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HBL Power Systems Ltd.

BSE: 517271 | NSE: HBLPOWER |

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Series: EQ | ISIN: INE292B01021 | SECTOR: Electric Equipment

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Annual Report

For Year :
2018 2017 2016 2015 2014 2013 2012 2011 2010

Director’s Report

Dear Members

The Directors take pleasure in presenting the 32nd Annual Report for the financial year ended on 31st March 2018. The standalone financial performance is presented below prepared in accordance with the Ind AS notified under the Companies (Indian Accounting Standards) Rules 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016 as amended.

Rs. in lakhs

Sl.

Particulars

2017-18

2016-17

1

Revenue from Operations

1,62,411.26

1,52,986.23

2

Other Income

2,271.99

1,720.51

3

Total Income

1,64,683.25

1,54,706.74

4

Total Expenditure

1,49,825.95

1,39,981.36

5

Earnings before interest, depreciation and tax (EBIDTA)

14,857.30

14,725.38

6

Finance Costs

4,054.57

4,621.68

7

Depreciation & Amortization expenses

4,603.19

4,817.75

8

Profit before Exceptional items and Tax

6,199.54

5,285.95

9

Exceptional Items - Income / (Expenses)

(975.77)

(279.03)

10

Profit before tax (PBT)

5,223.77

5,006.95

11

Provision for tax & Deferred tax adjustment

2,258.08

1,445.52

12

Other comprehensive income (net)

10.10

165.68

13

Total Comprehensive Income for the Period (PAT)

2,955.59

3,220.38

14

Earnings Per Share (Diluted EPS in Rupees)

1.07

1.16

15

Proposed Dividend (on share of Re 1 each)

25%

25%

Performance Review 2017-18

Year 2017-18 has been a consistent good year for the Company which focused on sustaining long-term strategies that add value. Revenue from operations showed an increase of 6.2% over last year while Profit before Tax (PBT) showed an increase of 4.3%. Over the past few years we have made sustained efforts to improve competitiveness through a number of initiatives. Most of these have reached maturity. The steady improvement over the past few years and the positive results during the year is a result of these initiatives. Consequent to the introduction of Goods and Services Tax (GST) with effect from July 1, 2017, your Company successfully switched over to the new GST system, notwithstanding initial challenges. Central Excise, Value Added Tax (VAT) etc. have been subsumed into GST in accordance with Indian Accounting Standards.

Current year’s performance

Your Company is operating in an industry sector that faces price volatility in raw materials and competitive demands of customers. Over the past few years we have undertaken various initiatives resulting in better systems and policies, tighter execution and greater competitiveness. These are structural and internal changes that will strengthen the Company greatly over the medium and long term. Business teams have been retrained to handle the emerging challenges. These transformatory efforts will serve us well in the coming years.

Outlook for 2018-19 remains steady with a continuous domestic economic growth forecast of the Government. Opportunities are expected in the existing and new areas of business which shall enable your Company to embark on growth path barring unforeseen circumstances. Your Company has been preparing itself to gain from the anticipated opportunities in Railways and Defence business segments in the coming future. The Management Discussion and Analysis section of the Annual Report presents a detailed business review of the Company.

Dividend

Your Directors are pleased to recommend a dividend of 25% (ie Rs. 0.25 paise per equity share of Re.l each fully paid up) for the Financial Year 2017-18 subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Dividend Distribution Tax will absorb Rs. 835.44 lakhs.

Subsidiaries, Associate and Joint Venture Companies (as on March 31, 2018)

As per the notification issued by the Ministry of Corporate Affairs on July 27, 2016 with regard to Companies (Accounts) Amendment Rules, 2016, the report of the Board shall contain highlights of performance of subsidiaries, associates and joint venture companies and their contribution on overall performance of the company. Accordingly, we hereby furnish the following:

Subsidiary companies

HBL America Inc.

HBL Germany GmBH, Germany SCIL Infracon Private Limited HBL Suntech LLP

Associate companies within the meaning of Section 2(6) of the Companies Act, 2013 (“Act”).

Naval Systems & Technologies Pvt Ltd (NSTL)

Kairos Engineering Limited

Joint Venture Company

Gulf Batteries Company Ltd in the Kingdom of Saudi Arabia (KSA).

The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies, associates and joint ventures except that of Gulf Batteries Company Ltd, prepared in accordance with the Companies Act, 2013 (Act) and applicable Ind AS notified under the Companies (Indian Accounting Standards) Rules 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016 as amended.

