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Tata Communications Ltd.

BSE: 500483 Sector: Telecom
NSE: TATACOMM ISIN Code: INE151A01013
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OPEN 689.00
PREVIOUS CLOSE 679.60
VOLUME 108700
52-Week high 784.00
52-Week low 570.45
P/E
Mkt Cap.(Rs cr) 20,350
Buy Price 718.65
Buy Qty 186.00
Sell Price 0.00
Sell Qty 0.00
OPEN 689.00
CLOSE 679.60
VOLUME 108700
52-Week high 784.00
52-Week low 570.45
P/E
Mkt Cap.(Rs cr) 20,350
Buy Price 718.65
Buy Qty 186.00
Sell Price 0.00
Sell Qty 0.00

Tata Communications Ltd. (TATACOMM) - Director Report

Company director report

Dear Shareholders

The directors present the 31st Annual Report and audited financialstatements of Tata Communications Limited ("Company") for the financial yearended March 31 2017. The Company along with its subsidiaries wherever required isreferred as "we" "us" "our" "TataCommunications" or ‘Tata Communications Group’.

PERFORMANCE

The key financial parameters of the Company’s performance duringthe year under review are given in the table below:

( Rs in Crores)
Standalone Consolidated
2016-17 2015-16 2016-17 2015-16
Continuing operations
Income from operations 5068.15 4790.32 17619.73 18148.58
Other Income (16.91) 209.77 360.29 396.64
Total Revenue 5051.24 5000.09 17980.02 18545.22
Total Expenses 4670.22 4372.52 17446.79 17980.21
Profit from ordinary activities before exceptional items tax and share of Profit of associate 381.02 627.57 533.23 565.01
Exceptional Items 823.82 (22.63) (1063.33) (102.79)
Profit / (Loss) before tax and share of Profit of associate 1204.84 604.94 (530.10) 462.22
Tax expense/(benefit)
Current Tax 602.50 150.32 270.30 203.95
Deferred Tax (87.49) 61.94 (33.92) 28.90
Profit / (Loss) for the period 689.83 392.68 (766.48) 229.37
Share in Profit of Associates - - 5.08 -
Profit/ (Loss) for the period from continuing operations - - (761.40) 229.37
Discontinued operations
Profit/(Loss) before tax from discontinued operations - - 123.31 (109.66)
Gain on sale of business and subsidiaries (including impairment of goodwill) - - 2420.51 (90.00)
Profit /(Loss) from Discontinued operations (before tax) - - 2543.82 (199.66)
Tax expense on Discontinued operations - - 546.96 19.25
Profit /(Loss) from discontinued operations after tax - - 1996.86 (218.91)
Net Profit/ (Loss) from total operations - - 1235.46 10.46
Other Comprehensive Income (net of tax) (188.02) (334.37) 864.64 (608.82)
Total Comprehensive Income / (Loss) 501.81 58.31 2100.10 (598.36)

Dividend

The directors are pleased to recommend a dividend of Rs 6.00 per share[Normal dividend of Rs 4.50 per share of face value Rs 10/- each plus a one-time specialdividend Rs 1.50 per share of face value Rs 10/- each] for the financial year ended March31 2017 ( Rs 4.30 per share dividend in FY 15-16) subject to the approval of theshareholders at the ensuing annual general meeting.

Transfer to Reserves

On a standalone basis the Company does not propose to transfer anyamount to the general reserve out of the amount available for appropriation and thebalance in the surplus in the statement of Profit and loss stood at Rs 3105.08crores as on March 31 2017.

OPERATIONS

Segment Distribution

We have been successful in our goal of diversifying revenues to tapnew opportunities and reduce any risks of an overtly concentrated portfolio. Our revenuesare broadly diversified across our voice and data services businesses. Taking advantage ofthe growing data services market the Tata Communications Group has been focusing onsegments such as mobility Internet of Things (IoT) media and entertainment financialservices and health care. During the year under review consolidated continuing businessrevenue from our voice services business contributed 38% (45% in FY15-16) of total revenueand our data services business contributed 62% (55% in FY15-16) of total revenue. This isdiscussed in detail in the Management Discussion & Analysis which forms a part ofthis report.

Voice

We continue to be one of the largest players worldwide in wholesalevoice business. The volumes in this business continued to decline due to a continued shiftin trafic to voice over internet protocol (VoIP) based calling. During the year underreview total voice trafic declined by 0.6% over the previous year EBITDA marginsincreased by 0.13% and EBITDA declined by 14.9%. Developing innovative commercialofficerings and optimizing costs to maintain free cash flow generation remains the focusfor this business.

Data

In the data services business we are the industry leaders in India andan emerging challenger globally. We have made significant capital expenditure in our databusiness to create a global infrastructure and a suite of growth products and services.Our ongoing focus and investment in brand sales and marketing to scale up our globalenterprise data business have increased recognition for the Tata Communications Group inthe market place. Over the years we have moved from being a traditional connectivityservices provider largely in India to a truly global services provider - officering abroad range of managed communication and collaboration services as well as ITinfrastructure services. With our current portfolio of data services Tata Communicationsis no longer seen as a mere provider of raw bandwidth. Our customers see us as anessential provider of technologies that help them make the shifts to digital businessmodels in addition to being a globalization enabler. Our investments and innovations areenabling us to be viewed more as an Over-The-Top (OTT) player than as a telecom operator.

