NELCO

The Directors present their Sixty Sixth Annual Report together with the
 Audited Statement of Accounts for the year ended 31st March 2008.
 
 1.  FINANCIAL RESULTS
 
 The summarised financial results are indicated below:-
 
                                                (Rupees in Million)
                                         For the Year   For Six Months
                                               Ended         Ended
                                          31.03.2008       31.03.2007
 
 Sales and other Income                      1989.01         619.48
 Profit for the year after Depreciation        72.23          35.87
 Less: Deferred Revenue Expenditure
 (Voluntary Retirement Scheme)                (12.56)        (15.65)
 Profit before tax                             59.67          20.22
 Add/(Less) 1.  Fringe Benefit Tax            (4.73)          (2.25)
 2.  Provision for Tax                       (10.62)          (3.95)
 Profit after tax                             44.32           14.02
 Add: Balance brought forward from last year (27.89)         (41.91)
 Balance available for appropriation          16.43          (27.89)
 Balance carried to Balance Sheet             16.43          (27.89)
 
 2.  DIVIDEND
 
 The Directors have decided to conserve the resources and as such they
 regret their inability to recommend an> dividend for the year under
 review.
 
 3.  MANAGEMENT DISCUSSIONS AND ANALYSIS (MD&A)
 
 This Report includes MD&A as appropriate so that duplication and
 overlap between the Directors Report and a separate MD&A are avoided
 and the entire material is provided as a composite and comprehensive
 document
 
 4.  BUSINESS SEGMENTS
 
 The current business operation is structured along the following
 business segments: 5.1 Automation and Control : Industrial Systems
 Division (ISD)
 
 ISD is further sub-structured along the following lines of business
 (LoB)
 
 a.  Strategic Electronics (SE)
 
 Systems and solutions for Defence and Paramilitary Organisations for
 Security and Surveillance, such as Intrusion Detection, Integrated
 Security Systems, Global Positioning Systems (GPS), Automatic Weather
 Monitoring Systems, Scanners, etc.
 
 b.  Energy Network Management System (ENMS)
 
 Energy Management, Distribution Management, Automatic Data Logging and
 SCADA systems fo- applications in Power, Oil & Gas Industry, Railways,
 etc.
 
 c.  Traction Electronics
 
 Power Electronics equipment for the Indian Railways for their freight
 and passenger Electric and Diesel Locomotives.
 
 d.  Drives Systems
 
 Integrated AC & DC drives systems for Metal, Mining, Power, Paper and
 Process industries for energy optimisation, control and automation.
 
 e.  Building Management System
 
 Integrated Building Management Systems including HVAC Controls, Fire
 Alarm, Access Controls and CCTV for comfort, energy saving and security
 of buildings.
 
 5.2 Tatanet Network Systems
 
 This division provides solutions for management of network connectivity
 services and internet services over VSATs for Corporates, Banking &
 Financial Institutions and SMEs for them to run ERP and other on-line
 office automation applications. It also provides solutions to manage
 bandwidth on demand services across industry verticals, interactive
 distance learning connectivity, IP multicast and digital streaming to
 some niche segments. In addition, the division participates in turnkey
 Satellite Communication Systems Supply & Integration Projects invited
 by customers primarily in Government and Public Sector.
 
 5.3 Property Development
 
 This activity consists of development of the property at Andheri with
 the assistance of THDC Limited.
 
 6.  FINANCIAL OVERVIEW
 
 The total income for the year under review was Rs.1989.01 mn as against
 Rs.619.48 mn in the previous year(six months).The profit from
 operations was Rs.72.23 mn.as against Rs.35.87 mn. in the previous year
 (six months).The net profit earned during the year under review was Rs
 44.32 mn. as against Rs.14.02 mn. in the previous year(six months).
 
 7.  AUTOMATION AND CONTROL DIVISION (ISD)
 
 Financial Highlights
 
 During the year under review, ISD achieved a Revenue of Rs.1124.20 mn.
 (previous year Rs. 440.45 mn.) with an operating profit of Rs. 146.36
 mn. (previous year Rs. 80.97 mn.).
 
