MANAGEMENT DISCUSSION AND ANALYSIS REPORT

[Pursuant to Regulation 34 (2) (e) of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015]

(A) BUSINESS REVIEW:

Avantel has developed distinctive capabilities over a period of time to offer unique value to Indian Defence Services through innovative, integrated solutions in the area of long range beyond line of sight communications.

Avantel is one of the very few companies offering an array of Satellite Communication solutions in India. Our SATCOM solutions in the 'UHF" & 'S' band segment are currently operational in different flavours on various platforms viz. Aircraft, Submarines, Ships and other Strategic vehicles of the Indian Navy, Indian Coast Guard, ISRO and the DRDO establishments immensely contributing to enhancement of their Operational potential. Recently, we have been successful in deploying our latest indigenous product offering the "UHF SATCOM - Airborne" on Indian Navy's DO-228 aircraft post successful flight trials and award of CEMILAC certification. This is a remarkable achievement by itself as Airborne solutions in the UHF segment are being offered by very few foreign vendors.

In the coming fiscal, we plan to promote and proliferate our SATCOM products to other strategic establishments as well. We are closely collaborating with Space Applications Centre, ISRO for the development of Satellite Mobile Radio, Reporting Terminals & Portable Multi Media Terminal for the recently launched GSAT- 6 Satellite. These solutions are proposed to be deployed for the strategic users & Indian Railways and offers immense business potential for your company. Avantel's Power Amplifier segment has witnessed a steady growth and increased volumes to our customers.

(B) DEFFENCE OVERVIEW:

GoI while brsenting the Union Budget 2016-17 to the Parliament on February 29, 2016 set aside Rs. 3,40,921.98 Crore (US$ 52.2 billion) for the Ministry of Defence (MoD). There are a slew of tax-related measures to incentivize the domestic industry. The withdrawal of tax benefits extended to direct imports by the MoD would provide a much needed level-playing field to the domestic industry as a whole vis-a-vis the foreign companies. Similarly, the withdrawal of tax benefits enjoyed by the contractors of the government-owned entities would provide the level-playing field to the Indian private sector vis-a-vis the Defence Public Sector Undertakings (DPSUs) and OFs (<http://www.idsa.in/issuebrief/pay->and-perks-india-defence-budget-2016-l7_lkbehera_0303l5).

MoD, GoI has unveiled the new Defence Procurement Policy "DPP - 2016" during the Defence EXPO - 2016. The new policy envisages to achieve the following:

• Self-reliance by encouraging indigenous design, development and manufacturing.

• Enhancing role of MSMEs in Defence sector.

• Cutting down the time-frames for procurement activities

• Institutionalizing robust mechanisms to monitor for probity at various stages of procurement process.

A new procurement category BUY (Indian-IDDM) has been included which will be given the top priority for all future procurements. The new category defines that the procurement of products from an Indian vendor meeting one of the two following conditions: products that have Indigenously Designed, Developed and Manufactured with a minimum of 40% Indigenous content (IC) on cost basis of the total contract value; Or, products having 60% IC on cost basis of the total contract value, which may not have been designed and developed indigenously.

Your company being an R & D intensive company is likely to get immensely benefited by this category of procurement.

(C) OVERVIEW OF FINANCIAL OPERATIONS:

The company has recorded a total income of Rs. 2503.41 Lakhs as against Rs. 2607.75 Lakhs for the brvious year and has incurred a profit during the year at Rs. 59.35 Lakhs as against the profit of Rs. 89.33 Lakhs for the brvious year.

(D) OUR STRATEGY:

Avantel's SATCOM product offerings in the 'UHF' & 'MSS' segment have fairly matured and have been deployed on various platforms viz. Ships and aircraft of the Indian Navy. Your company now sees business potential for these products in other strategic establishments as well and hence would like to focus in expanding its customer base. In the current fiscal, Avantel is expecting to develop and deploy the submarine and MARCOS version of MSS equipment in the Indian Navy. The company has also embarked on a plan to develop GSAT - 6 products viz. SMR Reporting & PMT terminals. Few of these terminals have already been supplied to SAC (ISRO), Ahmedabad for validation and customer feedback. We expect to commercialise these products in the current year for Railways, Coastal Security and other Strategic applications. As part of diversification plan, Avantel has indigenously developed I KW HF system for communication applications. The defence services require the I KW HF radio systems in huge numbers and offers great business opportunity for us.

(E) RISKS AND CONCERNS:

RISKS:

The Company's main source of revenues lies in Defense market. Most of these projects are driven by Govt., policies and priorities. Though we can complete the product development as per the plan, conversion of that to supply orders lies mainly on the Government decisions. This results in an uneven and skewed pattern of sales for the Company.