Our data business has continued its robust momentum with revenuesgrowing 6.8% during 2016-17. During the year Tata Communications Group launched thelatest addition to its IZO Cloud Enablement Platform called IZO™ SDWAN SDWANstanding for Software Defined Wide Area Networking. This will strengthen theCompany’s data services officerings with new capabilities that allow enterprises totake advantage of greater service agility and automated provisioning. The TataCommunications Group has a strong set of officerings across the gamut of unifiedcommunications and collaboration (UCC) services hosting services security services andcontinues to see further growth in its data services portfolio. Our strategy of expandinginto managed services continues to pay ofi as these services now contribute 37% to thedata services segment.

HUMAN RESOURCES

Tata Communications Group officers a dynamic work environment where ouremployees benefit from working with other innovators from around the globe who are drivingmeaningful change to our customers and the planet. We have a multicultural workforce withpeople of more than 36 nationalities on our rolls out of which women constitute 20% ofour employees. Tata Communications Group’s compensation and employee benefitpractices are designed to be competitive in the respective geographies where it operates.Employee relations continue to be harmonious at all our locations. The number of trainingperson days provided to employees increased by 17% over the previous year. The TataCommunications Group has zero tolerance for sexual harassment and the Company has adopteda charter on prevention prohibition and redressal of sexual harassment in line with theprovisions of the Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013 and the rules made thereunder. During the financial year 2016-17 theCompany received five complaints on sexual harassment. As on March 31 2017 allcomplaints were disposed off with appropriate action and no complaint remained pending.

BUSINESS EXCELLENCE

The Tata Communications Group has adopted the Tata Business ExcellenceModel (TBEM) which is formulated on the Baldrige Excellence Framework to enable the TataCommunications Group to improve performance and attain higher levels of eficiency in itsbusinesses. Tata Communications was classified as an "Emerging Industry Leader"following a rigorous assessment conducted by the Tata Business Excellence Group (adivision of Tata Sons) and continues to use this assessment as a framework as part of itsbusiness excellence journey. We have taken actions on the findings of the assessment whichhave considerably improved our processes and TBEM score in the current year.

ENTERPRISE RISK MANAGEMENT

The Company has established an enterprise-wide risk management (ERM)framework to optimize the identification and management of risks globally and to complywith provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations2015. In line with the Company’s commitment to delivering sustainable value thisframework aims to provide an integrated and organized approach for evaluating and managingrisks.

There are no elements of risk which in the opinion of the Board maythreaten the existence of the Company.

RISK-BASED INTERNAL AUDIT

The risk assessments performed under the ERM exercise are a key inputfor the annual internal audit programme which covers various businesses and functions ofthe Tata Communications Group. This approach provides adequate assurance to the managementthat the right areas are covered under the audit plan.

CORPORATE MATTERS

Subsidiary Companies

a) The Company had 47 subsidiaries as on March 31 2017 and 5 associatecompanies within the meaning of Section 2(6) of the Companies Act 2013 ("Act").Except for the transfer of the Singapore data centre business described below there hasbeen no material change in the nature of business of the subsidiaries and associatecompanies.

Pursuant to the provisions of Section 129(3) of the Act a statementcontaining salient features of the financial statements of the Company’s subsidiariesin Form AOC-1 is attached to the financial statements.

Pursuant to the provisions of section 136 of the Act and GeneralCircular No. 11/ 2015 dated July 21 2015 issued by Ministry of Corporate Afiairs thefinancial statements of the Company consolidated financial statements along with relevantdocuments and separate accounts in respect of subsidiaries are available on the websiteof the Company. b) On February 10 2017 the Company and Nexus Connexion successfullycompleted the sale of its entire shareholding in Neotel Pty. Ltd. ("Neotel") toLiquid Telecom a privately owned pan–African telecoms group majority owned byEconet Wireless Global who partnered with Royal Bafokeng Holdings (RBH) a South Africanempowerment investment group in the transaction. The deal has created the largestpan-African broadband network and B2B telecom provider enabling African companies toconnect with each other and internationally on a single fibre network. Thus Neotel ceasedto be our subsidiary from February 10 2017.

c) As reported last year in May 2016 Tata Communications and SingaporeTechnologies Telemedia (ST Telemedia) a strategic global investor focused on thecommunications media and technology sectors had entered into definitive agreementswhereby ST Telemedia through ST Telemedia Global Data Centres (STT GDC) would uponclosing of the transaction acquire a 74% majority stake in Tata Communications’ datacentre business in India and Singapore with Tata Communications holding the remainingstake as a minority shareholder.

The India data centre transaction was successfully completed on October19 2016 and Tata Communications Data Centres Private Limited ceased to be our subsidiaryfrom that date while the Singapore data centre joint venture transaction was successfullycompleted on February 13 2017. The completion of both India and Singapore transactionsreinforces the strategic partnership between the two dynamic companies working closelyand drawing on each other’s complementary capabilities and experience to accelerategrowth in the vibrant data centre markets in India and Singapore. d) On January 20 2017Tata Communications (Netherlands) B. V. a wholly owned indirect subsidiary of theCompany acquired a 35% stake in Teleena Holding B.V. ("Teleena") a mobilevirtual network enabler headquartered in the Netherlands thus becoming its single largestshareholder. Thus Teleena has become an Associate of the Company from January 20 2017.

