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Johnson Controls-Hitachi Air Condition. India Ltd.

BSE: 523398 Sector: Engineering
NSE: JCHAC ISIN Code: INE782A01015
BSE LIVE 15:40 | 22 Aug 2009.85 -6.25
(-0.31%)
OPEN

2031.90

HIGH

2031.90

LOW

1977.25

NSE 15:31 | 22 Aug 1999.45 -29.00
(-1.43%)
OPEN

2006.30

HIGH

2040.20

LOW

1983.30

OPEN 2031.90
PREVIOUS CLOSE 2016.10
VOLUME 136
52-Week high 2300.00
52-Week low 1157.00
P/E 74.19
Mkt Cap.(Rs cr) 5,465
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 2031.90
CLOSE 2016.10
VOLUME 136
52-Week high 2300.00
52-Week low 1157.00
P/E 74.19
Mkt Cap.(Rs cr) 5,465
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Johnson Controls-Hitachi Air Condition. India Ltd. (JCHAC) - Director Report

Company director report

MANAGEMENT DISCUSSION AND ANALYSIS

Dear Members

Your Directors have pleasure in presenting the Thirty First Annual Report and theAudited Financial Statements for the year ended March 31 2016.

FINANCIAL HIGHLIGHTS

The highlights of financial results of the Company for the year under review are givenbelow:

For the year ended March 31 2016 For the year ended March 31 2015
Revenue from operations (gross) 181720 170726
Less: Excise Duty 15767 13442
Revenue from operations (net) 165953 157284
Other Income 178 712
Total Revenue 166132 157996
Profit before finance cost depreciation and tax 12451 14520
Finance Cost 1012 826
Depreciation and amortization expenses 4555 3593
Profit before Tax 6884 10101
Tax expense 1886 2325
Profit for the year 4998 7776

DIVIDEND

Your Directors recommend a dividend of Rs 1.50 per Equity Share for the year ended 31stMarch 2016. This is subject to the approval of the Members at the ensuing Annual GeneralMeeting.

About Hitachi Home & Life Solutions (India) Limited a Johnson Controls –Hitachi Air Conditioning Company

On 1st October 2015 Johnson Controls Hitachi Ltd. and Hitachi Appliances Inc. havecompleted Global Joint Venture agreement (JV) and commenced operations of Johnson Controls– Hitachi Air Conditioning Company (JCH) to provide global customers with full rangeof Air conditioning products. Through this agreement Johnson Controls has acquired a 60percent ownership stake of JV and Hitachi Appliances Inc. retained ownership of remaining40 percent stake of the JV.

Through this joint venture we have combined the rich heritage and innovativetechnology of Hitachi with the Industry-leading expertise and global network of JohnsonControls. Our partnership aims to address the cooling needs in a faster smarter safe andefficient manner than ever before. Our customers stand to benefit from our world-classR&D centers where our researchers work tirelessly to provide innovative solutions andquality products that are designed to meet every need. "Hitachi Home & LifeSolutions (India) Limited" (HHLI) is the Indian arm of Johnson Controls- Hitachi AirConditioning Company.

Hitachi Home & Life Solutions (India) Limited is one of the earliest companies toset up Air conditioning Manufacturing in India HHLI has a legacy that is over 30 years inthe making. Today the Company manufactures a wide range of products from room Airconditioners (Split & Window ACs) to commercial Air conditioners including ChillerDuctable Air conditioners Telecom Air conditioners & VRF system. HHLI is alsoinvolved in trading of Refrigerators & Air Purifiers and has strong presence inundertaking turnkey projects in HVAC.

The HHLI headquarters is situated at Kadi Gujarat with its manufacturing plant alsolocated there. The Company has a total installed capacity of 600000 Room Airconditioners per annum (in a single shift). In addition to that the Company also has thecapacity to manufacture 120000 Tons of Ductable units 9000 VRFs ODU and 300 Chillers perannum. HHLI is amongst the top Air conditioning companies in India. It has a strongnationwide distribution consisting of 5 regional offices 20 branch offices 203 exclusivesales and service dealers and over 4000 sales points. Currently the Company has 33Exclusive showrooms in India. The organization expects these numbers to rise up to 150 inthe very near future. To provide this wide distribution network Company has 40 Companyowned service centers (HCS) and 600 other service points including Multi brand S&Sdealers and franchisees.

