MANAGEMENT DISCUSSION AND ANALYSIS REPORT

I. Industry Structure

The Indian telecommunications industry is one of the fastest growing in the world. The industry has witnessed consistent growth during the last year on account of several factors, like, increased use of wireless network for broadband connectivity, launch of 4G networks by operators, growth of e-commerce etc. The market is also abuzz with high speed broadband connectivity to villages on pan India basis to provide e-governance solutions to rural masses. Customers now have the choice of various operators and the various kinds of services they can choose from. Wireless networks, broadband penetration at all corners, affordable smart phones and single click applications for variety of services, like e-commerce, e-governance, e-education, e-health etc. drive the Indian communication industry to create a "Digital India" in the coming years.

According to the Telecom Regulatory Authority of India (TRAI), the telephone subscriber base in the country reached 996.49 million, with a tele-density of 79.38% at the end of March 31, 2015. The booming domestic telecom market has been attracting huge investment which is likely to accelerate further with the entry of new players and launch of new services. Government's initiatives to boost indigenous manufacturing through several new policies and "Make in India" will drive electronics manufacturing in the country.

The communication industry scenario is very bright for business in Defence sector also. The government's capex plan for investment in Defence sector in the coming years is huge and there is a significant part earmarked for communication domain.

ITI, being an electronics manufacturing PSU in the telecommunication industry, has the distinctive edge to gain from the opportunities arising out of the boom in electronics and communication market in the country.

Opportunities and Threats:

As stated above, there is a huge opportunity in electronics manufacturing and communication services. There are many other business opportunities in the field of Defence electronics and communications, Solar power solutions, LED lighting products, Energy storage products etc. and ITI has already entered ventured in to many of these areas, like solar panel manufacturing, LED lighting systems etc. There are huge opportunities in the service sector also. ITI has already been part of the Government projects, like National Population Register, Socio Economic & Caste Census etc. With thrust towards providing Government services through digital means, there are many opportunities to provide e-governance applications and services at central and state government levels.

The Government has approved a revival plan for ITI with a funding support of Rs. 4156.79 Cr. This package consists of Rs. 2264 Crore as equity towards up-gradation of manufacturing infrastructure in all the plants of ITI for implementation of new projects. During the year 2014-15, Government had released Rs 192 Crore as first phase disbursement to the Company towards capital expenditure under revival plan. Infrastructure up-gradation for implementation of various projects is in progress at different plants of ITI. This support from the Government will help ITI to go into manufacturing of products in different market domains in a big way.

In the changing environment, the Company has identified the following threats:

• Intense competition due to large number of international players in all market domains

• Open market competition with MNCs, like, ZTE, Huawei, Alcatel-Lucent, Nokia, Ericsson, Siemens etc. in the field of telecommunications

• Rising prices of input materials and services and non-availability of proper eco-system for electronics manufacturing in the country

• Keeping pace with the rapid change of technologies

Future Outlook:

In the Union budget 2014-15, Government approved Rs 192 Crore as first phase disbursement to the Company towards capital expenditure under revival plan. This amount has already been received by ITI and several projects under Defence business, SCADA, MLLN, Smart cards, HDPE Pipe manufacturing, SMPS, Component screening, Vehicle Tracking System (VTS), 3D printing, Contract manufacturing, Business with PSUs etc., have been identified. The infrastructure upgradation for implementation of these projects is in progress in Bangalore, Raebareli and Palakkad plants.

• Defence projects:

Being one of the leading suppliers of encryption equipments for the secured communication in the Defence networks, ITI is looking at Defence market as a great opportunity for its business. With greater thrust towards domestic manufacturing of Defence equipments, ITI proposes taking up manufacturing of new products for Defence like, Software Defined Radio (SDR), High Frequency Radio Handsets, TR modules for RADAR, equipments for Army Wide Area Network (AWAN Phase II) etc.

The Ministry of Defence had approved in principle for the establishment of Strategic Business Units (SBUs) at ITI at Bangalore and Raebareli plants to take up manufacture of DRDO designed products at ITI. The formation of SBUs is aimed at establishing facilities at ITI for the production of strategically important network and communication components, modules, systems designed and developed by DRDO. Necessary action is under progress to achieve the above objective.