Pursuant to provisions of section 129(3) of the Act, a statement containing salient features of the financial statements of the Company’s subsidiaries in Form AOC-1 is attached to the financial statements of the Company and as per the provisions of section 136 of the Act, the standalone financial statements of the Company, consolidated financial statements along with relevant documents and separate audited accounts in respect of subsidiaries, are available on the website of the Company.

There has been no material change in the nature of the businesses of the subsidiaries except as disclosed hereunder.

Highlights of performance of subsidiaries, associates and joint venture companies and their contribution on overall performance of the Company: Subsidiary Companies HBL America Inc. (HBLA)

In fiscal year 2017-18, HBLA focused on improving its sales and marketing team with external recruitment. We received key approvals for our VRLA range allowing wider acceptance and deployment in earthquake prone areas. Revenues were up 11% from the prior year and margins improved. Key qualification work in the railroad market went smoothly. With the rail markets large, long duration tenders, we expect our first contracts in 2018-19. Flight trials continued for the newest long range executive jet and PMA certification for a key passenger aircraft battery was granted by the FAA.

HBL Germany GmbH (HBLG)

Revenues declined 18% from the prior year, but margins improved while operating expenses were reduced. Net income was reduced by provision made for prior year’s tax audit assessment - the assessment is not final and is being contested. New business has been achieved with key OEM’s in France and Spain which will be long term, and sustainable to re- grow our European business. HBL battery and battery box systems were deployed on new commuter trains in Germany - Made in India, and fully qualified to German standards.

SCIL Infracon Private Limited (SIPL)

Shareholders are already aware that SIPL is not in operation since a few years, except for follow up of old book debts realisation. The net loss of Rs 27.65 lakhs reported in the year was mainly due to payment of customs duty obligation against a Letter of Undertaking for import of capital goods cleared duty free against EPCG authorisation in 2007 and non-fulfilment of export obligation for various reasons. This obligation related to the period before your Company invested in SIPL. In a situation of no business operations since several years SIPL Directors are examining various alternatives about the necessity to continue this Company.

HBL Suntech LLP

HBL Suntech LLP which was incorporated in 2011 for trading of monoblock batteries discontinued operations with effect from 1 April 2014 due to continuous losses and unviable business outlook. The loss of Rs. 13.86 lakhs reported in the year was mainly due to payment of certain statutory obligations like VAT assessments of past years. It is to be noted that due to non-operational reasons, the Registrar of Companies for AP and Telangana, issued letters in April 2018 and May 2018 pursuant to section 75 of the Limited Liability Partnership Act 2008 read with rule 37 of the LLP Rules 2009, to strike off the name of HBL Suntech LLP from their Register after completion of due notice period.

Associate Companies Naval Systems and Technologies Limited (NSTL)

FY 2017-18 was the record best performance year for NSTL with an income of Rs 1772.16 lakhs and a PBT of Rs 514.46 lakhs. NSTL is a service provider to foreign Original Equipment Manufacturers (OEMs) mainly operating in the field of marine equipment in Indian Navy. The services provided include installation, trials and commissioning of various equipment, annual maintenance, specialised technical documentation etc. NSTL has a proven expertise in providing technical support, conducting feasibility studies for complex systems, market research and software support. Your Directors believe that NSTL will continue to grow into different niche areas, and maintain its profitability, barring unforeseen circumstances.

Kairos Engineering Limited (KEL)

KEL was not active since a few years. In a situation of no business operations, in response to an application dated 25th November 2017 made under Section 248 of the Companies Act, 2013 and Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016 KEL name was struck off during the year from the Register of Companies maintained by the Registrar of Companies, Andhra Pradesh and Telangana.

Joint Venture Company

Gulf Batteries Co. Ltd (GBC) in the Kingdom of Saudi Arabia (KSA)

Your Company holds 40% stake in GBC. GBC has an accumulated loss of nearly 75% of its capital. As per Saudi Arabian laws, in a situation like this, such Company is terminated by force of law. Your Company therefore filed a liquidation petition for liquidation (winding up) of GBC after considering legal opinion. The case is pending befor a Commercial Court in Saudi Arabia. In view of the pending liquidation, GBC financials statements have not been available for consolidated financial statements of the Company.