Investment in Tata Teleservices Limited

In 2008-09 NTT DoCoMo Inc (Docomo) entered into an agreement with TataTeleservices Limited (TTSL) and Tata Sons Limited (Tata Sons)fi to acquire 20% of theequity share capital under the primary issue and 6% under the secondary sale from TataSons. In terms of the agreements with Docomo Tata Sons inter alia agreed to providevarious indemnities and a Put Option entitling Docomo to sell its entire shareholding at aminimum pre-determined price of Rs 58.05 per share if certain performance parameters werenot met by TTSL. The minimum pre-determined price represented 50% of the acquisition pricepaid by Docomo in 2008-09.

An Inter-se agreement dated March 25 2009 was executed by the Companywith Tata Sons and other TTSL shareholders to give Effect to the Docomo/Tata Sons' saleand purchase agreement. In accordance with the terms of the Inter-se agreement theCompany sold 36542378 equity shares of TTSL to Docomo at Rs 116.09 per share resultingin a Profit of Rs 346.65 crores.

In or around July 2014 Docomo exercised its Put Option and called uponTata Sons to acquire Docomo's entire shareholding in TTSL at the pre-determined price ofRs 58.05 per share. The Reserve Bank of India did not permit acquisition of the sharesat the pre-determined price and had advised the parties that the acquisition can only bemade at Fair Market Value (FMV) prevailing at the time of the proposed acquisition. TataSons conveyed to Docomo its willingness to acquire the shares at the FMV however Docomoreiterated its position that the shares had to be acquired at Rs 58.05 per share.Thereafter Docomo had initiated Arbitration in the matter before the London Court ofInternational Arbitration (LCIA) the evidentiary hearing of which was completed on May06 2016.

The Arbitral Tribunal appointed by the LCIA to arbitrate the disputebetween Tata Sons and Docomo issued a final award (LCIA Award) on June 22 2016 whichrequired Tata Sons to pay to Docomo damages of US$1172 million upon tender of sharesheld by Docomo in TTSL together with interest arbitration costs and legal costs.

Thereafter Docomo filed a petition with the Delhi High Court forimplementation of the LCIA Award. The Delhi High Court directed Tata Sons to deposit thedamages including costs and interest in an escrow account. Under the terms of the Inter-Seagreement and pursuant to the LCIA award the Company was to acquire 158350304 equityshares of TTSL at a value of approximately Rs 1058 crores. On August 2 2016 the Companypaid to Tata Sons approximately Rs 1058 crores as a recoverable advance in anticipation ofsatisfaction of the LCIA Award and receipt of the TTSL Shares.

On April 28 2017 the Delhi High Court approved the consent termsbetween Tata Sons and Docomo for resolution of the LCIA Award (hereafter the"Order").

Under the terms of the Order the monies deposited by Tata Sons in theCourt by way of Fixed Deposit Receipts together with interest accrued thereon shall beretained by the Registrar of the Delhi High Court until requisite clearance from theCompetition Commission of India and the Withholding Tax Certificate as mentioned in theconsent terms between the parties have been obtained at which time the funds shall bereturned to Tata Sons for onward payment to Docomo in satisfaction of the Award.

Based on the Delhi High Court Order dated April 28 2017 the Companyhas made a provision of Rs 872.01 crores towards the contractual obligation under theInter-se agreement being difference between the fair value of equity shares to berepurchased (based on the valuation undertaken as at November 18 2016) and theconsideration paid for discharge of the Company’s obligation under the Inter-seagreement and Put Option. The provision has been adjusted against the deposit of Rs 1.058crores which is included in Non-current – Other financial assets.

The Company’s overall investment in the equity shares of TTSL isrecognised at fair value through Other Comprehensive Income. During the current year theCompany reassessed the fair value of TTSL and accordingly recognised a loss of Rs 166.71crores ( Rs 344.40 crores in FY15-16) in Other Comprehensive Income. Due to the continuedvolatility of market conditions it was not possible to complete an updated valuationreport to determine fair value as at March 31 2017.

Compliance under the Companies Act 2013 and additional SEBIstipulations

As on the date of this Report the Board comprised of nine directorsout of whom two were independent. As reported to stock exchanges in February 2002 whenthe Government of India ("GoI") transferred 25% of its stake in the Company toPanatone Finvest Limited ("Panatone") a shareholders’ agreement and ashare purchase agreement were signed. These agreements inter alia set forth the rightsand obligations of Panatone and the GoI including appointment of directors on the Board ofthe Company. The relevant clauses from the agreements were incorporated in the Articles ofAssociation of the Company which in part provide that the Board is to comprise of twelvedirectors four of whom must be independent. The GoI and Panatone are entitled to indicatethe names of two independent directors each. The two independent directors indicated bythe GoI and appointed to the Board resigned in May 2011. Since the resignation of thesetwo independent directors the GoI has indicated only one independent director to replacethem - Dr. Uday B. Desai who has been duly appointed. Further Mr. Subodh Bhargava anindependent director has ceased to be a director with Effect from March 30 2017. Ms.Renuka Ramnath an independent director has been elected as the Chairperson of the Boardw.e.f. April 14 2017.

The Company is pursuing with the GoI and Panatone for indication ofcandidates for appointment as independent directors so as to fill the vacancies on theBoard. Until the recommendation is received enabling the Nomination and RemunerationCommittee (NRC) and the Board to appoint two more independent directors the Company willnot be able to comply with provisions of Section 149 (4) of Companies Act 2013 andRegulation 17 (1) (b) of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015.

PENDING MATTERS OF SIGNIFICANCE

Inability to Raise Additional Equity Funding

In response to Company’s request for consideration of additionalequity funding the GoI has informed the Company that it is neither willing to invest inany further equity of the Company nor will it accept dilution of its stake in the Company.This has resulted in the Company not being able to avail of any non-debt funding throughissue of equity since 1997.