 Operations
 
 The Strategic Electronics LoB, secured an order for Unattended Ground
 Sensors from the Ministry of Defence (MoD) which was executed during
 the year under review. This LoB continues to focus on securing orders
 for Surveillance systems and solutions for Defence and Homeland
 Security including specialised applications such as Automatic Weather
 Monitoring and Data Acquisition using radio links, etc. The x-ray and
 gamma-ray container scanners also form a product line being offered by
 this LoB.
 
 The ENMS Scada LoB completed the execution of the Jaipur Vidyut Vitran
 Nigam Limited (JWNL) project for City Distribution Management System.
 In order to broaden the market reach, this LoB has developed SCADA
 applications for Light House Management in Shipping Industry, Hydro
 Power Plants and the Rural Load Management orders for some of which has
 been executed during the year.
 
 The Traction Electronics LoB received a very major order for supply of
 Power Converters for 3 Phase AC Locomotives of Indian Railways based on
 successful and timely execution of the earlier order, during the year.
 During the year under review, the LoB supplied and successfully
 commissioned 16 power converters against an earlier order. The
 operational performance of these converters has been found superior to
 that of converters supplied by alternate suppliers to the Railways.This
 LoB has added to its offerings, the Control Electronics, IGBT based
 Traction and Auxiliary Converters to expand the served market and offer
 latest state-of-the-art technology to the Indian Railways.
 
 The Drives LoB continues to face intense price competition from the
 Multinationals. During the period under review, it successfully
 executed a major order for supply of MV Drives with a customized
 solution for a large Indian engineering company. It has been successful
 in promoting the MV drive concept to Cement, Sugar and Water Industry.
 The tenders and requirements for which are being actively pursued by
 the LoB now.
 
 During the year under review, the Building Management System LoB has
 made progress in securing orders for Integrated Building Management for
 the realty sector such as IT parks, Hotels, Corporate Houses, etc.
 These orders are under execution and will help Company to establish
 themselves in this segment.
 
 Outlook
 
 The capital investment in the industries served by ISD continues to
 show decent growth and it is expected that this growth will sustain for
 the foreseeable period.
 
 In view of the increased internal security concerns, the need for
 Surveillance and Detection systems for key establishments such as
 Airports, Railways, Defence, etc. has been growing. The Strategic
 Electronics LoB is well poised to utilise these growth opportunities.
 The requirements of X-Ray and Gamma-ray Scanners are also growing
 enabling participation in this new segment of security and surveillance
 market.
 
 With continued emphasis on reduction in Power losses, automatic billing
 etc., the need for Energy Network Management systems - SCADA is
 steadily growing. With increased product portfolio, the ENMS - SCADA
 LoB will continue to see a reasonable growth in the years ahead.
 
 With the growth of Indian economy, the Indian Railways is witnessing a
 greater demand for movement of people and goods which in turn will lead
 to the increased demand for AC and Diesel locomotives.This increased
 demand augurs well for the Traction LoB which has been successful in
 supplying critical equipment to Railways.  ISD continues to provide
 thrust to this activity and has been able to achieve a good order book
 in this LoB.
 
 With the realty sector growing faster than the industrial sector, the
 demand for the Building Management System (BMS) is growing at a much
 faster pace.The growth is opening up a large market for Integrated
 Business Management Systems. This LoB is gearing up to secure a
 reasonable share of this market with the support of its technology
 partner.
 
 The ISD continues to make progress towards implementation of
 initiatives for growth and operational excellence.  The initiatives
 include enhancement of product portfolio through alliances to enlarge
 the served and adjacent markets, strengthening of controls and
 improvements in business processes. These actions will result in larger
 addressed market, efficient working capital management, cost reduction
 and customer satisfaction.
 