At Hitachi Home & Life Solutions (India) Ltd. we believe in "i Care"philosophy which is our guiding force. i Care is everything we stand for believe in andwork towards for our internal and external customers. We believe in simplifying life. Thisis why we constantly innovate bring in world-class technology and newer concepts in ourproducts to make life comfortable for our customers.

MACRO ECONOMIC ENVIRONMENT

The Indian economy has gone through various challenges in recent times. But it hasrecovered and is showing strong growth in the face of adverse global economic scenario. Inthe recent past the economy faced difficult times with several issues like lower growthwidening current account deficit and high levels of inflation; worsened by two consecutiveyears of drought. Yet the Indian Economy has shown remarkable growth by 7.5% this year andexpected 7.7% in 2016. The downturn in global commodity prices has also helpedsignificantly to improve the prospects of Indian economy. This in turn has had apositive impact on the Air conditioning industry which has a high number of commoditiesthat contribute towards its input costs.

OVERVIEW

1. The year gone by has not been very good for the Indian Air conditioning Industry.The residential business was affected by unpredictable weather un-seasonal rainfallduring peak summer while the commercial segment suffered the lagging effects of slowdownfrom 2012-14.

The residential Air conditioner market for the year was almost flat. HHLI’sresidential business also performed in line with the industry growth. The residentialbusiness showed negligible volume growth but managed to grow marginally in value terms dueto shift towards high-star rated ACs and Inverter ACs.

2. Though the overall commercial market remained weak the Company scored significantsuccess in the Ductable segment. The Company maintained and bettered its position in thesegment with a business growth of around 15% and improved its market share. The Companycontinues to retain its strong position in this segment.

The other bright spot in the commercial segment was the growth in the VRF Segment ledby increased demand towards energy-efficient solutions and use of innovative technology.The Company saw its Set Free- VRF segment picked up speed in terms of order bookings andprojects executed across various customer segments like Banking Education Hospitalityetc. The Company has invested in manpower and infrastructure in this new fast growingsegment and would continue to invest in this segment to drive future growth.

3. The Chiller business has been subdued due to the difficult economic environment ofthe preceding year. It is also bogged down by delays and postponement of variouscommercial real estate projects. Therefore Company could not perform well in this segmentwhich is heavily dependent upon the economic conditions.

4. The Company had entered into the project business to fulfill a gap of providingend-to-end solutions to its customers. The Company has invested in the required manpowerand other requisite support tools for this business in last few years. This has been thereason why 2015-16 has been a break out year for this business. The Projects businessdelivered a big growth over last year and this year has got significant number of projectsin the pipeline.

5. The Telecom and Special Products segment is a niche segment where Hitachi commands65-70% market share but the growth over last year has not been encouraging. Being a nichesegment the growth of this product category depends on growth of the telecom industry.Judging by the competition and shrinking margins of telecom operators the segment growthmay face challenges in the coming years.

6. The Company forayed into exports last year on a trial basis and a small batch wasexported during the year. The initial response has been very encouraging. Today we areexporting to Sri Lanka Indonesia and Bangladesh. In coming years we plan to expand intoother parts of the world.

7. The home appliances business for the Company has also grown over the last year. Thedifferentiated product range coupled with advance features has enabled the Company tocarve out a niche which has made Company’s brand name popular in the 300 Litres+segment. The Company has focused in the distribution channels and has opened new channelsfor sale of this product. The introduction of new product category "AirPurifier" has shown positive response and looks very promising for future businessgrowth.

8. Customer Service has always been a top priority for the Company. The Company hasstarted many initiatives to improve the customer satisfaction index which has shown ahealthy growth year-on-year. With 40 Company-owned HCS centers i Care Service App OnlineProduct Demo Videos and online complaint registration initiatives the Company willcontinue to focus on customer service which will become a key differentiator for ourbusiness in the future.