Another major project which has been launched by Indian Army is ASCON Phase IV. Earlier three phases of ASCON project have been executed by ITI successfully. ITI is hopeful of winning the order for ASCON phase IV for which a tender has been released by Indian Army.

• Solar Project:

There has been special emphasis by the Government of India to implement the renewable energy sources including solar to overcome the environmental hazards and meeting the growing energy needs. ITI, having requisite expertise and experience for implementing Solar solutions, is planning to augment the solar panel manufacturing infrastructure in its Naini plant and is also planning to install one more manufacturing facility at its Srinagar plant. Naini plant has earlier executed Solar project for U.P Police and BSNL. More orders are expected in this market.

• Core Telecom Products:

ITI is pursuing on addressing the core telecom market like GSM, Next Generation Networks (NGN), Long Term Evolution (LTE), and Managed Leased Line Network (MLLN) etc.

• LED Lighting:

LED lighting is an environmental friendly option due to non-use of mercury. Market potential for this product is very good. ITI is planning to address this market. Potential areas of business opportunities are from National Highway Authority, State Governments and Municipal Corporations, CPWDs/ PWDs, Railways, Hotels and Hospital Industry etc.

• Wi-Fi for NOFN network:

Huge orders are anticipated for Wi-Fi equipments for deployment in NOFN (National Optic Fibre cable Network) project of Government of India. ITI is in the process of empanelling the back end partners for the execution of anticipated orders.

• Manufacture of Citizen ID Cards:

As an extension of NPR project which is under execution by ITI as a consortium partner with BEL and ECIL, ITI is also looking at the huge opportunity of manufacturing SMART card based citizen identity cards for all the citizens in the Country. ITI is already having SMART card manufacturing facility at its Palakkad plant. This will be further augmented to take manufacture of citizen ID cards.

• Manufacturing of Li-Ion Batteries:

High density back up power solutions using Li-Ion technology have been proved in all fields of consumer electronics like PCs, Mobile phones, Tablet PCs etc,. They are also making inroads into other applications like powering GSM towers. ITI is planning to take up manufacturing of Li-Ion batteries in one of its plants.

II. Risk Management

All business sectors, including telecom Sector, are witnessing a rapid change both in market and technology fronts. The Company's business, operating results and financials are subject to various risk and uncertainties. Some of them are changes in economy, change in market and technology etc. The Company continues to believe that managing risk is critical for its growth and sustenance.

The Company has adopted a Risk Management framework, which covers risk management techniques while conceiving a project or while execution of a project etc. The Company is constantly monitoring and assessing the internal as well as external risk factors associated with its day to day business operations and financial management and thereby effectively mitigating possible risks associated therewith. As an added measure towards effective management of projects, during 2014-15, the Company has brought out a Project Management Manual which will guide the project managers or the project execution teams to implement projects or execute orders in an effective manner. The manual covers the steps to be taken to address the financial risks associated with a project

III. HUMAN RESOURCES

As at 31st March, 2015, your Company had a total strength of 6177 as compared to 7311 at the end of the brvious year.

IV. INTERNAL CONTROL MEASURES

The Company has an adequate system of Internal Control Measures with a view to provide reasonable assurance regarding effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

The Company has an Internal Audit Department, which continuously reviews compliance with the Company's procedures, policies, applicable laws and regulations. The department coordinates with the Units/Divisions of the Company for ensuring coverage of all areas of operations in order to bring a transparency in the whole spectrum of the Company. The Internal Control Systems are reviewed by the Audit Committee. The CEO/CFO certification provided elsewhere in the report discusses about the adequacy of our internal control systems and procedures.

V. FINANCIAL PERFORMANCE

Your Company has achieved a sales turnover of Rs 620 Crs. for the year ended 31st March, 2015, as compared to Rs 770 Crs. in the brvious year.

VI. CAUTIONARY STATEMENT

Statements made in the Management Discussion and Analysis about your Company's objectives, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's performance include economic conditions affecting demand/supply and price conditions in the domestic market in which your Company operates, changes in Government regulations, tax laws, statutes and other incidental/related matters.