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Hindustan Aeronautics Ltd.

BSE: 541154 Sector: Engineering
NSE: HAL ISIN Code: INE066F01012
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OPEN 536.00
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VOLUME 985
52-Week high 896.35
52-Week low 448.00
P/E 6.52
Mkt Cap.(Rs cr) 17,683
Buy Price 528.80
Buy Qty 17.00
Sell Price 535.00
Sell Qty 20.00
OPEN 536.00
CLOSE 532.70
VOLUME 985
52-Week high 896.35
52-Week low 448.00
P/E 6.52
Mkt Cap.(Rs cr) 17,683
Buy Price 528.80
Buy Qty 17.00
Sell Price 535.00
Sell Qty 20.00

Hindustan Aeronautics Ltd. (HAL) - Director Report

Company director report

Dear Shareholders

Your Board of Directors takes pleasure in presenting their 55th AnnualReport on the performance of the Company together with the Audited Financial Statementsfor the financial year ended 31st March 2018 and reports of the StatutoryAuditors and the Comptroller and Auditor General of India thereon.

Financial Results and Performance Highlights:

The financial highlights for the year ended 31st March 2018 are summarizedas under:

(H in Lakhs)

PARTICULARS 2017-18 ^^2016-17
Turnover 1828386 1760379
Exports 31402 46502
Profit Before Tax (PBT) 332284 358258
Provision for Tax 125243 96695
Profit After Tax (PAT) 207041 261563
R&D Expenditure 161186 128373
Earnings/ Share 58.50 72.35
Book Value / Share 360 347

During the year under review the Company's turnover increased to H1828386 Lakhs fromH1760379 Lakhs in FY 2016-17. Profit Before Tax for the year is H332284 Lakhs asagainst H358258 Lakhs in the previous year. The Profit After Tax (PAT) for the year isH207041 Lakhs.

Dividend

During the year your Company paid first interim dividend of H23.92 per share of H10each (239%) on 9th March 2018 and second interim dividend of H8.25 per share(83%) on 31st March 2018 totalling to H107587 Lakhs excluding dividend taxof H21902 Lakhs.

Amount Transferred to Reserves

An amount of H16723 Lakhs was transferred to Research & Development Reserve forthe year 2017-18.

Further an amount of H58118 Lakhs was transferred to General Reserves for the year2017-18.

Buy back of Shares

During the year the Company bought back 27112500 equity shares of H10/- each fromthe President of India at an offer price of H339.88 per share and paid total buy backconsideration of H92150 Lakhs excluding buy-back tax of H20636 Lakhs on 19th December2017.

Disinvestment and Listing on Stock Exchanges

The Company made Initial Public Offering (IPO) of 34107525 Equity Shares of H10/-each through an Offer for Sale by the President of India acting through the Department ofDefence Production Ministry of Defence Government of India. The shares of the Companywere listed on both BSE Ltd. and National Stock Exchange of India Ltd on 28thMarch 2018.

Indian Accounting Standards

The Financial Statements have been prepared in compliance with Indian AccountingStandards (Ind-AS) and provisions of the Companies Act 2013.

Internal Financial Controls

The Company has in place adequate internal financial controls with reference tofinancial statements. A detailed note on internal financial controls is provided in theManagement Discussion and Analysis Report.

Significant Achievements

The Financial Year 2017-18 was an eventful year and various goals set in the beginningof the year were successfully accomplished.

• Production of 40 aircraft and helicopters:

o Production of fixed wing aircraft - LCA Tejas Dornier Do-228 and Su-30 MKI.

o Civil certification of Dornier Do-228

o Production of Rotary Wing aircraft - Advanced Light Helicopter (ALH) Dhruv Rudra andCheetal helicopter.

• Overhaul of 220 aircraft/helicopters

• Engines:

o Production of 105 new engines; o Substantial progress on the Company's new offeringsHindustan Turbo Fan Engine - 25 (HTFE) and Hindustan Turbo Shaft Engine (HTSE) 1200 withsuccessful engine runs;

o Overhaul of 550 engines

• Continuation of export activities

• Space:

o Manufacture of 146 new aero-structures.

o Successful production of the tallest ever Pay Load Fairing which protected thefragile GSAT-19 satellite and other sensitive crucial equipment for GeosynchronousSatellite Launch Vehicle (GSLV) Mk III - India's heaviest rocket during the launch phase.

• Make-in-India: To provide major boost to defence manufacturing and Government's'Make-in-India' initiative HAL invited Expression of Interest (EOI) for identification ofIndian Partner for manufacturing of indigenous Advanced Light Helicopter (ALH) -Dhruv(Civil version) through Transfer of Technology (ToT) for civil sector in February 2018.

Program Developments:

The Company achieved significant progress in various R&D / Development Projectsviz. Basic Trainer Aircraft (Hindustan Turbo Trainer HTT-40) Light Combat Helicopter(LCH) Light Utility Helicopter (LUH) Light Combat Aircraft (LCA) - Tejas Jaguar DarinIII Upgrade Mirage 2000 Upgrade Hawk-i Mini UAV and the development of engines.

(I) Fixed Wing aircraft:

Combat Aircraft

(a) Light Combat Aircraft (LCA) - Tejas:

The LCA - Tejas is an indigenously designed and developed 'Make in India' fighteraircraft. It is the smallest and lightest multi-role supersonic single engine fighter inits class. Tejas completed 442 test flights during the year moving closer to FinalOperational Clearance (FOC). Furthermore hot refuelling (single point pressure refuellingof the aircraft while in operation) on Tejas was carried out successfully on 26th February2018 followed by a sortie. This capability will give the Indian Air Force (IAF) muchdesired advantage during combat operations.

HAL has taken up Design and Development of LCA MK1A which will have additional featureslike Self Protection Jammer Active Electronically Scanned Array (AESA) RADAR and BeyondVisual Range(BVR) Missile.