ROOM AIR CONDITIONERS

Room Air conditioners segment contribution is very high for the Company in its totalbusiness and it is one of our major focus areas. The Company has a wide range of Split ACsto meet the requirement of the Indian consumers. The current range of split ACs consistsof around 80 models which include 2 3 4 5 star rated ACs and tropical invertertechnology products. The launch of the ‘Kashikoi’ range in 2015 added atechnical edge in the range of Split ACs. Its i-See i-Sense i-Clean technologies weredesigned to meet Indian consumer’s needs. This year the Company has focused onpromoting its unique "i Clean Plus" technology in Split AC Range. i Clean Plustechnology was offered in 3-star 4-star 5-star and Inverter technology products. TheCompany has also developed ‘Smart i-Connect range’ of Split Air conditionerwith Wi-Fi connectivity which can be operated from any Android or iOS Smart Phone.

The Company also launched its ‘Toushi’ range of products which primarilycaters to replacement markets targeting people seeking to buy into Hitachi Brand at avalue price. The Window range continues to dominate with 11 models in 2 3 and 5 starrating. The Company also has Hot and Cold range of Products in both Splits and Windows.

In order to widen its reach to Tier II & Tier III towns the Company has expandedits distribution network through direct dealers and distributors. Today it caters to morethan 4000 outlets and exclusive showrooms.

India has a large market for institutional buyers in this segment. With its‘Logicool’ range the Company has significantly increased the number of keyaccounts year-on-year. With growth in demand of institutional sales this product businessis expected to grow strongly.

COMMERCIAL AIR CONDITIONERS

The Commercial range of Air conditioners includes Cassette ACs Ductable ACs Set Free(Variable Refrigerant Flow - VRF) and Chillers. The Company has presence in all thesesegments and is strengthening its position in all these segments every year.

The ductables used to cater to cooling requirements of small corporate offices banquethalls small hospitals etc. This segment is projected to have low CAGR and is facing lotof challenge from other cooling solutions like VRF. The Company has a good market sharein this segment. This is one segment where very few brands are operating. This has helpedthe HHLI in increasing its market share. The introduction of R410A (Green Gas) range hashelped the brand consolidate its position. The Company has registered a growth of around15% in this product category and with an innovative product range the Company isconfident that it shall grow further in the coming years.

The VRF segment has been the star segment for the industry and has continued to showrobust growth during the calendar year. The Company has a very strong product range of 8HP – 54 HP and is growing exponentially in this business. The Company could succeedto win many large projects in Hospitality Entertainment Banking Education Residentialindustrial Hospitals etc. which resulted in exponential growth of the VRF sales.

The Chiller market has grown marginally over the last year due to slow growth incommercial real estate. In view of this the Company faced difficulty and performed in linewith the industry trend. However the chiller market in India is expected to grow at CAGRof around 7% which is a good sign. Judging by the growth trend the Company ismanufacturing Water-cooled Screw Chillers up to 180 HP in its factory in India and islooking to increase the localization content to be more competitive to chart its growth inthis business. Currently Chillers above 190 HP are being imported by the Company.

The Project Business is another category which is closely allied with the Chillerbusiness. This business is also growing and has a good potential to grow in coming years.In order to increase its share of the Project and Chiller business the Company hasinvested in setting up the infrastructure in terms of manpower as well as upgrading theirskills to take up this business in the past few years. With such investments the Companyfeels confident about establishing growth in Project Business.

APPLICATION-BASED AIR CONDITIONERS

The Application-based Air conditioners is a category which has grown rapidly in lastfew years. The growth was driven by the growth in the parent industries of telecom andbanking. Today due to increasing debt Telecom industry is aggressively switching to IMEModel to reduce operating costs which has resulted in low growth of Telecom Airconditioning business. The Company however has a near monopoly in this segment and willcontinue to serve its existing base. The Company is continuously looking to develop newproducts and technology that meet the emerging requirements of the industry. TheseInnovative solutions will also help Company to remain ahead of competition in India.