 Risks, Threats and Concerns
 
 ISD revenue growth and margins are directly dependent on the market
 growth, competition and input costs.  The served industry is cyclic in
 nature which impacts sustained growth. Growth initiatives to pursue
 adjacent markets face entry barriers from existing players and require
 certain gestation period to deliver results. Project orders from MoD
 and other Government Sectors, are prone to long gestation periods and
 impact of policy changes.
 
 Rising inflation due to increase in energy and raw material costs is
 being witnessed in a more pronounced way.  These factors impact input
 costs of both products and services. Weakening of the Rupee vis-a-vis
 US $, € and CHF is likely to have some adverse impact on the project
 and contracts secured in foreign currency. Similarly, weakening of €
 and CHF has been impacting the margins in some of the lines, adversely.
 
 Though the Company is making every effort to reduce debt through
 improved NWC management, the continuing rise in interest costs has been
 and shall continue to have adverse impact on profitability.
 
 ISD continues its actions and initiatives to mitigate these risks and
 threats through improved customer focus, improved Working Capital
 management, productivity, cost control, etc.
 
 8.  TATANET DIVISION
 
 Financial Highlights
 
 During year under review, Tatanet division achieved Revenue of Rs.
 519.60 mn. (previous year Rs. 175.74 mn.) with an operating profit of
 Rs.75.12 mn. (previous year Rs. 25.07 mn.).The division has grown by
 48% on an annualized basis as compared to the estimated industry growth
 of 22%.
 
 Operations
 
 The division during the year under review secured orders for
 approximately 3000 VSATs which would take the installed population to
 9000 VSATs in due course. The quantum of repeat orders from the
 existing customers has been encouraging and has favorably impacted the
 overall profitability of the division.
 
 In response to the emerging market trend of providing both VSATs and
 services in a packaged opex model the division launched Readynet
 through its channels to cater to both Mid market and SME segment. The
 initial response is encouraging and the division is planning growth in
 this segment too.
 
 With the successful engagement of its first international Satellite
 Communication Systems Supply & Integration Project of this magnitude in
 the Pan Africa network led by TCIL (Telecom Consultants of India Ltd.),
 the division is hopeful of leveraging this project as a reference for
 more international projects.
 
 Outlook
 
 Tatanet leverages the alliance with the Enterprise Business Unit of
 Tata Communications Ltd. Through whom the division addresses the
 corporate segment in India with a unified proposition along with other
 telecom delivery organisations of the Tata Group. The recent addition
 of channel partners of both the division and Tata Communications Ltd
 also adds a force multiplier to penetrate other segments.
 
 The VSAT industry in India is growing at a rate of 22% p.a. and this
 pace is expected to continue in the coming years. The division has
 charted a strong growth plan for the years ahead which includes some
 additional revenue streams from adjacent areas like telecom
 infrastructure projects, network related system integration projects &
 services. With this in mind the division expects to maintain a healthy
 growth rate in revenue and operating profit.
 
 Risks, Threats & Concerns
 
 In the Telecom Industry, margins continue to be under pressure due to
 reactive pricing by competition and overall decline of tariff. The
 increasing penetration of networking services based on competing
 technologies also pose a threat to our current offerings. Tatanet
 continues to address such pressures by enlarging its subscription base
 and launching several new innovative product propositions. The recent
 entry of multiple DTH providers has also created an unexpected crunch
 of satellite bandwidth.
 
 9.  PROPERTY DEVELOPMENT
 
 The additional FSI rights pursuant to IT Park Policy of the Government
 of Maharashtra for additional construction on Technopolis Knowledge
 Park building at Andheri, Mumbai were valued and considered as
 stock-property under development during the financial year 2005-06. The
 construction of the additional structure with the assistance of THDC
 Limited has been completed during the current financial year and the
 Sales of these have taken place thereby paving a way for realisation of
 the cash flows related to the above value of stock-property
 (inventories) under development.
 
 10.  HUMAN RESOURCE MANAGEMENT
 
 There is consistent focus on development of Human Resources (HR). HR
 plans have been defined with appropriate measurement indicators keeping
 in mind both long term goals and short term requirements. Internal
 Employee Satisfaction Surveys are carried out to formally assess the
 voice of employees and external agency is engaged to take it further on
 regular basis.
 