(b) Sukhoi - 30 MKI (Mark India):

The world's fastest supersonic missile BrahMos was successfully test fired from IAF'sfrontline fighter Su-30 Mkl for the first time on 22nd November 2017. HALintegrated the heavy weight missile on Sukhoi-30 overcoming technical challenges tobolster IAF's combat capabilities.

Transport Aircraft:

(c) Dornier Do-228:

HAL Dornier Do-228 is a multi purpose transport aircraft already in service with theIndian Armed Forces. Do-228 received the Certificate of Airworthiness from DirectorateGeneral of Civil Aviation (DGCA) for its civil variant on 21st December 2017.This certification will enable the aircraft to be used as a passenger transport aircraftand give a boost to the Government's Ude Desh Ka Aam Nagrik (UDAN) initiative under theRegional Connectivity Scheme (RCS). HAL has successfully produced two civil variants andthey are DGCA certified.

Trainer Aircraft:

(d) Hindustan Turboprop Trainer (HTT - 40)

HTT-40 is the Basic Trainer Aircraft (BTA) currently being indigenously designed anddeveloped by HAL. The aircraft would be used for basic flight training aerobaticsinstrument flying and close-formation flights whereas its secondary roles would includenavigation and night flying. Two prototypes have been produced and are undergoing flighttrials towards certification. HTT-40 has so far completed 153 test flights cumulatively.Flight with Anti-Spin Parachute System (ASPS) was carried out successfully on 27th February2018 as part of its activities towards IOC.

Aircraft Upgrades:

(e) Mirage 2000:

On the aircraft upgrade front Mirage 2000 upgrade was successfully completed andService clearance certificate (FOC) from Centre for Military Airworthiness &Certification (CEMILAC) received on 29th May 2018. A cumulative of 170 testflights is completed.

(f) Jaguar DARIN III:

The first flight of Jaguar DARIN (Display Attack Range and Inertial Navigation) IIIaircraft with AESA (Active Electronically Scanned Array) Radar was conducted on 10thAugust 2017 giving the IAF's main stay strike aircraft a tremendous boost.

The AESA Radar which is used in most modern combat aircraft has improved featureslike multi target tracking frequency agility and higher bandwidth of operationinterleaved modes of operation higher accuracies and resolution in addition to HigherMean Time Between Failures (MTBF). The multi-mode radar is capable of air-to-airair-to-ground and air-to-sea tracking and engagement. HAL has already provided a crucialupgrade with DARIN III (electronics system upgrade) earlier.

Aircraft modifications and flight trials towards Final Operational Clearance completed.A cumulative of 347 test flights have been completed.

(g) Hawk Upgrade - "Hawk-i”

Hawk India (Hawk-i) is the indigenously upgraded Hawk Mk 132 aircraft with enhancedoperational and training capabilities. The Hon'ble Defence Minister dedicated Hawk-i tothe Nation on 26th August 2017.

Hawk-i was flown with HAL developed indigenous Real Time Operating System (RTOS) on 11thDecember 2017. HAL's RTOS performance is benchmarked with other commerciallyoff-the-shelf RTOS available around the world in avionics domain and is found to be atpar.

(II) Helicopters:

(a) Light Combat Helicopter (LCH):

The LCH is a dedicated combat helicopter indigenously designed and developed by HAL.HAL received the Initial Operation Clearance (IOC) certificate from the Centre forMilitary Airworthiness & Certification (CEMILAC) for successfully developing LightCombat Helicopter (LCH) on 26th August 2017 in the presence of the Hon'bleDefence Minister. The production activities were also initiated on the same day. Theindigenously designed and developed LCH has the distinction of being the first attackhelicopter to land at Siachen 4700 metres above the sea level with a payload of 500 kg.Four Technology Demonstrators (TD) are currently under extensive flight-testing.Cumulative of 1274 flights have been carried out so far out of which 252 flights werecompleted in 2017-18. The LCH achieved a milestone of 1000th flight on 6thJune 2017.

Following the launch of production the maiden flight of indigenously developedAutomatic Flight Control System (AFCS) integrated on LCH was conducted successfully on 31stJanuary 2018. The indigenous AFCS will replace the expensive imported system bringingcost advantage besides enhancing technology base.

(b) Advanced Light Helicopter (ALH) Weapon System Integration (WSI) - Rudra

The ALH-WSI-Rudra is the weaponised version of the battle proven ALH Dhruv helicopter.The helicopter is integrated with Turret Gun Rocket and Air to Air Missile. Thehelicopter is also integrated with particle separator for operation in desert. Thehelicopters are inducted into Indian Air Force and Indian Army. Intermediate Infra Red(IR) seeker evaluation trials were completed during January 2018.

(c) Light Utility Helicopter (LUH)

The LUH is a single engine new generation 3-ton weight class helicopter incorporatingstate-of-the-art technology features planned to replace Cheetah and Chetak helicoptersbeing operated by the Indian Armed Forces. Two prototypes have been produced and are beingused for certification activities. LUH has so far completed a cumulative of 133 testflights out of which 59 flights have been carried out in FY 2017-18.

(III) Aero Engines:

(a) 25 kN Hindustan Turbofan Engine (HTFE-25)

Design and development of a 25kN thrust class turbofan engine which can be used onBasic/ Advanced military trainers on small business jets and also large UAV applicationsis under progress at HAL. The engine can be used on a 5-ton weight class aircraft insingle engine configuration and on aircraft of up to nine-ton weight class withtwin-engine configuration. Two core engines have been produced so far and are undergoingdevelopment trials. So far 255 runs have been completed.

(b) 1200 KW Turboshaft Engine (HTSE-1200)

The 1200KW Turbo shaft engine would be used as power plant for 3 to 6-ton categoryhelicopters. HTSE- 1200 engine technology demonstrator is assembled and inaugural test runsuccessfully carried out on 12th February 2018. 150 runs have been completedsuccessfully

(IV) Mini UAV (8 kg class):

HAL's UAV programs are aimed at meeting the emerging requirements of MilitaryPara-Military Police and Civil

Sectors. The first Mini UAV was handed over to Central Armed Police Forces (CAPF) on 7thSeptember 2017 in the presence of the Hon'ble Defence Minister and the Hon'ble HomeMinister. Further the UAV was equipped with Gimbal stabilized medium resolution camera on10th February 2018. Parachute recovery system proven on Mini UAV and sevensuccessful recoveries using parachute was carried out.

