for the year ended 31st March 2013 and 21 firms of Chartered Accountants were appointed as Branch Auditors.

AUDITORS’ REPORT

70.       Auditors’ Report on the Annual Accounts for the financial year 2012-13 and comments of the Comptroller & Auditor General of India under Section 619(4) of the Companies Act, 1956 along with replies of the Company are appended to this Report.  

CORPORATE GOVERNANCE

71.       A separate report on Corporate Governance is annexed herewith. The Certificate for Compliance of the policy/DPE Guidelines on Corporate Governance along with Secretarial Compliance Certificate by Shri S. Viswanathan, Practicing Company Secretary, Bangalore, is annexed to this Report.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

72.       The Management Discussion and Analysis Report as per the Policy on Corporate Governance is annexed to this Report.

PARTICULARS OF EMPLOYEES

73.       As far as the information required under Section 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules 1975 is concerned, none of the employees was in receipt of remuneration of more than Rs. 5 lakh per month or Rs. 60 lakh per year during the year.

ACKNOWLEDGEMENT

74.       The Board places on record its sincere appreciation towards the Company’s valued customers, in particular the Defence Services, for the support and confidence reposed by them in the Management of the Company and look forward to the continuance of this mutually supportive relationship in future. 

75.       The Directors express their gratitude for the valuable guidance, co-operation and support provided by the Government of India in particular the Ministry of Defence, Department of Defence Production, Defence Acquisition and Defence Finance as well as other Ministries of the Government of India in all the endeavours of the Company. 

76.       The Directors express their sincere thanks to the Comptroller and Auditor General of India, the Principal Director of Commercial Audit & Ex-officio Member, Audit Board, Statutory Auditors, Auditors, Bankers, Collaborators, JV Partners and Suppliers for the co-operation extended and services provided by them.

77.       Last but not the least, the Board wishes to place on record its deep appreciation for the hard work, dedication and unstinting efforts of HALites whose enthusiasm, team work, devotion and loyalty has made this Company proud.  

   For and on behalf of the Board of Directors 

Sd/-

Place:  Bangalore                                              Dr. R. K. TYAGI

Dated: 26th September 2013                                    CHAIRMAN

CORPORATE GOVERNANCE REPORT

Philosophy and Code of Governance

1.  The Company’s philosophy on Corporate Governance is based on the principles of transparency, compliance of laws, procedures and meeting ethical standards to take care of the interest of all the stakeholders and work towards Sustainable Development. It believes that all operations must be spearheaded towards attaining the final objective of enhancing stakeholders value.

2.  The Company’s vision is to become a significant global player in the aerospace industry and is working towards this objective by expanding its capacities and becoming globally competitive. As a growth strategy, the Company has adopted the best practices in the area of Corporate Governance, much beyond the regulatory framework. The following good governance practices have been put in place:

·         Code of Conduct for Senior Management and Board of Directors

·         Integrity Pact

·         Whistle Blower Policy

·         Well laid-down administrative setup to facilitate decentralised and transparent decision making

·         Compliance of applicable Laws, Rules & Regulations

·         Accuracy and transparency in disclosures regarding operations, performance and financial position

·         Conduct, Discipline and Appeal Rules for Employees

·         Voluntary Secretarial Audit to ensure compliance of laws

BOARD OF DIRECTORS

3.  The Board of Directors is entrusted with the responsibility of the management, general affairs and direction of the Company with requisite powers and authority. The Board sets the goals, both short and long term, defines the policies and programmes and oversees its implementation. It has constituted eight Sub-Committees to facilitate smooth and efficient flow of the decision- making process.

Composition

4.  Your Company being a Government Undertaking, the appointment / nomination of all the Directors is done by the President of India, through the Ministry of Defence. The Board of Directors headed by an Executive Chairman, has an appropriate mix of Executive, non-Executive (official) and Independent Directors.

5.   The composition of the Board is in line with the Guidelines on Corporate Governance issued by the Department of Public Enterprises, Government of India. The Board of Directors consists of 17 Directors, i.e. 9 Whole Time Directors, including the Chairman, 2 Part-Time Official Directors and 6 Part-Time Non-Official / Independent Directors.