 The pressure on attracting and retaining talent continues. The Company
 has initiated measures like employee referral scheme, engaged more
 consultants and providing growth opportunity to existing employees. The
 Company constantly reviews facilities and benefits to enhance overall
 employee well being. The Performance Management system, now extended to
 all levels, recognises individual and segment contribution through
 performance link pay, thereby motivating employee ownership. The age
 profile of employees in our mature business is also a matter of
 concern.The Company has engaged outside agency to conduct succession
 planning and some of the suggestions will be implemented in due course.
 Open House forum is made available to employees for innovative ideas,
 handling grievances and addressing subjects of common interests.
 
 The Company maintained cordial industrial relations during the year.The
 total manpower employed during the year was 414.
 
 11.  INTERNAL CONTROLS AND SYSTEMS
 
 The Company has an adequate system of internal controls to ensure that
 all assets are safeguarded and accounted for and business transactions
 are authorised and recorded. An external established audit firm carries
 out internal audit. This audit is based on an Annual Audit Plan and
 includes regular reviews by the Audit Committee to ensure adequacy of
 controls and adherence to laid down procedures and systems. The Board
 also carries out Company Wide Risk Assessment and Management on a
 systematic and regular basis.
 
 12.  QUALITY SYSTEMS AND TATA BUSINESS EXCELLENCE MODEL (TBEM)
 
 The Company is focused on continuous improvement through
 internationally recognised quality systems namely, ISO 9001:2000 and TL
 9000 for ISD and Tatanet division respectively. Regular annual and
 bi-annual audit for these quality systems are conducted. In addition,
 the Company has adopted the Tata Business Excellence Model (TBEM) to
 drive improvements across all areas of operations and functions.
 
 The trend for TL 9000 has been encouraging and future audits would be
 based on the upgraded standard (Rev 4.0). The Company has appointed a
 full time senior manager to focus on quality improvements and business
 excellence. The Company has concluded its first external assessment on
 TBEM in the previous year.
 
 13.  FIXED DEPOSITS
 
 The Company has neither accepted nor renewed any Fixed Deposits during
 the year under review. However, there are outstanding unclaimed
 deposits amounting to Rs 401,000/- which remain outstanding as the some
 of the deposit holders have not claimed the repayment despite follow up
 by the Company.
 
 In accordance with the provisions of Investor Education Protection Fund
 (Awareness and Protection of Investors) Rules, 2001, unclaimed deposits
 with interest amounting to Rs.Nil was transferred during the financial
 year 2007-08 to the Investor Education and Protection Fund.
 
 14.  SAFETY, HEALTH & ENVIRONMENT
 
 The Company accords high priority to Health, Safety, and Environment.
 The operations of the Company are not of hazardous nature, however, the
 Company takes all precautions to maintain healthy and safe environment
 in and around its facilities.
 
 The employees working at project sites are given requisite training for
 ensuring safety during working. Basic fire safety and awareness
 training programme is conducted regularly for the Company employees.
 There have been no incidence of any accidents reported in the past
 several years.The Company also has a Disaster Management System to take
 care of exigencies.
 
 15.  COMMUNITY DEVELOPMENT
 
 In keeping with the Tata Groups business philosophy of helping the
 Communities in which it operates, the Company conducts on an ongoing
 basis class room training to the under privileged children in a rural
 school at Virar, Thane District.
 
 16.  SUBSIDIARY COMPANY
 
 The financial statement and reports of the subsidiary company, Tatanet
 Services Limited (TNSL) for the financal year 2007-08 are attached.
 
 As stated earlier pursuant to the Scheme of Arrangement between Tata
 Services Limited and TNSL approved by the Honble Bombay High Court,
 the Department of Telecommunications (DoT), Government of India has
 transferred the CUG VSAT Commercial License in the name of TNSL with
 effect from 1st March 2007.
 