New Orders:

The Order Book position of your Company as on 31st March 2018 is H61123crores.

• The order book comprises the following major programmes to be liquidated.

• Su-30 MKI for Indian Air Force (25 Nos).

• Light Combat Aircraft (LCA) in Initial Operation Clearance (12 Nos) and FinalOperation Clearance for Indian Air Force (20 Nos).

• Dornier Do-228 aircraft for Indian Navy (12 Nos) and for Indian Air Force (4Nos).

• Advanced Light Helicopters for Indian Navy (16 Nos) and Indian Coast Guard (16Nos). New order for 41 Advanced Light Helicopters (ALH) Dhruv received from the IndianArmy (40 Nos) and Indian Navy (1 No) in August 2017.

• Cheetal Helicopter for Indian Air Force (10 Nos) and Indian Army (6 Nos).

• An order for 8 Chetak Helicopters received from Indian Navy in August 2017.

• AL-31 FP Engines (used in Su-30 MKI Aircraft) to Indian Air Force.

• ROH task for aircraft /helicopter/engines for one year.

• Anticipated Order:

Light Combat Aircraft (LCA) - Tejas in Mark (Mk) 1A: An RFP for 83 LCA MK1Aconfiguration was received from the Indian Air Force (IAF) on 21st December2017.

• Light Combat Helicopters (LCH): An RFP for 15 LCHs was received from the IndianAir Force (10 Nos) and the Indian Army (5 Nos) on 22nd December 2017.

Particulars of Loans Guarantees or Investments

Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 form part of notes to the Financial Statements provided inthis Annual Report.

Related Party Transactions

There were no significant related party transactions with the Company's promotersDirectors Management or their relatives which could have had a potential conflict withthe interests of the

Company. All Related Party Transactions were placed before the Audit Committee / Boardas applicable for approval. Information pursuant to Section 188(2) of the Companies Act2013 and Rule 8(2) of the Companies (Accounts) Rules 2014 with related parties referredto in Section 188(1) of the Companies Act 2013 is attached to this report as Annexure-I.

Consolidated Financial Statements

The consolidated financial statements of your Company and its joint venture andsubsidiary companies for the year ended 31st March 2018 has been prepared inaccordance with the provisions of Section 129(3) of the Companies Act 2013 and applicableAccounting Standards and form part of the Annual Report.

Pursuant to first proviso of Section 129(3) of the Companies Act 2013 read with Rule 5of Companies (Accounts) Rules 2014 a separate statement containing salient features ofthe financial statements of subsidiaries / associate / joint venture companies in FormAOC-1 is appended to this report which shall form part of the Financial Statements.

Subsidiary/ Associate/ Joint Venture Companies

At the beginning of the year we had one subsidiary and 13 (thirteen) associatecompanies.

During the year the following changes have taken place:

(I) Defence Innovation Organization

Defence Innovation Organization is a Joint Venture (a Section 8 Company) formed withBharat Electronics Limited (BEL) having 50:50 equity participation on 10thApril 2017. This is an initiative of the Government to create an eco system to fosterinnovation and technology development in defence.

(II) Indo-Russian Helicopter Limited

Indo-Russian Helicopters Ltd. (IRHL) a joint venture between HAL Russian Helicoptersand Rosoboronexport was incorporated on 2nd May 2017 with 50.5% holding byyour Company and 49.5% by Russian partners for manufacture and supply of Kamov Ka-226Thelicopters in India. The subsidiary was formed pursuant to InterGovernmental Agreement(IGA) signed by the Government of India with their Russian counterparts.

Pursuant to the provisions of Section 134(3)(q) read with Rule 8 (1) of the Companies(Accounts) Rules 2014 report on the performance and financial position of each of theJoint Venture and Subsidiary Companies as per provisions of the Companies Act 2013 isprovided herewith and annexed as Annexure II.

Annual Return of the Company

In accordance with the provisions of Section 92(3) and Section 134(3)(a) of theCompanies Act 2013 read with Rules 12(1) of the Companies (Management and Administration)Rules 2014 the Annual Return of the Company is uploaded on the website of the Companywww.hal-india.co.in/investors.

Board and Number of Meetings of the Board

The composition of the Board of Directors of the Company as on 31st March2018 was 10 (ten) directors comprising of 5 (five) Executive Directors (functionaldirectors including CMD) and 5 (five) Non-executive directors (Independent directorsincluding woman director). During the year 11 (eleven) Board Meetings were held and themaximum interval between any two meetings was not more than 120 days. The details ofmeetings of the Board and Committees thereof held during the year is furnished inCorporate Governance Report which forms part of this Report.

Changes in Board of Directors and Key Managerial Personnel

The following changes took place in the Directors and Key Managerial Personnel (KMP) ofyour Company during the year:-

Shri P S Krishnan Shri Pradipta Banerji Shri Gopabandhu Pattanaik and AVM (R) D KPande AVSM VSM ceased to be Independent Directors w.e.f 4th May 2017 oncompletion of their tenure.

• Shri V Somasundaran Shri Arun Kumar Sinha & Dr J K Bajajwere appointed asIndependent Directors w.e.f 11th September 2017.

• Shri Sunil Kumar was appointed as Director (Operations) with effect from 16thOctober 2017.

• Shri Arun Kumar Sinha ceased to be Independent Director upon resignation w.e.f22nd January 2018.

• Shri V Somasundaran ceased to be Independent Director upon resignation w.e.f 6thFebruary 2018.

• Shri Chandraker Bharti ceased to be Government Nominee Director w.e.f 1stMarch 2018 due to withdrawal of nomination by the Government of India.