6.   As against 17, the posts of one Whole Time Director and two Independent Directors were vacant consequent to superannuation / completion of tenure of Directors as on 31st March, 2013.

7. It would be relevant to mention that based on the recommendations of the Expert Group and proposed Disinvestment by the Government, the Board of Directors of HAL is being restructured by the Government. The proposed Structure provides for a total strength of 14 Directors, viz., Chairman and Managing Director, 4 Functional Directors, 2 Part-Time Official Directors and 7 Part-Time Non-Official / Independent Directors.

8. The Deputy Chief of Air Staff (Air HQ), Master General Ordnance (Army HQ) and Deputy Chief of Naval Staff (Naval HQ) are Permanent Special Invitees to all the Board Meetings of the Company.

Meetings and Attendance

9.  During the financial year ended on 31st March 2013, thirteen Board Meetings were held i.e. on 20th April, 2012, 24th May, 2012, 22nd June, 2012, 28th July, 2012, 13th August, 2012, 26th September, 2012, 1st October, 2012, 27th October, 2012, 26th November, 2012, 10th December, 2012, 11th January, 2013, 9th February, 2013 and 12th March, 2013. Details of attendance of the Directors at the Board Meetings during 2012-13 are given below:-

* Change in Board of Directors

-       Shri V. K. Misra and Dr. N. K. Naik ceased to be Directors with effect from 10th November, 2012.

-       Shri P. V. Deshmukh, ceased to be the Managing Director (MiG Complex) with effect from 30th November, 2012.

-       Shri S. Subrahamanyan was appointed as Managing Director (MiG Complex) with effect from 1st December, 2012.

-       Shri Kamlesh K. Pant, Joint Secretary (Aerospace) appointed as Director with effect from 16th January , 2013 vice Shri Manoj Saunik.

Audit Committee

10.  The composition of the Audit Committee is in line with Section 292A of the Companies Act, 1956 and the Guidelines on Corporate Governance for Central Public Sector Enterprises (CPSEs) issued by the Department of Public Enterprises (DPE Guidelines).

11.  The Audit Committee consists of four Independent Directors and two Government Directors. Shri Ajay Shankar, Independent Director is the Chairman of the Audit Committee. The Executive Director (Company Secretary) is the Secretary of the Audit Committee.

12.  The present Composition of the Audit Committee is as under:-

o        Shri Ajay Shankar, Chairman

o        Shri V.V.R. Sastry

o        Shri Surendra Kumar

o        Prof. (Dr.) R. Venkata Rao

o        Shri P. K. Kataria, Addl FA (K) & JS, MoD

o        Shri Kamlesh K. Pant, Joint Secretary (Aerospace), MoD

13.   The Statutory Auditors of the Company, Director (Finance), Director (CP&M) are permanent invitees. The Head of the Systems Audit Department also attends the meetings of the Audit Committee regularly.

14.  During the year ended on 31st March, 2013, the Audit Committee met four times on 21st June, 2012, 27th July, 2012, 26th November, 2012 and 9th February, 2013. The attendance of the Chairman and members of the Audit Committee in these meetings was as follows:-

Sl. No.	Name of Attendees	Meetings held during respective tenure of Director	No. of Audit Comm. Meetings attended
1	Shri V. K. Misra, Chairman *	2	2
2	Shri Ajay Shankar, Chairman *	2	2
3	Dr. N. K. Naik *	2	1
4	Shri V.V.R. Sastry	4	3
5	Shri Surendra Kumar	4	4
6	Prof. (Dr.) R. Venkata Rao	2	1
7	Shri P. K. Kataria	4	1
8	Shri Manoj Saunik *	3	2
9	Shri Kamlesh K. Pant *	1	1

* Change in Chairman / Members of the Audit Committee

-          Shri V. K. Misra and Dr. N. K. Naik ceased to be members of the Committee with effect from 10th November, 2012 consequent to vacation of office of the Director due to completion of tenure.

-          Shri Ajay Shankar, Prof. (Dr.) R. Venkata Rao, Independent Directors were nominated as members of the Committee with effect from 26th November, 2012.