 TNSL has now commenced commercial operations. The revenue of TNSL for
 the year ended 31st March 2008 is Rs. 215.91 mn.
 
 Statement relating to Management Discussion and Analysis, describing
 the Companys objectives, estimates and expectations may constitute
 forward looking statements within the meaning of applicable laws and
 regulations.  Actual results may differ from those either expressed or
 implied.
 
 17.  PARTICULARS REQUIRED UNDER SECTION 217 OF THE COMPANIES ACT, 1956
 
 The information required under Section 217(1) (e) of the Companies Act,
 1956 read with the Companies (Disclosure of Particulars in the Report
 of Board of Directors) Rules, 1988 is annexed hereto as Annexure A
 and forms part of this Report.
 
 The information required under Section 217(2A) of the Companies Act,
 1956 read with the Companies (Particulars of Employees) Rules, 1975, as
 amended, is annexed hereto as Annexure 8 and forms part of this
 Report.
 
 18.  DIRECTORS
 
 The existing term of Mr. K. A. Mahashur as Whole-time Director of the
 Company is expiring on 31st August 2008.  The Board of Directors at its
 meeting held on 15th May 2008 re-appointed Mr. K. A. Mahashur as
 Whole-time Director of the Company for the period from 1st September
 2008 to 12th June 2012 subject to approval of the members and the
 Central Govt., if required and all other
 approvals/consents/sanctions/permissions as may be necessary.
 
 Mr. S. K. Gupta was appointed as Additional Director of the Company
 with effect from 23rd October 2007 under Section 260 of the Companies
 Act, 1956. He holds the office upto the date of forthcoming Annual
 General Meeting of the Company and is eligible for appointment.
 
 Mr. P. R. Menon was appointed as the Chairman of the Board with effect
 from 3rd September 2007.
 
 Mr. Amulya Charan resigned as director with effect from 5th September
 2007 due to his preoccupation. The Board placed on record the valuable
 contribution made by Mr. Charan in the deliberations of the meetings of
 the Board and the Audit Committee during his tenure as a Director.
 
 In accordance with the requirements of the Companies Act, 1956 and
 Articles of Association of the Company, Mr. B. B. Dubhash, Mr. P. K.
 Ghose and Mr. S. Ramakrishnan retire by rotation at the forthcoming
 Annual General Meeting and are eligible for re-appointment.
 
 19.  AUDITORS
 
 M/s. N. M. Raiji & Co., Chartered Accountants, retire at the ensuing
 Annual General Meeting and being eligible, offer themselves for
 reappointment.
 
 20.  REPORT ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND
 ANALYSIS
 
 Pursuant to Clause 49 of the Listing Agreement with the Stock
 Exchanges, Management Discussion and Analysis Report, Corporate
 Governance Report, together with the Auditors Certificate on
 compliance of the conditions of Corporate Governance form part of this
 Annual Report.
 
 21.  DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors,
 based on the representations received from the Operating Management,
 confirm that:
 
 (i) in the preparation of the annual accounts, the applicable
 accounting standards have been followed and that there are no material
 departures;
 
 (ii) they have, in the selection of the accounting policies, consulted
 the Statutory Auditors and have applied them consistently and made
 judgments and estimates that are reasonable and prudent so as to give a
 true and fair view of the state of affairs of the Company at the end of
 the financial year and of the profit of the Company for the period;
 
 (iii) they have taken proper and sufficient care to the best of their
 knowledge and information, 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; and
 
 (iv) they have prepared the annual accounts on a going concern basis.
 
 22.  ACKNOWLEDGEMENTS
 
 Your Directors place on record their appreciation for the support and
 assistance received from customers, investors, business associates,
 bankers, vendors, regulatory and governmental authorities. The Board
 would also like to acknowledge the continued support and guidance from
 the Tata Group.
 
                                    By Order of the Board of Directors
 
                                                    P. R. Menon
 Mumbai, 15th May 2008.                               Chairman