HOME APPLIANCES

The Home Appliances segment of the Company has continuously grown over the last fewyears. Last year the Home Appliances business contributed 9% share in total business ofthe Company. The Company has created a niche in Home Appliances category which has helpedthe brand substantially. The Company is operating in over 253 Ltrs Frost-FreeRefrigerators market. The Company also launched its new range of Air Purifiers whichcaters to increasing demand of Air purifiers in Delhi and other Metro cities. Currentlythe base of Air purifiers is very small. However the Company is expecting good growth inthis product segment too. This segment is also strategically important for the Company asit allows continuous engagement with channel partners during the lean season.

MANUFACTURING

A good quality product is the backbone of any organization. To achieve manufacturingexcellence the Company is focusing on continuous improvement using Lean principles. TheCompany’s manufacturing department has always focused on product quality safeworking environment and productivity improvement at various levels. This year the Companyhas started a continuous improvement Dept. within manufacturing. The main objective ofthis Dept. is to focus on waste elimination and improvement of the manufacturingfacilities. This year Company has implemented continuous improvement activity to heatexchanger manufacturing injection moulding facilities etc. This will enhance the productquality and help to reduce the lead time and cost.

Alongside its focus on lean manufacturing safe working environment is also animportant priority for the Company. The Company is taking various steps in educationalactivities within the plant so that safety is ensured. The Company has started a specialprogram like KYT ( Kiken Yochi Training ) where operators are taught how to identifyhazards early and work to eliminate hazards.

This year the Company has invested into conservation of energy. Three sets of newmachinery has been installed in the injection moulding shop. This has led to a reductionin outsourcing of moulded parts which has resulted in cost reduction includingtransportation cost. Moreover installation on new fin press with servo motor mechanism hasalso resulted into more savings of Power cost.

RESEARCH AND DEVELOPMENT

To combat competition and excel in the segment of Split ACs the Company’sResearch and Development department has worked tirelessly to develop new and innovativeproducts which can meet demand of Indian consumers.

With the changing weather conditions the Indian consumer habits are also changing. Thedemand for the Heat Pump AC is also growing.

Hence Company has developed a Heat Pump Inverter Air conditioner which can operatefrom -10 to 52C.

The Company has also developed smart i-connect range of Split Air conditioners withWi-Fi connectivity which can be operated from any Android or Apple (iOS) Smart Phone.

Apart from innovation in Split ACs the Company’s R&D facility has alsostarted a local production of 4 – way cassette indoor units and started developmentof the DX kit to operate Air Handling Units (AHUs) with Set Free Outdoor units.

Company has completed the implementation of processes and procedures for successfulcompletion of NABL (National Accreditation Board for Testing and CalibrationLaboratories) Accreditation of RAC APF Lab and VRF APF Lab. This formal recognition ofcompetence of a laboratory by an Accreditation body in accordance with internationalcriteria confirms reliability testing of Company’s product before they are put intothe market.

OPPORTUNITIES AND OUTLOOK

1. The Indian market for white goods and Air conditioners is poised for steady growth.The growth in demand of Air conditioners and other home appliances is a result of risingincome urbanization falling AC prices and a hot climate. Hence The AC ownership inIndia is going to increase exponentially.

2. Product innovations improved technology and availability of new variants ofproducts has led to increase in the demand of Air conditioners.

3. With lucrative and easy finance options and rise in the share of organized retailthe Air conditioner industry gets an opportunity to grow further.

4. The changing consumer behaviour as a result of the e-commerce boom is an opportunityfor higher sales.

5. Product Segments like VRF chillers and projects are a big opportunity for theCompany. The growth trend of VRF is very impressive. Chillers and Projects are alsogrowing steadily. Now given the joint venture the Company has a better scope to grow inthis segment.

RISKS CONCERNS AND CHALLENGES

1. Air conditioners as a product category still depends heavily on weatherconditions. The sales depends on the severity of the summer season and the relative demandof the product.

2. Electricity demand for Room ACs is growing rapidly in emerging economies (such asIndia). This may impact the sales of ACs if the products are not energy efficient. Hencethe Company needs to constantly upgrade the energy efficiency standards.

3. With energy standards set to change in the beginning of 2016 the resultant cost andprice increase may dampen the volume growth expected by the industry.