• Shri Anil Kumar Shri Neelakanta Iyer R and Shri Siddharth were appointed asIndependent Directors w.e.f 5th March 2018.

Changes occurred after 31st March 2018 till the date of signing of thisreport are as under:

• Dr. C.P Ramanarayanan DG Aeronautical Systems DRDO was appointed asGovernment Nominee Director w.e.f 1st May 2018.

• Shri Chandraker Bharti Joint Secretary (Aerospace) MoD was appointed asGovernment Nominee Director w.e.f 15th May 2018.

• Shri D. K. Venkatesh Director (Engg. and R &D) ceased as Director uponsuperannuation on 31st May 2018.

Shri Arup Chatterjee was appointed as Director (Engg. and R &D) with effect from1st June 2018.

• Dr. C.P Ramanarayanan DG Aeronautical Systems DRDO ceased as GovernmentNominee Director w.e.f 19th June 2018 on withdrawal of nomination by theGovernment of India.

Committees of the Board

As on 31st March 2018 the Board had four Statutory Committees the AuditCommittee the Nomination & Remuneration Committee CSR & SD Committee andStakeholders Relationship Committee.

A detailed Note on the composition of the Board and its Committees is provided in theCorporate Governance Report.

Declaration from Independent Directors

The Company has received necessary declaration from each Independent Director of theCompany under Section 149(7) of the Companies Act 2013 stating that the IndependentDirectors of the Company met with the criteria of their independence laid down in section149(6) of the Companies Act 2013.

Company's Policy on Directors' Appointment and Remuneration.

The appointment tenure and remuneration of Directors (Functional Directors includingCMD) are determined by the Government of India. Selection is made by the PublicEnterprises Selection Board (PESB). The Terms & Conditions of appointment includingthe period of appointment the scale of pay and other entitlements are notified by theGovernment of India.

Government Nominee Directors are appointed by the Department of Defence ProductionMinistry of Defence and they are not entitled to any remuneration / sitting fees.

Independent Directors are appointed by the Government of India and they are entitled tositting fees for attending the Board / Committee meetings as prescribed by the Board inadherence with the statutory rules and regulations.

Your Company being a Government Company the requirement for framing policy onDirectors' appointment and remuneration including criteria for determining qualificationsetc under section 134(3)(e) of the Companies Act 2013 do not apply in view of theGazette notification No GSR 463 (E) dated 5th June 2015 of the Ministry ofCorporate Affairs (MCA) Notification.

Board Evaluation

Pursuant to the Notification No. 463 (E) dated 5th June 2015 issued byMinistry of Corporate Affairs your Company being a Government Company the statementindicating the manner in which formal annual evaluation has been made by the Board of itsown performance and that of its committees and individual directors is not required as theperformance of directors is evaluated by the Administrative Ministry.

The performance evaluation of the Independent Directors was carried out by the entireBoard at its 415th board meeting held on 30th May 2018. TheDirectors expressed satisfaction with the evaluation process. The performance ofnon-independent directors and Board as a whole was reviewed by Independent Directorsduring the year.

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

Your Company being a defence CPSE the disclosure of information with respect toconservation of energy technology absorption foreign exchange earnings and outgo underthe provisions of Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules2014 is not required as the Ministry of Corporate Affairs vide Notification GSR No.680 (E)dated 4th September 2015 has granted exemption to Defence Public SectorUndertakings.

Development and Implementation of Risk Management Policy

Pursuant to Regulation 21 of SEBI (Listing Obligations & Disclosure Requirements)Regulations 2015 your Company has developed and rolled out a comprehensive RiskManagement Policy. The policy aims at elimination or reduction of risk exposures throughidentification and analysis of various types of risks and facilitating timely action fortaking risk mitigation measures.

Corporate Social Responsibility (CSR)

Your Company as a responsible corporate has always been committed towards creating afavourable environment to bring about inclusive growth in the society. The Company isfully engaged in ensuring equitable and sustainable growth especially in the area of itsoperations besides complying with government directives to discharge its socialresponsibility as a leading Indian corporate.

Pursuant to the provisions of Section 135 of the Companies Act 2013 and Companies(Corporate Social Responsibility Policy) Rules 2014 & Guidelines of Department ofPublic Enterprises (DPE) the Company has undertaken various activities as per the CSRPolicy of the Company. The projects / programmes / activities are taken up in line withSchedule VII of the Companies Act 2013.

The Board of Directors of your Company has constituted the Committee on CorporateSocial Responsibility & Sustainable Development (CSR & SD) (Disclosed in CorporateGovernance Report) in line with the provisions of Section 135 of the Companies Act 2013.The Committee has formulated and recommended to the Board CSR Policy indicating theprojects / activities to be undertaken by the Company as specified in Schedule VII of theCompanies Act 2013.

The Corporate Social Responsibility Policy of the Company is posted on the Company'swebsite www.hal-india.co.in.

A separate report on Corporate Social Responsibility (CSR) activities undertaken byyour Company during the year 2017-18 is enclosed as Annexure-III.

Business Responsibility Report

SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 stipulatesthat the annual report shall contain a Business Responsibility Report describing theinitiatives taken by the listed entity from an environmental social and governanceperspectives in the format specified. Accordingly the Business

Responsibility Report for the year 2017-18 has been drawn up and appended to thisReport.

Significant and Material Orders

There are no significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and the Company's operation in future.

Public Deposits

During the year your Company has not received any deposit from public.

Issue of Equity Shares with Differential Rights

During the year the Company has not issued any equity shares with differential rightsas to dividend voting or otherwise.

Particulars of Employees and Related Disclosures

Your Company being a Government Company the provisions of Section 197 of the CompaniesAct 2013 and relevant Rules do not apply in view of the Gazette notification dated 5thJune 2015 issued by Government of India Ministry of Corporate Affairs.

MoU with Government Your Company has been signing a Memorandum of Undertaking (MoU)every year with the Ministry of Defence Government of India.