-          Shri Kamlesh K. Pant, Joint Secretary (Aerospace), MoD was appointed as Director vice Shri Manoj Saunik w.e.f. 16th January, 2013 and accordingly assumed the membership of the Committee.

15.  The Chairman of the Audit Committee was present at the last Annual General Meeting.

Remuneration Committee   

16. The Remuneration Committee, headed by Shri Ajay Shankar, Independent Director consists of Shri Surendra Kumar, Independent Director, Government Directors, namely, Joint Secretary (Aerospace) and Addl. FA & JS, MoD.  The Committee decides on the Annual Bonus / Variable Pay (Performance Related Pay) pool and policy for its distribution across the Executives within the prescribed limits in line with the Government directives.

17.    During the year, the Remuneration Committee met once, i.e. on 12th March, 2013. The attendance of Chairman and Members in this meeting was as follows:

18.  Being a Central Public Sector Enterprise, the appointment of a Chairman and Whole Time Directors is made by the Government of India indicating the tenure, remuneration package and other terms and conditions of appointment.

19.  The Independent Directors are not paid any remuneration except the sitting fee for the Board and Committee Meetings. The Government Directors are neither paid any remuneration nor any sitting fee.

20.  The Sitting fee paid to the Independent Directors during the year 2012-13 is as follows:

                                                                                               (Rs. in Lakh)

21.  Details of remuneration of Whole Time Directors during the year 2012-13 are given below:  

                                                                         (Rs. in Lakh)

Name of Director	Salary *	Company Contribution to PF & Gratuity	Commi ssion	Total
Dr. R. K. Tyagi, Chairman	33.89	2.06	-	35.95
Shri P. V. Deshmukh, Ex –MD(M)	23.11	1.29	-	24.40
Shri S. K. Jha, MD(A)	33.03	2.13	-	35.16
Shri P. Soundara Rajan MD(HC)	37.90	1.93	-	39.83
Shri V. M. Chamola, D(HR)	31.42	1.81	-	33.23
Shri K. Naresh Babu, MD(BC) & D(CP&M)	21.58	1.83	-	23.41
Dr. A. K. Mishra, Director (Finance)	28.23	1.81	-	30.04
Shri T. Suvarna Raju, Director (D&D)	22.05	1.84	-	23.89
Shri S. Subrahmanyan, MD(M)	11.08	0.61	-	11.69

*Salary includes Perquisites, arrears

Other Committees of the Board

22.  The Board has constituted the following sub-committees to assist and advise in their respective areas.

(a)  HR Committee recommends and advises the Board on HR issues especially in laying down the policies, guidelines and evolving HR strategies. The Board at its 354th Meeting held on 26th November, 2012 had re-constituted the HR Committee with the following members:

 

Sl.No.	Name (Shri/S)	Position
1	Shri V. V. R. Sastry	Chairman
2	Prof. (Dr.) R Venkata Rao	Member
3	JS(Aero)	Member
4	Director (HR)	Member
5	Director ( Fin)	Member
6	GM(HR)	Secretary

(b)  The Technology Development Committee (TDC) reviews the technological base and guides the Company in devising a strategy for the  development of critical technologies. The Committee consists of the following members:

o   Shri Surendra Kumar, Chairman

o   Shri V.V. R. Sastry

o   Director (CP&M)

o   Director (D&D)

(c)  The Management Committee consisting of all Whole time Directors chaired by the Chairman of the Company has been empowered to approve the proposals under the powers delegated by the Board.

(d)  The Design Policy Committee consisting of all Whole time Directors chaired by the Chairman of the Company has been delegated powers by the Board to approve certain research and development and indigenisation proposals.

(e)  The Procurement Sub-Committee consisting of the following members has been delegated powers to approve procurement proposals costing more than Rs. 60 crore and up to Rs. 100 crore:

o        Dr. R. K. Tyagi, Chairman

o        Shri Kamlesh K. Pant, Joint Secretary (Aerospace), MoD

o        Shri P. K. Kataria, Addl FA & JS, MoD

o        Director (Finance)

o        Director (CP&M)

o        Concerned Managing Director(s)/Director(s)

(f)   CSR & SD Committee, headed by an Independent Director, oversees implementation of CSR and SD activities in the Company.