4. The ductable segment in which Company has a good market share is de-growing and isunder tremendous pressure to win projects.

5. The hiked excise duty effective January 2015 (excise duty on consumer durables wasrolled back to 12% from 10%).

6. The under-developed local supplier base.

7. The higher cost of capital and other manufacturing costs due to frequently revisedenergy efficiency requirements.

CAUTION:

Management Discussion and Analysis on the Company’s Objectives EstimatesProjections and Expectations may be forward-looking within the tenets of the applicablelaws. The actual result may differ from the views expressed or implied. Factors that canaffect the Company’s performance and outlook are price conditions in the marketglobal commodity cycle changes exchange rate government regulations weather conditionsand other incidental factors.

HUMAN RESOURCES

The Company operates in a highly competitive environment vis--vis attracting the besttalent for its operations and therefore the human resources management function hasassumed vital importance in the Company. The Company focuses on attracting motivating andretaining the best talent. Its people systems like recruiting training performancemanagement and talent development are robust and competitive. As we have been growing weare putting in place new HR programs to ensure that the organization is geared up todeliver for the future.

People – Our Brand:

The total Strength of employees (Staff and Operators) of the Company was 1426 as onMarch 31 2016. HHLI believes that it is the quality and dynamism of its human resourcesthat enables it to make a significant contribution to enhancing stakeholder value. Companyworks relentlessly towards being customer-focused competitively-superiorperformance-driven and future-ready. HHLI has been able to galvanize its human resource tobecome more agile leverage change stay ahead of competition and win in the market.

High Performance Culture:

Company strives to foster a culture of high performance. Ongoing learning aligning HRsystems in line with current market benchmarks aligning rewards and recognitions withperformance has enabled HHLI to sustain its reputation of being a meritocraticorganisation. We expect a lot from our team members differentiate on the basis ofperformance and potential through career opportunities and rewards and lay particularemphasis on developing mentoring and training.

Training & Development:

During the year 2015-16 the Company has invested in training in various categories ofemployees and indirect team members. Competency development continues to be a key area ofstrategic focus for us. We have been driving various Technical & Behavioural TrainingPrograms at both the Factory & Head Office and Field. Our focus has been to launchtraining initiatives as an on-going process covering different levels across theorganisation. We launched the process of "Talent Assessment & Development"Centre for the Senior Management Team. At the Middle Level "Managerial EffectivenessSkills" was rolled out to build & enhance the managerial capabilities.

Workforce Employment:

As a continuous process of skill building and creating employment opportunities thisyear we again did a Certificate program – IKVK in collaboration with Commissionerateof Employment and Training Gandhinagar to provide a single point contact for industries toprovide efficient platform for the career growth of Skilled Candidates in Gujarat.Objective of the Program is to test & certify the Existing skills of the experiencedbut unqualified workers and to award skill certificates after upgrading and updating theskills. The course is designed specific to the requirement and to provide simpleunderstanding of Air conditioning and Refrigeration fundamentals.

Safety & Health:

A safe work place environment has been at its core at HHLI. We launched Hitachi SafetyLeague (HSL) as step to create awareness & commitment towards zero injury or accidentculture. Continuous safety drives are being carried out for all employees therebyreiterating the emphasis of safety in personal life.

Internal Control and Systems

The Company has adequate system of internal control to ensure that all the assetspertaining to Company are safeguarded and protected. Internal Audit has also been donethrough external Auditors at plant as well as at all the branches of the Company as perthe detailed scope defined and approved by the Audit Committee. The Internal Audit isplanned to substantiate and review the adequacy of controls and laid down procedures &systems.

Observations of Internal Auditors and the detailed plan of action is reviewed anddiscussed at the meetings of the Audit Committee.

Auditors

Audit Committee and Board of Directors have recommended appointment of M/s. PriceWaterhouse & Co. Chartered Accountants LLP (Firm Registration No. 304026E/E300009) asan Auditor of the Company. Accordingly requisite resolution forms part of the noticeconvening the AGM.