The performance of the Company for the year 2016-17 has been rated as“Excellent” in terms of MoU with the Government and based on the provisionalassessment the Company maintains the “Excellent Rating” for the year 2017-18 aswell.

Credit Rating

During the year M/s Credit Analysis & Research Limited has granted your company acredit rating of CARE AAA/A1+ for Long Term and Short Term facilities amounting to H2500Crs.

India Ratings & Research Private Ltd has granted your company a credit ratings of'IND AAA/ Stable' for working capital fund based facilities amounting upto H450 Crs and'IND A1+' for non fund based working capital facilities amounting to H2050 Crs.

Event subsequent to the date of Financial Statements

Material changes and commitments affecting the financial position of the Company whichhave occurred between 31st March 2018 and date of signing of this Report are -Nil.

Research and Development Efforts

During the year your Company continued to focus its efforts on new platforms'development technology development and capability enhancement. These activities are takenup with a view to bring technological superiority to the products and to cope up with thefuture technological challenges that are required for development of new products andproduct enhancements. Towards the progress of the R&D efforts your Company hasincurred a total expenditure of H161186 Lakhs for the year 201718 which is 9% of theTurnover.

HAL is jointly working with premier R&D organisations like DRDO LaboratoriesCSIR-NAL and CIPET towards self-reliance in the aviation field. The Company also worksclosely with premier educational institutes and has established chairs at IIT Madras IITRoorkee IIT Kharagpur IIT Bombay IIT Kanpur and IISc Bangalore to enhance its R&Defforts.

The Company has transferred a sum of H16723 Lakhs (10% of Operating PAT) to R&Dreserve for contribution to R&D corpus during the year 2017-18.

Exports

Company's major exports during the year include:

• Supply of second Do-228 aircraft in maritime role to Seychelles People's DefenceForce and Periodic Maintenance of first Do-228 aircraft of Seychelles People's DefenceForce at HAL facility

• Repair & Overhaul of Turbomeca 2B2 engine of Mauritius Police Force

• Supply of aero-structures to France (A320 Passenger Doors to Airbus and EngineKits to Safran Engines) Germany (Do-228 Structures to RUAG for their ongoing Do-228 NGprogram) USA (Gunbay Doors and Wire harness to Boeing's F-18 fighter aircraft program)

• Supply of indigenously designed and developed Avionics (Radar Computers MissionComputers Display Processors to Su-30 aircraft) Rolled Rings to Rolls Royce's ongoingengine programs and Forgings & Castings to diverse countries. These orders enabled HALto continue its association with aircraft programmes of these major OEMs while meetingstringent reliability quality and delivery specifications.

• The Export Sales of the Company during the year is H314 Cr.

Over the years the Company has exported the Aircraft platforms namely Advanced LightHelicopter (ALH)-Dhruv Cheetal Cheetah Chetak Lancer Helicopters and Do-228 aircraftto overseas customers in Nepal Afghanistan Mauritius Seychelles Namibia Ecuador andSuriname. The Company has registered its footprint over the years in more than 20Countries.

In order to ensure that the Customers attain the level of technical competency tohandle the maintenance activities independently in future the Company has deputed itstechnical experts to Customer Sites for providing product support. Training programmeswere also conducted for Customer Pilots Ground/ Air Crews and Technicians at HAL site.The Company has also provided maintenance and overhaul services to cover the life cyclerequirements of HAL products.

High-level delegations from various Countries visited HAL facilities and have conveyedtheir appreciation of HAL's aircraft platforms and facilities. As a follow-up of thevisits technical proposals were submitted to various countries and are being pursued. Inaddition the Company is making efforts to secure export orders for aircraft andhelicopter platforms arising out of bilateral Defence Cooperation Agreements between theGovernment of India and the respective Countries.

HAL's brand image and identity was strategically projected by showcasing its productsand capabilities while participating in leading international Air Shows/Exhibitions. TheCompany participated in LAAD 2017-Brazil Paris Air Show-2017 MAKS 2017-Moscow andDefence & Security 2017-Thailand. Your Company also participated in Wings India 2018held at Hyderabad.

HAL is interacting with OEMs of Aerospace and Defence Sector and has also signed Letterof Intent to be their Indian Offset Partner to utilise the opportunities arising out ofOffset obligations to enhance exports increase self reliance and also acquire newcapabilities & technologies. HAL has been exploring opportunities in the followingareas:

• Export of Work Packages

• Export of Avionics and Systems

• Transfer of Technology etc.

Currently HAL is exporting A-320 Forward Passenger Doors; Weapons Bay and Gun Bay Doorof F-18; Wire harness of F-18 aircraft; Avionics and Systems for SU-30 etc. as part ofvarious Offset Contracts.

Procurement from Micro & Small Enterprises (MSEs)

Your Company has been providing increased thrust on enhancing procurement from MSEs andis implementing Public Procurement Policy for Micro & Small Enterprises (MSEs) as perthe guidelines / notification issued by the Ministry of MSEs. During the year 201718 thetotal value of procurement including outsourcing made from MSEs is H58997 Lakhs.

Vendor Development Initiatives

Private vendors are being partnered in various projects of HAL including new projectssuch as LCH LUH HTT-40 etc. to turn them into reliable established partners over time.Your Company has got around 2000 registered sub-contractors.

Your Company has been conducting several vendor development programs including programsfor MSE/SC/ST vendors to increase the participation of private vendors in themanufacturing programmes. The Company has also been participating in various programsorganized by MSME CII NSIC and making presentations covering HAL proceduresopportunities available and requirement from the vendors.

The fifth edition of Global Vendors' Meet was organized at Ghatage Convention CentreBengaluru on 12th December 2017. A total of 37 Foreign and 53 Indian vendorsparticipated in the meet.