RISK MITIGTION:

The company has put in place a combrhensive 'Risk Management Framework' for the continuous identification, updation, evaluation, prioritization and management of risks. Under this framework, there is Risk Management Committee (RMC) members drawn from important functional areas like R&D, Manufacturing, Quality assurance, Marketing, Finance and HR. The RMC reviews the risk management efforts in the company as a whole in a quarterly basis.

The company continues to pursue its growth strategy, particularly in the Indian defense market, where it sees significant market opportunities. The company is looking to expand its customer base for the current portfolio of products while new developmental projects in MSS & UHF segment for airborne, underwater and strategic applications are on the anvil. The company R&D efforts are oriented towards improvements in the existing product capability and development of new technologies that can serve the customer better.

Volatility in the currency markets does not affect the company in a significant way as value of imported components is not very high as a percentage of sales revenue. The company has foreign exchange hedging policies in place to protect its manufacturing margins against rapid and significant foreign exchange movements

F) OPPORTUNITIES AND THREATS: OPPORTUNITIES:

The new DPP - 2016 is favourably disposed towards the MSME units that too who are undertaking Indigenous R & D. Avantel's core strength being R & D has a very good track record of offering innovative and niche solutions. Hence, being one among the very few companies offering Satellite Communications & Wireless solutions in India, Avantel is well positioned to leverage the emerging opportunities in "Make in India" guided by the new policy.

THREATS:

Majority of the sales are from products supplied to Indian Defence Services, Defence PSU'S and DRDO labs and hence sales revenue depends on the policies and priorities of Ministry of Defence, Govt of India. As most of the solutions offered by Avantel are based on Satellite communication dependency on launch of satellites and availability of band width from ISRO is significant.

(G) INTERNAL CONTROL SYSTEMS:

Your company has well established control systems in place for course correction, if required. The company is certified for various quality standards viz. AS 9I00C, ISO 9001 and ISMS ISO 27001. The Company has a robust Internal audit mechanisms which are regularly monitored through the ERP system "Funwork". All operations are effectively monitored through an internal audit process and regular management reviews. You will be happy to note that all the external reviews carried out during the year have applauded the processes followed and the management efforts in maintaining the highest quality standards.

(H) INDUSTRIAL RELATIONS AND HUMAN RESOURCES MANAGEMENT:

Your company maintains very cordial relations with its customers and suppliers. All out efforts are made to quickly resolve all outstanding issues beforehand so that they do not escalate into major disagreements. Your company has earned a good standing over the years and there are zero contentious issues pending as on date. The organisation maintains harmonious relations at all levels within the company and employees are well motivated round the year to meet the goals set for them. Your Directors wish to place on record the deep sense of apbrciation for the contributions made by the employees.

Your Company is continuously striving to create appropriate environment, opportunities and systems to facilitate identification, development, and utilization of their full potential and inculcating a sense of belongingness.

Your Company's industrial relations continued to be harmonious during the year under review.

(I) ACCOMPLISHMENTS:

• Development and CEMILAC Certification completed for UHF SATCOM - Airborne system on IN DO-228 aircraft.

• Development of I KW HF Power Amplifier and Antenna Tuning Unit

• Development and Supply of Satellite Mobile Radio and Reporting Terminal to ISRO for GSAT - 6 Satellite

• Developed Portable Power Amplifiers in various frequency bands for strategic applications

• Development of MSS System for UAV applications

() AWARDS:

For its consistent efforts towards innovation and business excellence, Avantel has been bestowed with the following Awards & Certifications during the financial year:

(a) "India SME 100 Awards" from India SME Forum on 28th April 2016

(b) "IEI Industry Excellence Award - 2015" from the Institution of Engineers (India) during the 30th Indian Engineering Congress at Guwahati on 18th December 2015.

(c) Avantel Visakhapatnam facility has been certified with " IGBC's Lead India for New Construction Gold" in September' 2015 by Indian Green Building Council,

(K) CAUTIONARY STATEMENT:

Statements in the management discussion analysis describing the Company's objectives, projections, estimates, expectations may be forward looking within the meaning of applicable security-laws and regulations. Actual results may differ materially form these exbrssed in the statement. Important factors that could make difference to Company's operations include economic conditions affecting the domestic market and the overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.

For and on behalf of the Board of Directors

For Avantel Limited

Sd/- Dr. A Vidyasagar

Chairman & Managing Director

Place : Hyderabad

Date : 11.05.2016