Code of Conduct

23.  The Board of Directors of your Company has laid down a Code of Conduct for all Board Members and Senior Management of the Company. The Code of Conduct has been posted on the Company’s website, www.hal-india.com. All Board Members and Senior Management personnel have affirmed compliance with the Code of Conduct during the year 2012-13. A declaration to this effect signed by the Chairman is attached to this report.

Shareholding Pattern

24.  HAL is not listed at any Stock Exchange in India or abroad. The entire paid up equity share capital of the Company is held by the President of India and his nominees.

General Body Meetings

25.  Details of the last three Annual General Meetings are as follows:-

Year	Venue	Date & Time
2009-10	Hindustan Aeronautics Limited 15/1, Cubbon Road, Bangalore – 560001. Karnataka	20th August 2010 at 12.30 pm
2010-11	Hindustan Aeronautics Limited 15/1, Cubbon Road, Bangalore – 560001. Karnataka	13th September 2011 at 14.30 pm
2011-12	Hindustan Aeronautics Limited 15/1, Cubbon Road, Bangalore – 560001. Karnataka	26th September 2012 at 15.00 pm

26.  No Special Resolutions were put up at two Annual General Meetings (47th & 48th AGMs) held on 20th August, 2010 and 13th September, 2011 respectively.

27.  At the 49th Annual General Meeting held on 26th September, 2012, one Special Resolution was passed for alteration of Article 119(b) of the Articles of Association of the Company titled “Powers of Directors” regarding powers reserved for the decision of the President.

28. The Annual General Meeting for the current year 2012-13 will be held on:-

Date                : 27th September, 2013

Time               : 1500 hours

Venue                        : Hindustan Aeronautics Limited

              15/1, Cubbon Road,

   Bangalore – 560001. Karnataka

29. Registered / Corporate Office address for correspondence

Hindustan Aeronautics Limited

15/1, Cubbon Road, Bangalore – 560001. Karnataka

Phone (080) 2232 0001, Fax (080) 2232 0758

Email: cosec@hal-india.com

Website: www.hal-india.com

30.       Disclosures

(a)          Related Party Transactions are disclosed in Clause Nos. 22A & 22B of Notes to Accounts (Note 34 to the Statement of Profit and Loss of the Company for the year ended 31st March, 2013). The Company does not have any materially-significant related party transactions, which may have potential conflict with its interest at large.

(b)          Accounting Standards

The Company is complying with all mandatory Accounting Standards except  Accounting Standard 17 dealing with “Segment Reporting” due to the following reasons:-

“Keeping in view the nature of business and the sensitive nature of disclosure, it is considered prudent not to disclose information required as per Accounting Standard 17 regarding Segment reporting. Such non-disclosure does not have any financial effect on the Accounts of the Company.

Disclosure in this regard has been made at Clause No. 21 of Note 34 – “Notes on Accounts.”

(c)          Training of Directors

The Directors were sponsored for training programmes on Corporate Governance.

(d)          Whistle Blower Policy

The Company had promulgated a Whistle Blower Policy during the year 2010 with a view to establish a mechanism for the employees to report to the Management about their concerns on unethical behaviour or the cases of suspected fraud, violation of Company’s general guidelines on Conduct and Ethics.  The Policy provides for adequate safeguards to protect genuine Whistle Blower against victimisation. The policy also been posted in the Company’s website i.e. www.hal-india,com

(e)          Presidential Directives

HAL has been following the Presidential Directives and Guidelines issued by the Government of India from time to time regarding the reservation of SCs, STs and OBCs, in letter and spirit.  Liaison Officers are appointed at all Units / Offices to ensure implementation of the Government Directives. The officers dealing with the subject were provided with necessary training to enable them to update their knowledge on the subject and perform their job effectively. HAL has been implementing the Government directives on reservation. The representation of SCs/STs/OBCs in HAL as on 31st December 2012 was as under:

HAL has been implementing the Government Directives on reservation for Persons with Disabilities and Ex-servicemen.  Their representation as on 31st December 2012 was as under:

The Company has implemented Presidential Directives on the Official Languages Act 1963.