Indigenisation / Make in India

In order to achieve self-reliance the Company has consistently focused and givenemphasis on indigenous development of Platforms/Systems/LRUs Maintenance SparesCastings/ Forgings etc. Obsolescence of items / LRUs / Raw Materials for ageing aircraftlike MiG-21 Jaguar & Kiran and current aircraft like Su- 30 MKI etc. are also managedthrough Indigenisation.

Further the Company has hosted more than 400 imported systems and sub systems ofmechanical electrical avionics & instrumentation category on HAL's portal. This canbe accessed at www.hal-india.co.in under Make in India.

The Company has also hosted more than 100 Nos. of Tools Testers and Ground Equipment(TTGE) for Sukhoi-30 MKI on its website under 'Make in India' for maintenance repair andindigenization by Indian vendors.

Based on the above efforts towards Indigenisation / Make-in-India more than 2000 itemsare indigenized during the year. Further more than 25 No. of items are taken up forindigenous development from the list of imported Systems / Tools / Testers and GroundEquipment hosted on the HAL website under Make-in-India.

Additionally details of testing facilities of HAL which could be utilized by privateindustries are also hosted on the website and can be accessed through www.hal-india.co.in.

So far more than 40 vendors have utilized the HAL test facilities. Human ResourceDevelopment

As on 31st March 2018 your Company had 29035 employees. The Company has ascientific manpower plan aligned to the business plans of the Company.

With a view to enrich the academic base of the Company Sponsorship for Post GraduateProgramme in Public Policy and Management (PGPPM) at IIM Bangalore has been introducedfor Officers. The Programme is a one-yearfull time residential course and commenced fromthe Academic Year 2017-18 onwards with sponsorship of 5 officers. Further during the year2017-18 14 Officers were sponsored for Post Graduate Programmes at Cranfield UniversityUK; Indian Institute of Technology (IITs) at Roorkee Madras Bombay & Kharagpur toprovide opportunities to the Officers to build their knowledge based competencies. Another3 Officers were sponsored for Ph.D Programmes at IITs and 1 Officer was sponsored for theMS (Systems Engg.) at SupAero France. In addition to the above 90 Executives wereimparted Training at least One Week duration in Centres of Excellence (IITs IIMs NITsICAI XLRI etc).

As on 31st March 2018 4514 Apprentices were engaged in the Company.

Leadership Development Program

As a part of the continued efforts towards building Organizational capabilities 31Officers in the Senior Management Level were nominated for Leadership Development Programsin collaboration with IIM-Ahmedabad during the year.

Revision of Pay Scale of Executives

In line with the Presidential Directives issued by the Department of Defence Productionvide letter dated 10th November 2017 Pay Revision of Board Level and belowBoard Level Executives of your Company was effected during November 2017 w.e.f. 01/01/17in line with the Dept. of Public Enterprises (DPE) OMs dated: 03/08/2017 04/08/2017 &07/09/2017.

Employee Welfare

Your Company continues to extend welfare benefits to the employees and their dependantsby way of comprehensive Medical Facilities Housing Facilities Canteen Facilities (foremployees only) Educational Facilities for employee's Children Sports Facilities etc.

Representation of SC / STs

Representation of SC / STs in the total Strength of the Company as on 1stJanuary 2017 and 1st January 2018

Category

Total Strength as on

Number of SCs as on

Number of STs as on

(Grade / Scale of Pay) ^1.1.2017 1.1.2018 1.1.2017 1.1.2018 ^1.1.2017 1.1.2018
Group - A
(Grade - II & above ) 9041 8807 1599 1557 541 529
Group - B (Grade-I) 92 43 17 8 7 4
Group - C
(Scale -3 to Special Scale) 20507 20354 3545 3501 1470 1473
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis 18 15 5 4
(ii) Safai Karmacharis - - - - - -
Total 29658 29219 5166 5070 2018 2006

Recruitments made during the period 1st January 2017 to 31stDecember 2017 and the SC & STs amongst them:

Category Total

No. of Reservations

No. of Posts tilled by

(Grade / Scale of Pay) number of

made for

appointment of

Post tilled SCs STs SCs STs
Group - A (Grade - II & above ) 83 18 9 14 8
Group - B (Grade-I) 7 - - - 2
Group - C (Scale -3 to Special Scale) 291 68 33 73 31
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis - - - - -
(ii) Safai Karmacharis - - - - -
Total 381 86 42 87 41

Vacancy based Promotions made during the period 1st January 2017 to 31stDecember 2017 and the SC & STs amongst them:

Category Total

No. of Reservations

No. of Posts tilled by

(Grade / Scale of Pay) number

made for

Promotion of

Promoted SCs STs SCs STs
Group - A (Grade - II & above ) 1277 NA NA 211 76
Group - B (Grade-I) 1 - - - -
Group - C (Scale -3 to Special Scale) - - - - -
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis - - - - -
(ii) Safai Karmacharis - - - - -
Total 1278 - - 211 76

Employee Relations (ER) / Industrial Relations

The Employee Relations Scenario in the Company has been peaceful healthy and cordial.The Company has been maintaining meaningful and effective communication between theManagement and the Unions / Associations in order to reduce and eliminate any scope forconflicts and misunderstandings achieve better understanding and thus facilitatemaintenance of Industrial Harmony. Regular Meetings with the representatives of therecognized Unions / Officers Associations at the Divisional Complex & CorporateLevels were held to discuss issues.

Plant Level and Shop Level Committees with representatives from the Management andWorkmen / Union Representatives are functioning in the Divisions to discuss and resolveproduction related issues and other related matters. In order to address Employee / PublicGrievance / Representations Grievance Redressal Mechanisms are also in place in theCompany.

Implementation of Official Language Policy

All out efforts are being made for implementation of the Official Language (OL) Policyof the Government of India. The IT wing of Department of Official Language Gol conducteda special Hindi workshop for OL officials on 26th July 2017 at HAL. The aimwas to make the OL officials aware of technical facilities developed in the field ofofficial language. Decisions taken by the Apex Committee are implemented at Company level.Inspections of various Divisions related to Official Language have been conductedsuccessfully by the Department of Official Language / Ministry of Defence during thisyear.