Directors’ Responsibility Statement

Your Directors confirm that:

(a) In the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanations relating to material departures;

(b) Such accounting policies selected and applied them consistently and made judgmentsand estimates that are reasonable and prudent so as to give a true and fair view of thestate of affairs of the Company at the end of the financial year and of the profit of theCompany for that period;

(c) Proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities

(d) Annual accounts have been prepared on a going concern basis;

(e) Internal financial controls which are to be followed by the Company have been laiddown and that such internal financial controls are adequate and were operatingeffectively; and

(f) Proper systems have been devised to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.

Performance evaluation

Board has carried out an annual evaluation of performance of Board Audit CommitteeStakeholder Relationship Committee Nomination and Remuneration Committee ExecutiveCommittee Vigil Mechanism Committee and CSR Committee.

Board has also carried out annual evaluation of the performance of individualDirectors who were evaluated considering level of their engagement and contributionsafeguarding the interests of the Company and its minority shareholders etc. Theperformance evaluation of the Chairman and the Non Independent Directors were carried outby the Independent Directors at their separate meeting.

Details of establishment of Vigil Mechanism

Company has established a Vigil Mechanism process as an extension of the Company’sCode of Conduct whereby an employee director customer vendor or associate of theCompany can disclose his genuine doubt in good faith to any member of Vigil MechanismCommittee about unethical behavior actual or suspected fraud or violation of theCompany’s Code of Conduct or ethics policy so that appropriate action can be takento safeguard the interest of the Company. In exceptional cases a complaint can bereported by a complainant to a Chairperson of Audit Committee. This mechanism is overseenby the Audit Committee.

Disclosure under Section 197(12) of the Companies Act 2013 read with Rule 5 ofCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014:

Name of Director and KMP Designation % increase in remuneration of Director and KMP Ratio of the remuneration of Director to the median remuneration of the employees of the Company for the financial year
Mr. Shinichi Iizuka Chairman Nil NA
Mr. Shoji Tsubokuta Managing Director Note 1 Note 1
Mr. Atsushi Ohtsuka Managing Director Note 2 Note 2
Mr. Anil Shah CFO & Executive Director 24% 16:1
Mr. Vinay Chauhan Executive Director 21% 16:1
Mr. Gurmeet Singh Executive Director Note 3 13:1
Mr. Varghese Joseph Executive Director Note 4 Note 4
Mr. Amit Doshi Executive Director Note 5 Note 5
Mr. Ashok Balwani Independent Director Note 6 0.37:1
Dr. Devender Nath Independent Director Note 6 0.56:1
Ms. Indira Parikh Independent Director Note 6 0.19:1
Mr. Mukesh Patel Independent Director Note 6 0.72:1
Mr. R S Mani Independent Director Note 6 0.19:1
Mr. Ravindra Jain Independent Director Note 6 0.56:1
Mr. Vinesh Sadekar Independent Director Note 6 0.25:1
Mr. Parag Dave Company Secretary 17% 0.19:1

Note 1: Mr. Shoji Tsubokuta ceased to be a Managing Director on 31st August 2015

Note 2: Mr. Atsushi Ohtsuka appointed as a Managing Director on 1st September 2015

Note 3: Mr. Gurmeet Singh appointed as an Executive Director on 21st July 2014

Note 4: Mr. Varghese Joseph appointed as an Executive Director on 1st August 2015

Note 5: Mr. Amit Doshi Ceased to be an Executive Director on 1st June 2015

Note 6: Sitting fees payable to Independent Directors for attending various meetingremained same.