Surplus Land

Out of the total land acquired by the Company (then Videsh SancharNigam Limited) in 1986 from the GoI as the successor to the Overseas CommunicationsService 773.13 acres of land at five difierent locations was identified as‘surplus’ (Surplus Land) for demerger under the terms of the share purchase andshareholders’ agreements (SHA) signed between the GoI and Panatone at the time ofdisinvestment. Under the terms of the SHA it was agreed that this Surplus Land would bedemerged into a separate entity. It was further provided that if for any reason theCompany could not transfer or demerge the Surplus Land into a separate entity alternativesolutions would be explored.

To accomplish the demerger of the Surplus Land in accordance with theSHA Panatone incorporated Hemisphere Properties India Limited (HPIL) in 2005-06 to holdthe Surplus Land as and when demerged. In March 2014 the GoI acquired ~51.12% of theshares in HPIL making it a Government company.

Additionally with the objective to give Effect to the terms of the SHAand to facilitate the demerger of Surplus Land in a tax neutral manner for the Companythe GoI has inserted an Explanation 5 to clause (19AA) of section 2 of the Income Tax Act1961 (Explanation 5) with Effect from April 1 2017 by a recent Taxation Laws (Amendment)Act 2016. This Explanation 5 provides as follows:

"Explanation 5 – For the purposes of this clause thereconstruction or splitting up of a company which ceased to be a public sector company asa result of transfer of its shares by the Central Government into separate companiesshall be deemed to be a demerger if such reconstruction or splitting up has been made togive Effect to any condition attached to the said transfer of shares and also fulfils suchother conditions as may be notified by the Central Government in the Oficial Gazette"

Further in exercise of the powers conferred by Explanation 5 the GoIpursuant to Central Board of Direct Taxes Notification 93/2016 No. 149/251/2015-TPL datedOctober 14 2016 issued a notification (Notification) which states:

"that the reconstruction or splitting up of a company which ceasedto be a public sector company as a result of transfer of its shares by the CentralGovernment into separate companies shall be deemed to be a demerger if the followingconditions are fulfilled namely:—i. that such reconstruction or splitting up hasbeen made to transfer any assets of the demerged company to the resulting company to giveEffect to the conditions mentioned in the Share Holders’ Agreement and Share PurchaseAgreement; and ii. that the resulting company is a public sector company."

The Directors place on record their sincere appreciation for the GoIfor afiecting the above mentioned Explanation 5 and Notification. The Company has soughtcertain clarifications on the said Explanation 5 and Notification and is pursing the samewith the GoI.

The Company is currently actively working with the GoI Panatone andHPIL to finalize the scheme of demerger and expects that the same shall be finalizedsometime in the near future.

Continuous efiorts are being made by the GoI Panatone HPIL and theCompany to measure the land demarcate it between Surplus Land and non-Surplus Land and toresolve the issues of variance in the physical areas of land vis a vis the areas of landmentioned in the SHA. As reported earlier 32.5 acres of land situated at Padianallur wastransferred in July 2009 to the VSNL Employees Cooperative Housing Society Chennai(society) as per the order of the Hon’ble Delhi High Court. As this land was part ofthe Surplus Land Panatone has written to the GoI to exclude these 32.5 acres of land fromthe Surplus Land to be demerged.

Additionally as mentioned below in this Report Delhi Metro RailCorporation Limited (DMRC) has acquired approximately 2.6 acres of Company land for theDelhi Metro work out of which 0.55 acres constitutes Surplus Land.

Furthermore as per the terms of the SHA the Company owns 774 acres ofland at Dighi Kalas and other villages near Pune (Pune Land) of which 524 acresconstituted Surplus Land. In 1940 approximately 94.7 acres of the Pune Land was leased tothe Ministry of Defense (MoD) for the duration of the war which could form part of SurplusLand. The MoD continued to occupy this land and pay the agreed annual rent until March 312006. Since this time the Company has been seeking payment from the MoD for all rent dueon the land. On July 31 2010 the MoD informed the Company that the land in theirpossession had been transferred to the MoD in 2007 by the Collector of Pune and that norent on this land was owed to the Company. The MoD further claims that the land wastransferred to the MoD under a "Pune Package Deal" by the GoI and nocompensation is payable by it to the Company for the land. The Company continues to pursuethe matter for compensation for the unpaid rent and the value of the land.

In view of the above the quantum of Surplus Land available fordemerger has reduced. Significant progress has been made in reconciliation of the SurplusLand and the Board is hopeful that the outstanding issues on the demarcation of land shallbe resolved by the promoters of the Company very soon. The book value of the Surplus Landis ~ Rs 0.16 crores.

Delhi Metro Land Acquisition

In September 2013 the Delhi Metro Rail Corporation Limited("DMRC") informed the Company that as part of its Delhi Metro work it requireda parcel of the Company’s land at Greater Kailash-I New Delhi. This land parcelmeasured 11622 square meters (2.6 acres). On January 2 2014 the Company received anacquisition notice for this land pursuant to an award granted by the Land AcquisitionCollector (LAC). The Company subsequently received a certified copy of the LAC award onFebruary 6 2014 stating the total compensation for the land determined by LAC as

Rs 18880168/- based on an indicative price fixed by the Government ofDelhi for agricultural land. Aggrieved the Company filed a Reference Petition with LACfor the proper determination of the compensation due on the land based on commercial andnot agricultural usage of land. Simultaneously the Company also filed a writ petitionwith the Delhi High Court. On April 24 2014 the Delhi High Court directed DMRC todeposit a sum of Rs 247 crores with the Court Registrar which has since beendeposited by DMRC. This amount is approximately 80% of the estimated compensationvaluation for the land based on commercial usage. In the meantime DMRC has commencedconstruction for the Delhi Metro work on the land. The writ petition in the Delhi HighCourt is at the stage of final arguments between the parties.