Prohibition of Sexual Harassment of Women at Workplace

The Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal)Act 2013 has been notified in the Company. In line with the Guidelines received from timeto time necessary actions have been taken to prevent Sexual Harassment of Women atWorkplace. The HAL CDA Rules applicable to Officers and the Certified Standing Ordersapplicable to Workmen have the required provisions in this regard.

Internal Complaints Committees as per Section 4 of the Act have been put in place.Information for the year 2017 in terms of Section 22 of the Act is as indicated below:

(i) Number of Cases pending as on 01/01/2017 - 4

(ii) Number of Complaints of Sexual Harassment received in the year 2017 - 3

(iii) Number of Complaints disposed of during the year 2017 - 5

(iv) Status of pending cases (2) as on 31/12/2017 - Of the two pending Cases Enquirywas under progress before the Internal Complaints Committee (ICC) in one Case. In theother Case the ICC had submitted the Report to the Disciplinary Authority on 30.12.17 andthe same was under examination by the Disciplinary Authority for appropriate actions.

Information Technology (IT) Initiatives

To align with the Digital India initiative of the Government of India your Company hasundertaken the following key initiatives to enhance customer service/ satisfactionimprove processes and quality consciousness through innovative use of IT:

• Customer Delight:

In order to effectively track responses of all customer queries/letters by CustomerService Team a monitoring portal “Commitment Monitoring Portal” is launched. Aportal for handling Customer enquiries is also developed for Customer Service Team whichhelped in tracking pending Customer RFQ.

As a part of “Gaganshakti” exercise by the Indian Air Force a Real timemonitoring portal for tracking Rotables identified by IAF was developed and launched.

• Process Improvements:

i. A Quality Dashboard is developed for monitoring of Defect Investigation (DI) andPremature Withdrawal Report (PWR) of repairables sent by the customers to the Divisions.This has helped in faster clearance of repairable items in the Divisions.

ii. Manual File system is being replaced with e-File system which is being rolled outacross the Company. Time based OTP has been used for ensuring security during e-Filetransmission.

iii. KPI Dashboard (with 47 KPIs) is developed for monitoring the trends of KeyPerformance Indicators (KPIs) across various Divisions in the areas like IMM CustomerService HR MSD Manufacturing and Quality.

iv. A centralized program is undertaken for implementation of GST at all Businessunits. This involved creation of new Tax codes update of Customer/ Vendor/ ProductMaster New invoice formats and development of reports for uploading data to GSTIN portal.

• IT Infrastructure:

To strengthen and to provide high speed Fibre connectivity across Bangalore basedDivisions and Data centre a MAN (Metropolitan Area Network) is completed. MAN networkenables Centralization of IT Services effective monitoring and managing critical systemsof the Company.

Awards & Recognitions

During the year your Company has received various Awards and Recognitions. Some of theimportant accolades received during the year are placed at Annexure- IV.

Vigilance

Vigilance in HAL is an ISO 9001-2008 certified Department headed by the ChiefVigilance Officer an IPoS Officer on deputation from the Govt of India. VigilanceOfficers and Staff are positioned in Corporate Office and all the Divisions &Complexes of the Company.

102 Sensitization sessions with an aim to bring in more awareness amongst the HALfraternity were held in various Divisions. Topics were:

• Transparency in Public Procurement

• CDA Rules

• Filling & Filing of APRs

• Works & Contract Services

• Common Irregularities in Civil Works

• Purchase Procedure

• GST

Best Practices on Project Management

• Tender Guidelines

• Cyber Security

• Problem areas of contract management

• Role of Vigilance Functionaries

• Complaint Handling Policy

• Vigilance Angle

• Lokpal & Lokayukta Act

• Online Vigilance Clearance and other Vigilance related matters.

During the period Vigilance Department has conducted several workshops with importantfunctionalities/stake holders like Material Management Finance HR Service ContractsWork Contracts etc.

Vigilance Awareness Week for the year 2017 was observed throughout HAL from 30thOctober 2017 to 4th November 2017 on the theme “My Vision - CorruptionFree India”.

Guidelines issued by CVC on Leveraging of Technology information pertaining to thefollowing aspects are being hosted on HAL Website:-

(a) Hosting of all Tenders valuing above H10 Lakhs

(b) E-Procurement

(c) Vendor Directory

(d) E-payment to vendors

(e) Contracts /Purchase Orders awarded on nomination/single tender basis.

(f) Corruption Risk Management Policy

(g) Online filling and submission of APRs through IFS.

As stipulated by CVC and MoD Integrity Pact has been introduced for the POs/ Contractsvaluing more than H5 Crores.

Directors' Responsibility Statement

Pursuant to the provisions of Section 134(3)(c) of the Companies Act 2013 yourdirectors state that:-

(a) In the preparation of the annual accounts for the year ended 31st March2018 the applicable accounting standards have been followed along with proper explanationrelating to material departures;

(b) The Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as on 31st March 2018 and ofthe profit and loss of the Company for the year ended on that date;

(c) The Directors have taken proper and sufficient care 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) The Directors have prepared the annual accounts on a “going concern”basis;

(e) The Directors have laid down internal financial controls which are being followedby the Company and that such internal controls are adequate and are operating effectively;

(f) The Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

Auditors

Statutory Auditors

The Statutory auditors of your Company are appointed by the Comptroller & AuditorGeneral of India (C&AG). M/s. S. Venkatram & Co. Chartered Accountants Bangalorewas appointed as Statutory Auditors for auditing the Accounts of the Company for the year2017-18 and 18 firms of Chartered Accountants were appointed as Branch Auditors.

The notes on the financial statements referred to in the Auditors' Report areself-explanatory and do not call for any further comments.

Cost Auditor

M/s. KPR & Associates Cost Accountants was appointed as Cost Auditors forconducting the Cost Audit of the Company for the year 2017 -18.