Material Changes and Commitments

No material changes and commitments have occurred after the closure of the FY 2017-18 on March 31, 2018, till the date of this Report, which would affect the financial position of your Company.

Directors’ Responsibility Statement

Pursuant to Section 134(5) of the Companies Act, 2013, the Board of Directors, to the best of their knowledge and ability, confirm that:

i. in preparation of the annual accounts, the applicable Ind AS accounting standards have been followed and there are no material departures;

ii. they have selected such accounting policies as per Ind AS and 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 that period;

iii. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. they have prepared the annual accounts on a going concern basis;

v. they have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and operating effectively;

vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, cost, statutory and secretarial auditors and external consultants and the reviews performed by management and the relevant board committees, including the audit committee, the board is of the opinion that the Company’s internal financial controls were adequate and effective during the financial year 2017-18.

Directors and Key Managerial Personnel (KMP)

Your Directors play a very active role in the Company. They bring in great expertise in business operations and strategy and management. Their advice to the Board over the years consistently helped the Company to deliver strong performance. The following Directors have been appointed:

Name of the appointee

DIN

Date of appointment

Appointed as

Period of appointment (Five years)

From

To

Mr. K V Sriram

00073911

February 07, 2018

Independent Director

February 07, 2018

February 06, 2023

Mrs. Richa Datta

08084501

March 15, 2018

Independent Director (Woman)

March 15, 2018

March 14, 2023

Mr. M Chandra Mohan

00633439

August 10, 2018

Independent Director

August 10, 2018

August 09, 2023

Mrs. Kavita Prasad

00319292

August 10, 2018

Additional Director and CFO

5 years w.e.f. August 10, 2018

Mr. Abhishek G Poddar

07143528

August 10, 2018

Additional Director

Not applicable

Mr. Mitin C Jain (DIN 06390954) resigned as a Director with effect from August 10, 2018. Your Board conveys sincere appreciation for the advice and services rendered by him to the Company during his tenure as a Director.

Mr. MSS Srinath (DIN 00319175) retires by rotation and is eligible for re-appointment. Your Board recommends for his reappointment.

All the Directors hold office upto the date of the ensuing Annual General Meeting of the Company. Appointment of Independent Directors and Executive Director shall be for 5 years as placed before the members for their approval. Brief profile and experience of the appointees has been provided elsewhere in the Annual Report.

During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company except for the sitting fee paid for attending the Board meetings.

Number of meetings of the board

Five meetings of the board were held during the year. For details of the meetings of the board, please refer to the Corporate Governance Report, which forms part of this report.

Board evaluation

Pursuant to the provisions of the Companies Act, 2013 and the Corporate Governance requirements prescribed by SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, the Board has carried out an annual evaluation of its own performance and that of its Committees as well as performance of all the Directors individually during the year. Feedback was sought by way of a structured questionnaire covering various aspects of the Board’s functioning such as adequacy of the composition of the Board and effectiveness of its Committees, execution and performance of specific duties, governance, meaningful and constructive contribution and inputs in meetings etc. Evaluation was carried out based on responses received from the Directors. A separate meeting of the Independent Directors also was held where in performance of non-Independent Directors, performance of the board as a whole and performance of the Chairman and Managing Director was evaluated. The Directors expressed their satisfaction with the evaluation process.

Policy on Directors’ appointment and remuneration and other details

The Company’s policy on Directors’ appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report, which forms part of the Directors’ report.

Audit committee

The details pertaining to composition of Audit Committee are included in the Report on Corporate Governance, which forms part of this report. Powers and role of the Audit Committee are included in Corporate Governance Report. The Board of Directors has accepted all the recommendations of the Audit Committee placed at respective meetings. During the year, Mr. KV Sriram and Mrs. Richa Datta who were appointed as Additional Directors (Non-Executive, Independent) were also appointed on the Audit Committee.

Risk Management

The Company has deployed a comprehensive framework to identify, monitor and take all necessary steps towards mitigation of various risk elements which can impact the existence of the Company on a periodic basis. All the identified risks are managed through continuous review of business parameters by the Management and the Board of Directors is also informed of the risks and concerns.

Internal Financial Controls

Pursuant to Section 134 of the Companies Act 2013, the Directors state that the Board, through the operating management has laid down Internal Financial Controls to be followed by the Company and such policies and procedures were adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The Audit Committee evaluates the internal financial control system periodically. To the best of their knowledge and ability and inputs provided by various assurance providers confirm that such financial controls are adequate with reference to the size and operations of the Company and no reportable material weakness or deficiency in the design or operation of internal financial controls was observed.