Premature Termination of Monopoly and Compensation

As reported earlier the GoI had allowed other players into theInternational Long Distance (ILD) business from April 1 2002 terminating theCompany’s exclusivity in ILD two years ahead of schedule. The GoI agreed to give theCompany a compensation package for this early termination by the terms of itscommunication to the Company dated September 7 2000. The GoI also gave the Company anassurance that it would consider additional compensation if found necessary following adetailed review.

However pursuant to its letter dated January 18 2002 issued justbefore its disinvestment of the Company the GoI issued a further dispensation to theCompany and unilaterally declared that the conditions stated in its letter were to betreated as full and final settlement of every sort of claim against the early terminationof the Company’s rights in the ILD market. The Company filed a suit in the BombayHigh Court in 2005. The Bombay High Court on July 7 2010 ruled that it did not have thejurisdiction to hear this suit in view of the provisions of the Telecom RegulatoryAuthority of India Act 1997 (TRAI). In response the Company has instituted an appealbefore a division bench of the Bombay High Court on various grounds. This appeal in theBombay High Court is yet to come up for hearing.

STATUTORYI NFORMATION AND DISCLOSURES

Material Events After Balance-Sheet Date

During the current year NTT Docomo Inc. fi"Docomo") hadfiled a petition with the Delhi High Court for implementation of the arbitration award(damages along with costs and interest) made by the London Court of InternationalArbitration. The Delhi High Court directed Tata Sons to deposit the damages includingcosts and interest in an escrow account. During the quarter ended September 30 2016 theCompany had remitted its share of Rs 1058.00 crores to Tata Sons. During thecurrent year based on the High Court Order dated April 28 2017 the Company has made aprovision of Rs 872.01 crores towards the contractual obligation under the inter-seagreement being the difference between the fair value of the equity shares to berepurchased based on the valuation undertaken as at November 18 2016 and theconsideration payable to the buyer for discharge of the Company's obligations under thePut Option. The provision has been adjusted against the deposit of Rs 1058 croreswhich is included in Non-current – Other financial assets. The Company does notbelieve that there is any obligation of any further payment in this regard.

Deposits from Public

The Company has not accepted nor does it hold any public deposits.

Non-convertible Debentures (NCDs)

The Company had Rs 155 crores of outstanding NCDs (Secured NCDs –Rs 5 crores and Unsecured NCDs Rs 150 crores) as on March 31 2017. The trust deed for thesecured NCDs will be available for inspection by the members at the Company’sregistered office during normal working hours 21 days before the date of the 31st AnnualGeneral Meeting i.e. June 27 2017.

All debentures issued by the Company were rated AA+ by CARE.

Particulars of Employees

The provisions of Section 134 of the Act and the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 require the Company to providecertain details about the remuneration of its employees.

According to the provisions of section 136(1) of the Act theDirectors’ Report being sent to the shareholders need not include this information asannexure. The annexure regarding the Particulars of Employees under section 134 of the Actand the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 willbe available for inspection by any member at the registered office of the Company duringworking hours for 21 days before the date of the AGM.

Conservation of Energy

To achieve optimal energy efficiency we aim to employ continuousmeasurement of energy consumption identify leakages and review our operating procedures.Our facilities / sites are designed to connect utilities such as chillers Un-interruptedPower Supply (UPS) and Air Handling Units (AHUs) to a customer’s Building ManagementSystem (BMS) for maximizing efficiency and sourcing Renewable Energy (RE) from third partysources. We implemented several energy efficiency projects in 2016-17 across ouroperations which further reduced our global emissions by 69000 metric tons.

We consume nearly 2 million gigajoules of energy mainly comprising ofindirect power supply (97%) from the national grid whereas rest comes from conventionalsources. There is an on-going move to use renewable energy at key locations of TataCommunications. The Company has signed multiple agreements with wind power suppliers inTamil Nadu Karnataka and Hyderabad for 69 million kilowatt hours per annum for thefacilities at Chennai Bangalore & Hyderabad.

Technology Absorption

The Company continues to use the latest technologies for improving theproductivity and quality of its services and products. The Company’s operations donot require significant import of technology.

Foreign exchange earnings and outgoings

For the purpose of Form ‘C’ under the said rules foreignexchange earnings were equivalent to Rs 898.45 crores and foreign exchange outgo wasequivalent to Rs 623.11 crores.

Statutory Auditor’s Report

The Statutory Auditors have not reported any incident of fraud to theAudit Committee of the Company in the year under review.

The standalone and consolidated financial statements of the Companyhave been prepared in accordance with the Indian Accounting Standards prescribed underSection 133 of the Act read with relevant rules issued thereunder (Ind AS) and otheraccounting principles generally accepted in India.