Secretarial Auditor

In terms of Section 204(1) of the Companies Act 2013 the Company has engaged M/s. S.Viswanathan Practicing Company Secretary Bengaluru to conduct Secretarial Audit of theCompany for the financial year 2017-18. The Secretarial Audit report is annexed to thisReport as Annexure - V and forms part of Annual-Report. The said report does not containany qualification reservation or adverse remarks.

Auditors' Report

The Auditors' Report on financial statements for the financial year 2017-18 andcomments of the Comptroller & Auditor General of India (C & AG) under Section143(6) of the Companies Act 2013 are appended to this Report. The statutory auditors'report does not contain any qualification reservation or adverse marks.

During the year no fraud has been reported by the Auditors under section 143(12) ofthe Companies Act 2013 read with Rule 13 of the Companies (Audit and Auditors) AmendmentRules 2015.

Corporate Governance

Your Company has taken firm and structured initiatives to maintain highest standards ofCorporate Governance and its practices which are valued by our stakeholders. The practicesemanate from the need to position multi-layered checks and balances at various levels toensure transparency of its operations in the decision making process.

In terms of SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015and guidelines of Department of Public Enterprises (DPE) a report on Corporate Governancefor the year ended 31st March 2018 along with a certificate from the Company'sSecretarial Auditor confirming compliance of conditions forms part of this report.

Management Discussion and Analysis Report

As per the terms of Regulations 34(2)(e) of the SEBI Listing Regulations theManagement Discussion and Analysis Report (MDAR) forms part of the Annual Report of theCompany.

Vigil Mechanism

The Company has a Whistle Blower Policy approved by the Board and the same is placed onthe website of the Company.

The employees are encouraged to raise any of their concerns by way of whistle blowingand none of the employees have been denied access to the Audit Committee.

Quality Initiatives and Safety

Quality Management System (QMS) in all Production Divisions and Research & DesignCentres of HAL are accredited to International Aerospace Standard AS9100. Further allProduction Divisions and Research & Design Centres are approved by Directorate Generalof Aeronautical Quality Assurance (DGAQA) as per the requirements of their document“Approval of Firm and its Quality Management System” (AFQMS). ProductionDivisions catering to Civil Customers are approved by Director General of Civil Aviation(DGCA) as Production/Maintenance Organization.

Divisions that are exporting products and services are certified to National AerospaceDefence Contractors' Accreditation Program (NADCAP) and have approvals from OEMs likeAirbus Boeing Turbomeca Rolls Royce etc. HAL Laboratories are accredited to IS17025 byNational Accreditation Board for Testing and Calibration Laboratories (NABL).

The Research & Design Centres of HAL continue to hold Design Organization Approvalfrom Centre for Military Airworthiness & Certification (CEMILAC) and Recognition ofin-house R&D from Department of Scientific & Industrial Research (DSIR) Ministryof Science & Technology Government of India.

Quality improvement through employees' participation is being encouraged by practicingconcepts such as Quality Circles Quality Improvement Teams Lean Resource Teams and SixSigma Project Teams in the Divisions. 10 Quality Circle teams comprising more than 50members participated in National Convention Quality Circles (NCQC) held at Mysore inDecember 2017. Nine Quality Circles won awards under PAR EXCELLENCE category and oneQuality Circle won award under EXCELLENT category.

Operator's conferences and workshops at customer bases to address fleet specificoperational problems continue to be organised HAL.

Joint Quality Audits (JQA) by IAF were concluded for Mirage-2000 MiG-29 SU-30 andHawk fleets during the year. Observations/ Recommendations of JQA are being addressed toimprove the system and processes in order to enhance product quality.

Standardization of Quality Procedures has been achieved through nine Corporate QualityAssurance Guidelines while four of these guidelines have been protected throughregistration of copyright with the Registrar of Copyrights New Delhi.

In the financial year 2017-18 all Aircraft / helicopter Divisions at four flyinglocations have maintained a good flight safety record and there has been no flyingaccident. However on 27th June 2018 one Su-30 MKI produced by the Companycrashed during a sortie at Ozar (Nashik) Airport and the same has been reported to theStock Exchanges.

To enhance the knowledge level of HAL Officers participating in Aircraft AccidentInvestigation the Indian Air Force was approached to increase vacancy in Aerospace Safety& Accident Investigation (AS&AI) course. IAF has increased the vacancy from twoOfficers to six Officers per year. HAL also conducted a Flight Safety and AccidentInvestigation course from 13th to 16th

June 2017 and 50 Officers from different Divisions participated in the course.

In order to bring awareness on the procedure of Defect Investigation and variousfacilities and infrastructure available at HAL Divisions a presentation was made by HALduring “Aerospace Safety Conclave” held at Air HQ New Delhi on 23rd March2018 to officers from IAF IA IN and ICG.

Acknowledgement

The Board places on record its sincere appreciation towards the Company's valuedcustomers in particular the Defence Services for the support and confidence reposed bythem in the Management of the Company and look forward to the continuance of this mutuallysupportive relationship in future.

Your Directors acknowledge with a deep sense of appreciation the valuable support andcooperation received from the Government of India in particular the Ministry of DefenceDepartment of Defence Production Defence Acquisition and Defence Finance as well as otherMinistries of the Government of India in all the endeavours of the Company.

The Company wishes to place on record its appreciation for the co-operation extendedand services provided by the Comptroller & Auditor General of India the PrincipalDirector of Commercial Audit & Ex-officio Member Audit Board Statutory AuditorsBankers Collaborators JV Partners and Suppliers.

Your Directors are also thankful to the shareholders for their faith and continuedsupport in the endeavours of the Company.

Your Directors also wish to place on record their deep sense of appreciation for thecommitted services by the Company Executives Staff and Workers for progress andprosperity of the Company.

For and on behalf of Board of Directors
Hindustan Aeronautics Limited

 

(T. Suvarna Raju)
Chairman & Managing Director
Place : Bengaluru
Date : 30th June 2018