(f)     Items of expenditure debited in Books of Accounts, which are not for the purpose of business

No items of expenditure, other than those directly related to its business or incidental thereto, those spent towards the welfare of its employees/ex-employees, towards fulfilling its Corporate Social Responsibility, were debited in the Books of Accounts.

(g)   Expenses incurred, which are personal in nature and incurred for the Board of Directors and Top Management

Expenses incurred for the Board of Directors and Top Management are in the nature of salaries, allowances, perquisites, benefits and sitting fees as permissible under the Rules of the Company. No other expenses, which are personal in nature, were incurred for the Board of Directors and Top Management during the year 2012-13.

(h)   Corporate Social Responsibility and Sustainable Development (CSR & SD)

During the year, the Company had spent Rs. 11.64 crore against an allocated budget of Rs. 11.01 crore towards CSR and Sustainable Development. Specific activities were undertaken in accordance with the MoU entered with the Government.

(i)     Integrity Pact

Integrity Pact (IP), a vigilance tool conceptualised and promoted by Transparency International has been suggested for implementation for large value transactions in PSUs by the Central Vigilance Commission (CVC).

Your Company has adopted and implemented the IP and a Clause has been introduced in the Purchase Manual accordingly. Pre-contract IP is a binding agreement between the Company and bidders for a specific contract in which the Parties promise that they will not resort to any corrupt practices in any aspect / stage of the contract.

The IP has strengthened the established systems and procedures by creating trust and has full support of the Central Vigilance Commission.

(j)     Means of Communications

The Annual Report of the Company is circulated to the members and others entitled to receive it. The Company displays the Accounts and other relevant information including those required under the Right to Information Act on its website www.hal-india.com.

(k)   Compliance

The Company has complied with the Guidelines on Corporate Governance for CPSEs issued by the Department of Public Enterprises, Government of India. The Company is also submitting quarterly Compliance Report regularly to the Ministry of Defence, Government of India. Certificate on Compliance of the Policy / DPE guidelines on Corporate Governance by the Company Secretary in Practice is enclosed to this report.

-----

DECLARATION

Pursuant to the Department of Public Enterprises (DPE) Guidelines on Corporate Governance for Central Public Sector Enterprises as contained in the DPE Office Memorandum No. 18(8)/2005-GM dated 14th May, 2010, all Board Members and Senior Management Personnel of the Company have affirmed compliance with the Code of Business Conduct & Ethics for Board Members & Senior Management of Hindustan Aeronautics Limited, for the year ended 31st March, 2013.

For Hindustan Aeronautics Limited

                                                                                             Sd/-                                                       

Place: Bangalore                                              Dr. R. K. TYAGI

Date: 26th September 2013                                       CHAIRMAN

CORPORATE GOVERNANCE COMPLIANCE CERTIFICATE

Corporate Identification No.           : U35301KA1963GOI001622

Authorised Capital               : Rs.1,600,000,000

To,

The Members of

Hindustan Aeronautics Limited

Bangalore

We have examined all the relevant records of Hindustan Aeronautics Limited for the year ended 31st March, 2013 for the purpose of certifying compliance of the conditions of Corporate Governance as stipulated In Department of Public Enterprises (DPE) Guidelines 2010 on Corporate Governance for Central Public Sector Enterprises.  We have obtained all the Information and explanations which to the best of our knowledge and belief were necessary for the purpose of certification.

The Compliance of conditions of Corporate Governance is the responsibility of the Management.  Our examination was limited to the procedure and implementation process adopted by the Company for ensuring the Compliance of conditions of Corporate Governance.

On the basis of our examination of the records produced and the explanations and information furnished, we certify that the Company has maintained proper records and complied with the conditions of Corporate Governance as stipulated In DPE Guidelines 2010 on Corporate Governance for Central Public Sector Enterprises for the financial year ending 31st March 2013.    

                                                                                                                                     Sd/-

S. VISWANATHAN

Practicing Company Secretary

C.P. No.5284

Place : Bangalore

Date  : 24th July 2013

COMPLIANCE CERTIFICATE

Registration No.        :   001622

CIN No.                      :   U35301KA1963GOI001622

Authorised Capital   :   Rs.1,600,000,000

Paid up Capital         :   Rs.1,205,000,000

To,

The Members,

HINDUSTAN AERONAUTICS LIMITED,

15/1, CUBBON ROAD,

POST BOX NO.5150,

BANGALORE – 560 001.