Comparison of remuneration against Company’s performance

- Increase in remuneration of each KMP As mentioned in above table
- Increase in total remuneration of all Key Managerial Personnel Total remuneration of KMP increased by 22%
- Average increase in remuneration of all employees other than KMP Average increase in remuneration of all employees other than
KMP: 14%
Performance of the Company for the financial year 2015-16 Financial year 2015-16 Income from operations was
Rs 181720.18 Lacs and profit before tax was Rs 6883.97 Lacs.
Percentage increase in the median remuneration of employees in the financial year 5%
No. of permanent employees on the roll of the Company 1426
- Variations in the market capitalisation of the Company price 2014-15 2015-16
earnings ratio as at the closing date of the current financial year - Market Cap ( Rs In Lacs) 393724 330097
and previous financial year - Price earning ratio 50.63 66.05
- Percentage increase / decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the last public offer IPO in 1991 @ Rs 10
Market Price as on 31st March 2016 is Rs 1214
Compounding annual growth rate per year: 20%
Average percentage increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentage increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration - Average % increase in the salaries of employees other than the managerial personnel 14%
- Average % increase in the managerial remuneration 22%.
Key parameters for any variable component of remuneration availed by the directors As per the Remuneration Policy of the Company Variable component of remuneration is decided on basis of Company’s performance and individual performance of the Executive Directors.
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 Mr. Ichio Iwai: Ratio 1 : 1.22
Mr. Tomonaga Watabane: Ratio 1 : 1.25

We hereby affirm that the remuneration given to all the employees Directors and KMP isas per the Remuneration policy of the Company.

Risk Management System

Company has implemented Enterprise Risk Management (ERM) system to identify assessmonitor and mitigate the various risks associated with the Company.

Risks are identified and then classified into different categories such as StrategicOperational Business risk and Risk related to act of god. Then score based on level andsignificance of risk is given and subsequently risk mitigation steps are taken.

Every quarter a statement identifying new risks and updation on pre-identified risksalong with their mitigation process or counter measures taken are reported before theAudit Committee.

Details of directors or Key managerial personnel who were appointed or have resignedduring the year under review:

• Mr. Shoji Tsubokuta has ceased to be a Managing Director of the Company witheffect from 31st August 2015.

• Mr. Atsushi Ohtsuka has been appointed as a Managing Director of the Companywith effect from 1st September 2015.

• Mr. Amit Doshi has ceased to be an Executive Director of the Company with effectfrom 1st June 2015.

• Mr. Varghese Joseph has been appointed as an Executive Director of the Companywith effect from 1st August 2015.

• No Independent director has been re-appointed by passing a special resolutionduring the year under review.

Internal Financial Control:

Internal Financial Control plan adopted by the Company is adequate with reference tothe Financial Statement.

1. Conduct of its business by adherence to Company’s policies.

2. Safeguarding of assets.

3. The accuracy and completeness of the accounting records Prevention and detection offrauds and errors and timely preparation of reliable financial information.

Other disclosures:

1. Number of meetings of the Board: Four meetings of the Board of Directors of theCompany were held during the year under review on 29th May 2015 24th July 2015 26thOctober 2015 8th February 2016.

2. Members of the Audit Committee are as under:

• Mr. Mukesh Patel – Chairman

• Dr. Devender Nath – Member

• Mr. Ravindra Jain – Member

3. The Company has received necessary declaration from each Independent Director underSection 149(7) of the Companies Act 2013 that he/she meets the criteria of independencelaid down in Section 149(6) of the Companies Act 2013.

4. Details about the Policy on Corporate Social Responsibility (CSR) and projectsimplemented by the Company during the year under review as required under Section134(3)(o) 135(2) read with Companies (Corporate Social Responsibility Policy) Rules 2014have been provided as Annexure A.

5. Formal Appointment and Evaluation Policy of the Board of Directors and SeniorManagement of the Company which has been formulated and recommended by Nomination andRemuneration Committee and adopted by Board of Directors covering appointment andremuneration including criteria for determining qualifications positive attributesindependence of a director and other matters provided under Section 178(3) is attached asAnnexure B.

6. No commission paid to any Director of the Company so no disclosure is required tobe made under Section 197(14).

7. The details forming part of the extract of the Annual Return in form MGT 9 asprovided under sub-Section (3) of section 92 is annexed as Annexure C.