The Auditors have given a qualified opinion on the standalone andconsolidated financial statements of the Company as described below:

Standalone Financial Statements:

"As described in Note No. 6(VI) to the standalone Ind AS FinancialStatements the fair value of the Company’s investment in the unquoted equity sharesof Tata Teleservices Limited (TTSL) has not been determined as at March 31 2017.Accordingly we are unable to comment whether the carrying value of the investment in TTSLof Rs 515.53 crores represents the fair value as at March 31 2017 and whether anyconsequent adjustment is required to be recognised in other comprehensive income andwhether the expense for provision for contractual obligation as described in Note No. 29to the standalone Ind AS Financial Statements is adequate."

Board’s Comment:

The equity investment in question is in an unlisted company where theCompany is a minority shareholder holding less than 10 percent of the shares of theunlisted company. The Company was provided an external valuation report dated November 182016 from the unlisted company.

As of the date of the issue of these financial statements due to thecontinued volatility of market conditions it was not possible to complete an updatedvaluation report to determine fair value as at March 31 2017.

Consolidated Financial Statements:

1. "As described in Note No. 8(i) to the Consolidated Ind ASFinancial Statements investment in the unquoted equity shares of Tata TeleservicesLimited (TTSL) has not been determined as at March 31 2017. Accordingly we are unable tocomment whether the carrying value of the investment in TTSL of Rs 515.53 croresrepresents the fair value as at March 31 2017 and whether any consequent adjustment isrequired to be recognised in other comprehensive income and whether the expense forprovision for contractual obligation as described in Note No. 31 to the Consolidated IndAS Financial Statements is adequate."

Board’s Comment:

The equity investment in question is in an unlisted company where theCompany is a minority shareholder holding less than 10 percent of the shares of theunlisted company. The Company was provided an external valuation report dated November 182016 from the unlisted company.

As of the date of the issue of these financial statements due to thecontinued volatility of market conditions it was not possible to complete an updatedvaluation report to determine fair value as at March 31 2017.

2. "As described in Note No. 34(II)(a) the Consolidated Ind ASFinancial Statements includes loss from discontinued operations of Rs 69.98 crores for theyear ended March 31 2017 in respect of a subsidiary (disposed on February 10 2017)whose financial statements have not been audited by us. These financial statements areunaudited and have been furnished to us by the Management and our opinion on theConsolidated Ind AS Financial Statements in so far as it relates to the amounts anddisclosures included in respect of this subsidiary is based solely on such unauditedfinancial statements."

Board’s Comment:

On February 10 2017 the Company concluded sale of its entireshareholding in Neotel and the Company does not have any control over Neotel. Neotel is inthe process of obtaining its audited Financial Statement and hence the Company hasconsidered the management accounts of Neotel to prepare its consolidated financialstatements. The Company believes that the numbers provided by the management will notdifier significantly from the final audited financials. Further this will not have anyimpact on the Consolidated Balance Sheet as on March 31 2017.

Secretarial Auditors’ Report

Pursuant to the provisions of Section 204 of the Act and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Mr. U. C. Shukla a Practising Company Secretary (FCS No. - 2727/CP No. - 1654)to undertake the Secretarial Audit of the Company. The report of the Secretarial Auditorin Form MR-3 for the Financial Year ended March 31 2017 is annexed to this Report. TheSecretarial Audit Report contains the following observation:

"During the year under review the Company has complied with theprovisions of the Act Rules Regulations Guidelines Standards etc. mentioned abovesubject to the following observation: The Company has complied with the requirements ofthe SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and theCompanies Act 2013 except for appointment of Independent Directors to the extent of 1/3rdof the total strength of the Board."

Board’s Comment:

In February 2002 when the Government of India (GoI) transferred 25% ofits stake in the Company to Panatone Finvest Limited (Pantone) a shareholders’agreement and a share purchase agreement were signed. These agreements inter alia setforth the rights and obligations of Panatone and the GoI including appointment ofdirectors on the Board of the Company. The relevant clauses from the agreements wereincorporated in the Articles of Association of the Company which in part provide that theBoard is to comprise of twelve directors four of whom must be independent. The GoI andPanatone are entitled to indicate the names of two independent directors each.

The two independent directors indicated by the GoI and appointed to theBoard resigned in May 2011. Since the resignation of these two independent directors theGoI has indicated only one independent director to replace them - Dr. Uday B. Desai whohas been duly appointed. Further Mr. Subodh Bhargava an independent director has ceasedto be a director with Effect from March 30 2017. Ms. Renuka Ramnath an independentdirector has been elected as the Chairperson of the Board w.e.f. April 14 2017.

The Company is pursuing with the GoI and Panatone for indication ofcandidates for appointment as independent directors so as to fill the vacancies on theBoard. Until the recommendation is received enabling the Nomination and RemunerationCommittee (NRC) and the Board to appoint two more independent directors the Company willnot be able to comply with provisions of Section 149 (4) of Companies Act 2013 andRegulation 17 (1) (b) of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015.

Particulars of loans guarantees or investments under Section 186

The particulars of loans guarantees and investments have beendisclosed in the Financial Statements which also form part of this report.

Significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and Company’s operations in future

During the year under review there were no significant and materialorders passed by the regulators or courts or tribunals impacting the going concern statusand Company’s operations in future.

Financial Controls

The Company has adequate internal financial controls with reference tothe preparation and presentation of Financial Statements which are operating Effectively.

Subsidiaries

A statement in Form AOC-I pursuant to first proviso to Section 129 ofthe Act read with rule 5 of Companies (Accounts) Rules 2014 containing salient featuresof the financial statement of subsidiaries/ associate companies/ joint ventures forms apart of this report. The Company adopted Ind AS from April 1 2016 and accordingly theconsolidated financial statements of the Company and its subsidiaries are prepared inaccordance with the recognition and measurement principles stated therein. The accountstatements of the subsidiaries will be provided on request to any shareholder wishing tohave a copy on receipt of such request addressed to the Company Secretary at theCompany’s registered office. These documents will also be available for inspection byany shareholder at the Company’s registered office and will be available on theCompany’s website.

