Bharat Electronics Ltd

To the Members,

On behalf of the Board of Directors of your Company, I am delighted to present theAnnual Report on the performance and achievements of your Company for the year ended 31stMarch 2010 along with the Audited Statement of Accounts, Auditors' Report and the Reporton the Accounts by the Comptroller and Auditor General of India.

During the year 2009-10 your Company achieved a major milestone by surpassing, for thefirst time, Rs. 500,000 lakhs mark in turnover. By logging-in Rs. 521,977.40 lakhsturnover, BEL achieved excellent rating in turnover parameter for the year, as per the MoUwith the Government of India. This is against Rs. 462,368.89 lakhs turnover in theprevious year, registering a growth of 12.89 % over the previous year. The Value ofProduction during the year was Rs. 524,788.20 lakhs as against Rs. 527,327.27 lakhs in theprevious year, marginally lesser by 0.48 % over previous year. The Profit After Tax forthe year was Rs. 72,087.10 lakhs as against Rs. 74,575.97 lakhs in the previous year.Value added per employee for the year was Rs. 18.69 lakhs, as against previous year'sfigure of Rs. 18.11 lakhs. Supplies to the Defence Sector constituted 83.44 % of thesales, balance 16.56 % being supplies to the civilian sector.

All the nine manufacturing Units of your Company performed well and earned profitsduring the year.

Operating Results

The summarised operating results for the years 2009-10 and 2008-09 are given below:

(Rs. in lakhs)

Distribution of Value of Production for 2009-10 is given below:

Appropriations & Dividend

Your Directors recommend the following appropriations from the disposable surplus:

(Rs. in lakhs)

Your Company declared and paid during 2009-10 an interim dividend @ Rs. 6 per share.

Significant Achievements Major Orders Executed

Some of the important orders executed during the year include supply of High Power HFCommunication Sets, Frequency Hopping VHF Transreceivers, UHF Handheld Radio, UHF RadioRelays, Upgraded Fire Control Systems, Surveillance Radar Element, Thermal Imager basedIntegrated Observation Equipment, 3D Central Acquisition Radar (Rohini), Shipborne andAirborne Electronic Warfare Systems, Night Vision Binoculars, Low Flying Detection Radars(Indra II), L Band Surveillance Radar (Mk III), Ship-based 3D Surveillance Radar, DopplerWeather Radar, Digital Mobile Radio Relay and Upgraded EVMs. These equipment have beensupplied to a wide range of customers from the Army, Navy, Air Force, Defence PSUs,Paramilitary and others.

Among the many orders executed during the year, the following merit special attention:

Air Traffic Control Radar 33S Surveillance Radar Element (SRE) Phase II: It is an Sband Air Traffic Control Radar suited for Terminal Control applications. It detects andautomatically tracks a large number of aircraft within LFA (Local Flying Area) under allweather conditions and is configured for high availability.

Radio Relay F - Low Band: It is a digital communication equipment that provides fast,reliable and secure communication. It can operate in a fixed frequency mode or in twodifferent hopping modes - conventional and adaptive. The transmission security in thenetwork is increased considerably by the use of frequency hopping techniques.

Central Acquisition Radar, Rohini: It is a 3D surveillance Radar in S band. Stackedbeam reception gives 3D information of height apart from range and bearing. It isdeveloped jointly with LRDE.

Indra II: L-band 2D low level Surveillance Radar caters to the vital gap-filling rolein air defence environment.

Frequency Hopping VHF Transceivers: A frequency hopping, software configurable ECCMradio (5W & 25W) in the VHF band. It has in-built data communication features toenable transfer of any type of files / free text and has GPS functionality.

Thermal Imager Based Integrated Observation Equipment: It consists of a DigitalGoniometer, Arillery Mounted Long Range Thermal Imager and Laser Range Finder. Hand HeldGPS is interfaced to it through a cable. It is mounted on a Tripod stand and used byForward Observers of Artillery. Targets at a distance of 10 km and beyond can be locatedand their co-ordinates computed.

Intelligent CCTV Surveillance System for Indian Parliament: BEL won the presigiousorder for the supply and installation of this system for Parliament. It involvesintegration of large numbers of cameras on an IP platform with an integrated Command &Control Centre. The intelligent features of the system include video and audio contentanalysis, redundant recording, reporting and response matrix and integration with 3Dmodeling of Parliament House and Tetra Communication System.

New Products

Some of the new products / systems introduced during the year include Integrated AirCommand and Control System, Advanced Naval Gun Fire Control System for IN Ships, GapMeasuring Device Mk III, Perimeter Security Jammer, Frequency Hopping HF Transreceiversfor paramilitary forces, Data Facility Kit for VHF radios and V / UHF Protocol Analyzer.

A closer look at some of the new products:

• IACCS: Integrated Air Command and Control System (IACCS) is an automated AirDefence Command and Control Center for controlling and monitoring of air operations. Itreceives data from different types of homogeneous / heterogeneous Radars (2-D or 3-D),mobile observation posts and various other Air Force or civilian agencies to create realtime, comprehensive recognised air situation picture (RASP) at the ADCC, which is an IACCSCommand & Control Centre (C&C Centre).