8. No loan was granted by the Company to any person to purchase or subscribe to fullypaid-up shares of the Company.

9. There is no fraud reported by Auditors under Section 143(12) of the Companies Act2013 during the year under review.

10. The details of familiarisation programme have been disclosed on the Company’swebsite and a weblink is as under:

http://www.hitachi-hli.com/images/investor_relation_reports/aggr_0.39343200%201421661808.pdf

11. Particulars of loans investments or guarantees under section 186: Company hasnot granted any loans secured or unsecured to companies firms or other parties coveredunder Section 186. Company has not made any investment in securities of other BodyCorporate. Company has given guarantee of Rs 1500 lacs against the credit facilitiesavailed by dealers.

12. There is no subsidiary associate and joint venture Company so no disclosure isrequired on the performance and financial position of each of the subsidiaries associatesand joint venture companies in Form AOC 1.

13. There is no Company which has become or ceased to be its subsidiary joint ventureor associate Company during the year.

14. On 1st October 2015 Johnson Controls Hitachi Ltd. and Hitachi Appliances Inc.have completed Global Joint Venture agreement (JV) and commenced operations of JohnsonControls – Hitachi Air Conditioning (JCH) to provide global customers with a fullrange of Air conditioning products. Through this agreement Johnson Controls has acquired a60 per cent ownership stake of the JV and Hitachi Appliances Inc. retained ownership ofremaining 40 percent stake of the JV.

15. During the year Company has not accepted deposits covered under Chapter V.

16. Auditor’s Report: There is no qualification reservation or adverse remark ordisclaimer made by the Auditors in their report.

17. Secretarial Audit Report: Pursuant to the provisions of Section 204 of theCompanies Act 2013 the Report of the Secretarial Auditors is annexed as Annexure D.

The Secretarial Auditors have made observation relating to non-filing of Form MGT-10for reporting changes in shareholding of Top

10 Shareholders of the Company. The Company understands that reporting of change in theshareholding is required if such change is of 2% or more of Company’s capital and notof the individual shareholding.

18. There is no significant and material order passed by the regulators or courts ortribunals impacting the going concern status and Company’s operations in future.

19. Details of complaints relating to sexual harassment during the year under review:Received during the year: Nil; Pending as on 31st March 2016: Nil.

20. Information pursuant to Section 134(3)(m) of the Companies Act 2013 read with Rule8(3) of the Companies (Accounts) Rules 2014 relating to Conservation of energytechnology absorption and foreign exchange earnings and outgo is given as Annexure E tothis report.

21. Statement showing particulars of employees under Rule 5(2) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 is attached with thisAnnual Report.

22. Contract or arrangement under Section 188(1): There were no contracts orarrangements entered by the party falling under Section 188(1). Particulars of contractsor arrangements with related parties are provided in Form AOC 2 as Annexure F.

23. Policy on dealing with Related Party Transactions has been disclosed onCompany’s website and a weblink is as under:

http://www.hitachi-hli.com/images/investor_relation_reports/aggr_0.17509900%201421661745.pdf.

24. Revision in Accounts or Board‘s Report: There are no revisions made in theAccounts or Board‘s Report.

25. Issue of Equity Shares with differential rights: There was no Equity Shareissued with differential voting rights during the year under review.

26. Issue of Sweat Equity Shares: There was no issue of Sweat Equity Share duringthe year under review.

27. Employee Stock Option and Employee Stock Purchase Schemes: No Employee StockOption and Employee Stock Purchase Schemes were launched during the year under review.

28. Disclosure under Regulation 34(3) Schedule 5 of the SEBI(Listing Obligation andDisclosure Requirement) Regualtions2015:

• The Equity Shares of the Company are not delisted or suspended during the yearunder review.

• Equity Shares of the Company are listed on the BSE Limited and the NationalStock Exchange of India Limited.

• Annual listing fees have been paid to both the stock exchanges mentioned above.

Acknowledgement

Your Directors thank all Customers Suppliers Investors Bankers – Bank ofAmerica N.A. State Bank of India ICICI Bank and Standard Chartered Bank and otherstakeholders of the Company for their co-operation and continued support during the year.We look forward to their continued support in the future also.

We wish to place on record our sincere appreciation for the excellent work put in bythe employees of the Company at all levels.

For and on behalf of the Board of Directors
Place : Delhi Atsushi Ohtsuka Anil Shah
Date : 30th May 2016 Managing Director CFO & Executive Director