Changes in the Board of Directors & Key Managerial Personnel

Mr. Subodh Bhargava independent director ceased to be a director onthe Board with Effect from March 30 2017 as his term as independent director came to anend. The Board places on record its sincere gratitude for Mr. Bhargava’s counsel andleadership which has been invaluable to the growth and development of the Company. Ms.Renuka Ramnath independent director has been elected as the Chairperson of the Boardwith Effect from April 14 2017.

Dr. Ashok Jhunjhunwala stepped down from the Board with Effect fromJanuary 27 2017. The Board places on record its sincere appreciation for hiscontributions and guidance to the Company.

After obtaining the requisite security clearance under theCompany’s TV uplinking license from the Ministry of Information and BroadcastingGoI the Board at its meeting held on October 18 2016 appointed Mr. G. Narendra NathDeputy Director General (Security) Deprtment of Telecommunictions Government of Indiaas an additional director of the Company as per the nomination received from theGovernment of India.

The Board seeks approval of the shareholders at the 31st Annual GeneralMeeting for confirmation of the appointment of Mr. G Narendra Nath.

In accordance with the provisions of the Act and the Company’sArticles of Association Mr. Bharat Vasani and Mr. N. Srinath retire by rotation at theensuing Annual General Meeting and being eligible officer themselves for re-appointment.

None of the Company’s directors are disqualified from beingappointed as a director as specified in Section 164 of the Act. For details about thedirectors please refer to the report on Corporate Governance.

Declaration of Independent Directors

The independent directors have provided necessary disclosures to theCompany that they comply with all the requirements stipulated in Section 149(6) of the Actfor being appointed as an independent director which forms part of the Directors’Report.

Particulars of contracts or arrangements with related parties referredto in Section 188 of the Act

There have been no materially significant related party transactionsbetween the Company and the directors the management the subsidiaries or the relativesexcept for those disclosed in the financial statements.

Accordingly particulars of contracts or arrangements with relatedparties referred to in Section 188(1) of the Act along with the justification for enteringinto such contract or arrangement in Form AOC-2 does not form part of the Directors’Report.

Number of meetings of the Board

Eleven meetings of the Board were held during the year. For details ofthe meetings of the Board please refer to the report on Corporate Governance which formspart of the Directors' Report.

Board evaluation

The Board of Directors of the Company carried out annual evaluation ofits own performance of committees of the Board and individual directors pursuant to theprovisions of the Act and the corporate governance requirements as prescribed under SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015.

Inputs were sought from all the directors on the basis of criteria suchas the Board composition and structure Effectiveness of and contribution to Boardprocesses adequacy appropriateness and timeliness of information and the Board’soverall functioning etc. In a meeting of independent directors held on March 1 2017 theperformance of the Board as a whole its committees and the Chairperson was evaluated. Theconclusions were discussed in a meeting of the NRC where the performance of the Board itscommittees and individual directors were reviewed. Thereafter the Board based on thebriefing by the Chairperson and the NRC discussed the assessment of the Board itscommittees and the Chairperson.

Policy on directors’ appointment and remuneration and otherdetails

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

Audit committee

The details pertaining to composition of the Audit Committee areincluded in the report on Corporate Governance which forms part of the Directors’Report.

Corporate Social Responsibility

The brief outline of the Corporate Social Responsibility (CSR) Policyof the Company and the initiatives undertaken on CSR activities during the year are setout in Annexure I of this report in the format prescribed in the Companies (CorporateSocial Responsibility Policy) Rules 2014. The policy is available on the Company’swebsite.

Extract of annual return

As provided under Section 92(3) of the Act the extract of annualreturn is given in the prescribed Form MGT-9 which forms part of the Directors' Report asAnnexure II.

Particulars of employees

The information required under Section 197 of the Act read with rule5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014is given below:

a. The ratio of the remuneration of each director to the medianremuneration of the employees of the Company for the financial year 2016-17:

Non-Executive Directors Ratio to median remuneration *
Mr. Subodh Bhargava (up to
March 30 2017) 3.06
Mr. N. Srinath 0.68
Mr. Kishor A. Chaukar 1.51
Dr. Ashok Jhunjhunwala
(up to January 27 2017) 1.07
Dr. Uday B. Desai 2.48
Mr. Saurabh Kumar Tiwari # 1.10
Mr. Bharat Vasani 0.76
Ms. Renuka Ramnath 2.08
Dr. Gopichand Katragadda 0.87
Mr. G. Narendra Nath # 0.20
Executive Director
Mr. Vinod Kumar 48.46

* While calculating the ratio for non-executive directors bothcommission and sitting fees paid have been taken.