Particulars of loans, guarantees and investments

The particulars of loans, guarantees and investments have been disclosed in the financial statements.

Transactions with related parties

None of the transactions with related parties falls under the scope of Section 188(1) of the Act. Information on transactions with related parties pursuant to Section 134(3) (h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure I in Form AOC-2 and the same forms part of this report. Related party transactions are in the ordinary course of business and on arm’s length basis.

Corporate social responsibility

The Company has a Board level committee that supervises its Corporate Social Responsibility (CSR) activities. The brief outline of the CSR Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure II of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Extract of Annual Return

Pursuant to Section 92(3) of the Act, the extract of Annual Return is given in Annexure III in the prescribed Form MGT-9, which forms part of this report.

Information regarding employees and related disclosures

Your Company consistently believes in concerted efforts in talent management and succession planning practices, strong performance management and learning and training initiatives. Rewards and recognition are commensurate with performance and that employees have the opportunity to develop and grow.

There were no complaints relating to child labour, forced labor, involuntary labor, sexual harassment in the last financial year and pending as on the end of the financial year.

S.No

Category

No.of complaints filed during the financial year

No.of complaints pending as on end of the financial year

1

Child labor / forced labor/ involuntary labor

0

0

2

Sexual harassment

0

0

3

Discriminatory employment

0

0

Disclosure as required under Section 22 of Sexual Harassment of women at workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Company believes in providing a healthy environment to all HBL Employees and does not tolerate any discrimination or harassment in any form. The Company has in place a gender neutral, Prevention of Sexual Harassment (POSH) policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. This policy is frequently communicated in assimilation programs and at regular intervals to all HBL employees. Following are some of the awareness programs imparted to train HBL Employees and Internal complaints committee (ICC).

1. It is mandatory for every new joiner to undergo a program on ‘Prevention of Sexual Harassment ‘ during induction program.

2. The Internal Complaints Committee is trained by external agency when the committee members are on-boarded to the committee.

3. Policy of ‘Prevention of Sexual Harassment’ at workplace is available on internet for HBL employees to access as and when required.

4. The ‘Prevention of Sexual Harassment’ policy is placed in conspicuous places for better visibility and communication of the policy. The posters are also displayed in regional languages at all HBL offices.

HBL has setup an Internal Complaints Committee (ICC) both at the Head office / Corporate office and at every major location where it operates in India. ICC has equal representation of men and women. ICC is chaired by a senior woman employee and has an external women representation.

ICC investigates the case(s) and provides its recommendations to the apex authority. The apex authority upon receiving the recommendations from ICC arrives at the conclusion and acts upon such recommendations.

Penal Consequences of Sexual Harassment (“SH”) and the constitution of the ICC are displayed at conspicuous places.

Particulars of employees

The information required under Section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

Employee Name

Dr. AJ Prasad

Mr. Suresh Kalyan

Total remuneration CTC (Rs lakhs)

Rs 96.00 lakhs and commission Rs. 191.27 lakhs

Rs. 161.29 lakhs

Designation and Nature of Duties

Chairman and Managing Director

Chief Operating Officer (COO)

B. Tech from IIT, Khargpur, MS in Management from

Qualification / Experience (years)

Massachusetts Institute of Technology USA, Doctorate in International Business from Columbia University, USA.

BSc. Chartered Accountant / 29

Date of commencement of employment

Promoter of the Company

17.11.2014

Age (years)

73

54

Last employment held before Joining the Company

Administrative Staff College of India

Amara Raja Batteries Limited, Hyderabad, as President -Finance

a. The ratio of the remuneration of each Non-Executive director to the median remuneration of the employees of the Company for the financial year: Not Applicable as none of the Non- Executive was paid any remuneration.

b. The percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary in the financial year:

Directors, Chief Executive Officer, Chief Financial Officer and Company Secretary

% increase in remuneration in the financial year

Dr. A J Prasad, Chairman and Managing Director

No change

Mr. MSS Srinath, Whole-Time Director

No change

Mrs. A Kavita Prasad - CFO

No change

Mr. MVSS Kumar, Company Secretary

4.75%

c. The percentage increase in the median remuneration of employees in the financial year: 5- 15 %

d. The number of permanent employees on the rolls of Company: 1989 (as at 31 March 2018)

e. Comparison of the remuneration of the key managerial personnel against the performance of the Company:

Aggregate remuneration of key managerial personnel (KMP) in 2017-18

Rs lakhs

212.86

Commission on profits to CMD

191.27

Revenue

Rs lakhs

1,62,411.26

Remuneration of KMPs

As % of revenue

0.25

Remuneration of KMP

As % of PBT

7.73

f. Comparison of each remuneration of the key managerial personnel against the performance of the Company:

Particulars

Dr. AJ Prasad

MSS Srinath

Kavita Prasad

MVSS Kumar

K Mahidhar (upto 31.8.2017)

Designation

CMD

Executive Director

CFO

Company Secretary

Vice President Finance

Remuneration in 2017-18

96.00

50.40

26.25

25.13

15.08

Commission on profit

191.27

-

-

-

Revenue (net)

1,62,411.26

Profit before Tax (PBT)

5,223.77

Remuneration as % of Revenue

0.25

Remuneration (as % of PBT)

7.73

g. The key parameters for any variable component of remuneration availed by the directors:

Only commission on net profits was paid to Chairman and Managing Director in addition to the monthly remuneration.

h. The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year -Not applicable.

Disclosure requirements

As per listing Regulations, , corporate governance report with auditors’ certificate thereon and management discussion and analysis are attached, which form part of this report.

Vigil Mechanism / Whistle blower policy

The Company has formulated a vigil mechanism /whistle blower policy to provide a vigil mechanism for employees including directors of the Company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and the Regulation 22 of the SEBI (LODR) Regulations, 2015\.

Deposits from public

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo

Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in the Annexure hereto.

Corporate Governance

Pursuant to Schedule V of the SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015, a separate section titled “Report on Corporate Governance” is attached to the Annual Report.

Statutory Auditors

M/s Rao & Kumar, Chartered Accountants (FRN 03089S) Visakhapatnam who are the Statutory Auditors of the Company have been appointed by the members at the 31st Annual General Meeting (AGM) of the Company held on 26th September 2017 for a period of five years to hold office till the conclusion of AGM in 2022 subject to ratification of members at every year AGM. Accordingly, they retire at the conclusion of the ensuing AGM and are eligible for reappointment. Your Directors recommend for their reappointment at the AGM.

The Report given by M/s. s Rao & Kumar, Chartered Accountants on the financial statements of the Company for the year 2017-18 is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Auditors had not reported any matter under Section 143 (12) of the Act. Therefore no detail is required to be disclosed under Section 134 (3)(ca) of the Companies Act, 2013.

Cost Auditors

Your Board has appointed M/s K. Narashima Murthy & Co., Hyderabad, Cost Accountants (FRN 000042) as Cost Auditors of the Company for conducting the audit of cost records of the Company for the financial year 2017-18. Your Board, on recommendation of the Audit Committee, proposes to reappoint them as Cost Auditors for 2018-19, subject to the approval from Central Government.

Disclosure under Section 148(1) of the Companies Act, 2013

The Company has been maintaining required cost records as specified under Section 148(1) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 as mended from time to time.

Secretarial Auditors

Your Board has appointed Mr. CN Kranthi Kumar (CP No: 13889), Practicing Company Secretary as a Secretarial Auditor for the financial year 2017-18 and his secretarial audit report is attached to this Report. There are no qualifications, adverse comments and observations in the secretarial audit report for the year 2017-18.

Cautionary Statement

Statements in this Annual Report, particularly those that relate to Management Discussion and Analysis, describing the Company’s objectives, projections, estimates and expectations, may constitute ‘forward-looking statements’ within the meaning of applicable laws and regulations to enable shareholders and investors to comprehend our prospects. Although the expectations are based on reasonable assumptions, the actual results might differ materially from those expressed in the statement. Important factors that could influence the Company’s operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as plant breakdowns, industrial relations etc.

Acknowledgements

Your Directors place on record sincere appreciation towards the Company’s valued customers and esteemed shareholders 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 and remain committed to delivering and enhancing shareholder value.

Your Directors take this opportunity to thank all the Company’s Bankers, concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services and their ability to deliver good results in the future.

For and on behalf of the Board

Place: Hyderabad Dr. A J Prasad

Date : August 10, 2018 Chairman and Managing Director

Director’s Report