I, have examined the registers, records, books and papers of M/s. HINDUSTAN AERONAUTICS LIMITED (the Company), as required to be maintained under the Companies Act, 1956 (the Act) and the Rules made thereunder and also the provisions contained in the Memorandum and Articles of Association of the Company for the financial year ended 31st March, 2013 (financial year).   In my opinion and to the best of my Information and according to the examinations carried out by me and explanations furnished to me by the Company, its officers and agents, I certify that in respect of the aforesaid financial year:

1. The Company has kept and maintained all Registers as stated in Annexure ‘A’ to this Certificate, as per the provision of the Act and the Rules made thereunder and all entries therein have been duly recorded.

2. The Company has duly filed the Forms and Returns as stated in Annexure ‘B’ to this Certificate, with the Registrar of Companies and Regional Director under the Act and the Rules made thereunder.

3. The Company being a Wholly Owned Government Public Limited Company, it has a paid up Capital of Rs.1,205,000,000/- with minimum 7 members during the said financial year.

4. The Board of Directors duly met 13 (Thirteen only) times on 20th April 2012, 24th  May 2012, 22nd June 2012,  28th July 2012, 13th August 2012,  26th September 2012, 1st October 2012, 27th October 2012, 26th November 2012, 10th December 2012, 11th January 2013, 9th February 2013 and 12th March 2013.  Proper notices were given and the proceedings were properly recorded and signed including circular resolution(s) passed, In the Minutes Book maintained for the purpose.

5. Being a Wholly Owned Government Public Limited Company, it was not required to close its Register of Members during the financial year and as such was not required to comply with the provisions of Section 154 of the Act.

6. The Annual General Meeting for the financial year ended on 31st March 2012 was held on 26th September 2012; after giving due notice to the members of the Company and the resolution(s) passed thereat were duly recorded in the Minutes Book maintained for the purpose.

7. No Extra-Ordinary General Meeting was held during the year under review.

8. The Company has not advanced any loan to its Directors and/or persons or firms or companies coming under the purview of Section 295 or the Act and therefore, was not required to comply with the provisions of the Act.

9. The Company has duly complied with the provisions of Section 297 of the Act in respect of Contracts specified in that section.

10. The Company has made necessary entries in the Register maintained under section 301 of the Act.

11. The Company was not required to obtain any approvals from the Board of Directors, Members or Central Government, as there were no instances falling within the purview of Section 314 of the Act.

12. The Company has not issued any duplicate Share Certificate during the period under scrutiny.

13. The Company:

i) has delivered all the certificates on lodgement thereof for transfer In accordance with

the provisions of the Act;

ii) has paid interim, and final dividend by cheque to the President of India in compliance

with provisions of the Act;

iii) being a Government Company, the provision relating to transfer of Unpaid/unclaimed

dividend amount to unpaid dividend account of the Company and transfer to Investor

Education and Protection Fund are not applicable;

iv) has duly compiled with the applicable requirements of Section 217 of the Act.

14.  The Board of Directors of the Company is duly constituted in accordance with the Articles of Association of the company. The appointments of Directors have been duly made and the provisions of the Act have been complied with.

15 The Company being a Government Company, the provisions of Section 269 read with Schedule XIII of the Act with regard to appointment of Managing Director/ Whole Time Director / Manager are not applicable.

16 The Company being a Government Company, the provisions of Section 294 relating to appointment of sole selling agents are not applicable.

17 The Company was not required to obtain any approvals of the company Law Board, and Registrar of Companies, Central Government, Regional Director and /or such authorities prescribed under the various provisions of the Act during the period under scrutiny.

18 The Directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to the provisions of the Act and Rules made thereunder.

19.  The Company has not Issued any shares, debentures or other securities during the period under scrutiny.

20.  The Company has not bought back any shares during the period under scrutiny.

21.  The Company has not issued debentures or preference shares and hence the matter of redemption does not rise.

22.  There were no transactions necessitating the Company to keep in abeyance rights to dividend, rights shares and bonus shares pending registration of transfer of shares.