# The Government directors have informed the Company that they shallnot accept any sitting fees and commission as their directorships are considered to bepart of their oficial duty.

b. The percentage increase in remuneration of each director chiefexecutive 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 *
Mr. Subodh Bhargava @
(up to March 30 2017) NA
Mr. N. Srinath (11.34)
Mr. Kishor A. Chaukar (3.76)

 

Directors Chief Executive Officer Chief Financial Officer and Company Secretary* % increase in remuneration in the financial
year *
Dr. Ashok Jhunjhunwala @
(up to January 27 2017) NA
Dr. Uday B. Desai 12.01
Mr. Saurabh Kumar Tiwari # NA
Mr. Bharat Vasani 28.34
Ms. Renuka Ramnath 19.85
Dr. Gopichand Katragadda 69.14
Mr. G. Narendra Nath # NA
Mr. Vinod Kumar Managing 17.60
Director & Group CEO
Ms. Pratibha K Advani Chief NA
Financial Officer @
Mr. Manish Sansi Company NA
Secretary @

* While calculating the ratio for non-executive directors bothcommission and sitting fees paid have been taken.

@ Directors and KMPs who have not been in the Company for the entirefinancial years 2015-16 and 2016-17 have not been considered for the calculations.

# The Government Directors have informed the Company that they shallnot accept any sitting fees and commission as their Directorships are considered to bepart of their oficial duty.

c. The percentage increase in the median remuneration of employees inthe financial year: -3.33%

d. The number of permanent employees on the rolls of Company: 4064

e. Average percentile increase already made in the salaries ofemployees other than the managerial personnel in the last financial year and itscomparison with the percentile increase in the managerial remuneration and justificationthereof and point out if there are any exceptional circumstances for increase in themanagerial remuneration:

The average annual increase was around 8.4%. However during the courseof the year the total increase is approximately 7.9% after accounting for promotions andother event based compensation revisions. Increase in the managerial remuneration for theyear was 14.3%.

f. Affirmation that the remuneration is as per the remunerationpolicy of the Company:

The Company affirms that the remuneration is as per the remunerationpolicy of the Company.

g. Particulars of Employees:

The statement containing particulars of employees as required underSection 197(12) of the Act read with Rule 5(2) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 including any statutory modificationsand amendments thereto is provided in a separate annexure forming part of this report.Further the report and the accounts are being sent to the members excluding the aforesaidannexure. In terms of Section 136 of the Act the said annexure is open for inspection atthe Registered Office of the Company. Any shareholder interested in obtaining a copy ofthe same may write to the Company Secretary.

Corporate Governance

Pursuant to Regulation 24 and Regulation 34 of SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 the Management Discussion andAnalysis Business Responsibility Report Report on Corporate Governance andAuditors’ Certificate regarding compliance with conditions of corporate governanceform part of the Directors’ Report.

DIRECTORS’ RESPONSIBILITY STATEMENT

Based on the framework of internal financial controls and compliancesystems established and maintained by the Company work performed by the internalstatutory cost and secretarial auditors and external consultant(s) as applicableincluding audit of internal financial controls over financial reporting by the statutoryauditors and the reviews performed by Management and the relevant Board committeesincluding the Audit Committee the Board is of the opinion that the Company’sinternal financial controls were adequate and Effective during the financial year 2016-17.

Accordingly pursuant to Section 134(5) of the Act the Board ofDirectors to the best of their knowledge and ability confirm that:

? In the preparation of the annual accounts the applicable accountingstandards were followed and there were no material departures;

• the directors had selected such accounting policies and appliedthem consistently and made judgments and estimates that are reasonable and prudent so asto give a true and fair view of the state of afiairs of the Company at the end of thefinancial year and of the Profit and loss of the Company for that period;

• the directors had taken proper and suficient care for themaintenance of adequate accounting records in accordance with the provisions of this Actfor safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

• the directors had prepared the annual accounts on a goingconcern basis.

? the directors have laid down internal financial controls to befollowed by the Company and that such internal financial controls are adequate and wereoperating Effectively.

? the directors have devised proper systems to ensure compliance withthe provisions of all applicable laws and that such systems were adequate and operatingEffectively.

? the directors have reviewed and approved the Annual Operating Plan(including the strategy and resource plan) of the Company.

? the directors have overseen maintenance of high standards of Tatavalues and ethical conduct of business.

? the directors have reviewed TBEM (Tata Business Excellence Model)findings and monitored the action plan.

? the directors have protected and enhanced the Company and Tata brandwhere companies are using the same.

Awards & Recognitions

Gartner’s Magic Quadrant for Network Services Global

? Tata Communications has been positioned as a Leader in the GartnerMagic Quadrant for Network Services Global for the fourth year in a row.

A 2017 Best Employer in India and Hong Kong by Aon Hewitt

? In 2017 for the second year in a row Tata Communications has beenrecognized as one of the Best Employers in India. Only 18 other companies in India havereceived this recognition and it is a testament of the Company’s commitment to itsemployees and progressive people practices specifically in the area of Learning andDevelopment. In addition earlier this year we were also recognized as one of the BestEmployers in Hong Kong.

Ranked 19th in the Top 25 companies in India (2017) –Linkedin

? In 2017 Tata Communications was ranked 19th in the Top 25 companiesto work for in India by LinkedIn.

Certified as Great Place to Work in India (2017) – Great Place toWork Institute

? In 2017 Tata Communications was also certified as a Great Place toWork in India by the Great Place to Work Institute again a testament of the progressivepeople practices deployed by the Company.

ACKNOWLEDGMENTS

The directors would like to thank each one of our customers businessassociates and suppliers located in difierent parts of the world for their valuablecontribution to the Company’s growth and success. The directors recognize andappreciate the passion and commitment of all the employees around the world.

The directors are grateful to the Company’s other stakeholders andpartners including its shareholders promoters bankers and others for their continuedsupport.

On behalf of the Board of Directors

Chairperson

Dated: May 4 2017

Registered Office:

VSB MG Road Fort

Mumbai – 400001