23.  The Company has not invited /accepted any deposits including any unsecured loans falling within the purview of Section 58A of the Companies Act, 1956 during the period under scrutiny.

24.       The Company has not borrowed any amount during the period under scrutiny and hence was not required to comply with the provisions of Section 293(1)(d) of the Act.

25.       The Company has not made any loans or advances or given guarantees or provided securities to other body corporate and consequently no entries have been made in the register kept for the purpose.  The company has made investments in other bodies corporate in compliance with the provisions of the Act and has made necessary entries in the Register kept for the purpose.

26.       The Company has not altered the provisions of the Memorandum of Association with respect to situation of the Company’s Registered Office from one state to another during the year under scrutiny.

27.       The Company has not altered the provisions of the Memorandum of Association with respect to the objects of the Company during the year under scrutiny.

28.       The Company has not altered the provisions of the Memorandum of Association with respect to Name of the Company during the year under scrutiny.

29.       The Company has not altered the provisions of the Memorandum of Association with respect to share capital of the Company during the year under scrutiny.

30.       The Company has altered its Articles of Association after obtaining approval of members in the Annual General Meeting held on 26th September, 2012 and the amendment of the Articles of Association have been duly filed with the Registrar of Companies.

31.       There was no prosecution initiated against or show cause notices received by the Company and no fines or penalties or any other punishment was imposed on the Company during the financial year, for offences under Act.

32.       The Company has not received any money as security from its employees during the period under scrutiny.

33.       The Company has complied with the provisions of the Section 418 of the Act.

Place  :  Bangalore

Date   :   6th August 2013

                                                                                                               Sd/-

                                                   S. VISWANATHAN

Practicing Company Secretary

C.P. No.5284

ANNEXURE “A”

Registers as maintained by the Company:

Statutory Registers

Sl. No.	Name of the Register	Under Section	Remarks
1	Register of Members	150 & 151	Updated
2	Register of Directors	303	Updated
3	Register of Directors’ & Shareholding	307	Updated
4	Minutes book of Board Meetings and General Meetings	193	Updated
5	Books of Accounts	209	Updated
6	Register of Charges	143	Updated
7	Register of Contracts	301	Updated
8	Register of Investments	372A	Updated

Other Registers

Sl. No.	Name of the Register
1	Register of Share Transfers
2	Directors’ Attendance Register
3	Members Attendance Register

ANNEXURE “B”

Forms and Returns as filed by the Company with the Registrar of Companies during the financial year ending on 31st March 2013.

Sl. No.	Forms	U/s	For	SRN No.	Whether filed within the prescribed time Yes/No	If delay in filing whether requisite additional fee paid Yes/NA
1	Form 32	303 read with 264	Appointment of Mr. Kamlesh Pant and Cessation of Mr. Manoj Saunik, as Director, with effect from  16th January, 2013	B67778068	YES	--
2	Form   32	303 read with 264	Cessation of  Mr. PV Deshmukh as Director with effect from 30th November, 2012 and appointment of Mr. Subramanyan S as Director with effect from 1st December, 2012	B63595862	YES	--
3	Form 32	303	Cessation of Mr. V. K. Mishra and Mr. N. K. Naik as Director with effect from 11th November, 2012	B62190665	YES	--
4	Form 32	303	Appointment of Mr. Samir Kumar Padhi as Manager of the Company with effect from 26th November 2012	NA	YES	--
5	Form 23	192	Alteration of Articles of Assocaition by inserting Clause (b) after clause (a) of Article 119 vide AGM Resolution dated 26th September, 2012	B 60121084	YES	--
6	Form 23AC and Form 23ACA (XBRL)	220	Balance Sheet, Profit & Loss Account along with Notes, Scheduled and annexures thereto for the financial year ended 31st March 2012	NA	NO	YES
7	Form Schedule V	159	Annual Return of the Company as on 26th September, 2012	NA	YES	--

Place  :  Bangalore

Date   :   6th August 2013                                                                       Sd/-

 S. VISWANATHAN

Practicing Company Secretary

C.P. No.5284