• Advanced Naval Gun Fire Control System: This state-of-the-art system, developedby BEL to be installed on board

IN Ships is a quick reaction, muli-sensor, muli-weapon, short / medium / long-rangedefence system against air / surface / shore targets on board naval ships. It consists of5 functional sub-systems: Tracker, Weapon Control, Sight Control, Combat Management Systemand Support Systems, each of which can be used as an independent system.

• Gap Measuring Device Mk III: It is an electro-optical system developed foraccurate range finding during day and night. It's inbuilt computer calculates the heightdifference between the two banks of same water body. It can measure a minimum distance of10 m and a maximum distance of 1.5 km.

New business initiatives during the year include:

• For the last few years, the Indian Defence Forces are in the process ofmodernisting their infrastructure and their areas of operations. BEL has been proactivelyparticipating in their modernisation activities. Development & Engineering teams havebeen set up to work in the areas of Tactical Communication Systems, Battlefield ManagementSystem, Command Information Decision Support System, Future Infantry Soldier System andHigh Data Rate Muli-band Software Defined Radio.

• BEL is discussing with technology leaders for forming joint ventures in theareas of defence electronics, namely, Missile Electronics & Guidance Systems, AirborneElectronic Warfare products, civilian & select defence Radars. Some of these proposalsare in the advanced stage of discussions.

• BEL is also discussing with BHEL for setting up a joint venture Company (JVC)for Solar Photovoltaic manufacturing.

• MoU signed with M/s Indus Teqsite, Chennai, for exploring the setting up of JVCfor development of digital subsystems & test systems for Radars, Avionics, ElectronicWarfare, etc.

• MoU signed with M/s Thales International, France, for exploring possibility ofsetting up of a JVC for civilian and select defence Radars.

• A medium term perspective plan of your Company has been drawn up for the period2009-2014. The plan lists the challenges, opportunities and strategies for the Company toface the current defence business scenario due to increased participation by privatecompanies. Also, an activity has been launched to study the preparedness of BEL to meetfuturistic customer requirements and achieve accelerated growth in the next decade. Thepresent capability of your Company in technology, products and solutions vis-a-visbusiness growth along with capability enhancements is being assessed.

Manufacturing Initiatives

• State-of-the-art Digital Flight Control Computer (DFCC) manufacturing facility.

During the year your Company has set up a state-of-the-art integrated manufacturingfacility for assembly, inspection and testing of Digital Flight Control Computer (DFCC),all under one roof. DFCC is a state-of-the-art, multiple redundant (improving itsreliability, one channel will take over if another fails) Digital Fly-By-Wire FlightControl System of the Light Combat Aircraft (LCA), Tejas, which basically controls themaneuvering (pitch, yaw and roll) of the aircraft. The facility includes Thermal CyclingChamber, Vibration Machine, Dehumidifying Chambers for storing PCBs, high-resolutioninspection tools for identifying process errors, Automated Test Equipment for rigorousperformance testing and Engineering Test Station for testing the DFCC unit. The facilityhas ESD safe flooring and ESD safeguards for assembly, inspection and testing. Reflow andwave soldering facilities have been set up to enhance reliability. With this uniquefacility, your Company has acquired the capability to meet the requirements of the LCAprogramme.

• Walk-in Thermal Chambers have been commissioned which can test the performanceof the products within a temperature range of - 40C to +70C.

• Spark 400 Machine has been commissioned for SMT Assemblies.

• Vibration Machine has been installed to carry out vibration test of largesubsystem / Test Rack of various projects like Combat Management System and CentralAcquisition Radar.

• Rapid Thermal Cycling Chamber (Capacity 270 Ltr), an Environmental StressScreening chamber with very fast temperature change rate, has been installed.

• Electro-Plaing Facility for Ferrous and Non-ferrous and Magnesium metals hasbeen established in the plating shop at Machilipatnam Unit.

Exports

During the year, your Company's exports turnover registered an impressive growth of 33per cent from US $ 177.7 lakhs in 2008-09 to US $ 236.7 lakhs during 2009-10. The range ofproducts exported includes Composite Communication System, Versatile Communication System,Fire-Control System, Radar Warning Receiver, Enhanced Tactical Computer, Night VisionDevices, Data Link II, FM Transmitters, Crypt-fax, LED based traffic signaling system,Secure Telephone, Non-Eye Safe & Eye Safe Laser

Range Finders, Vacuum Interrupter for Switchgears, Solar Cells, Magnetrons, X-Ray Tubeparts like Casings, Stators, Magnetic and Electro-mechanical assemblies. These exportswere made to various countries including USA, UK, Israel, Suriname, Malaysia, Indonesia,Singapore, Philippines, Czech Republic, Sri Lanka, Russia, Zimbabwe, UAE, Switzerland,Belgium, Turkey, Bangladesh and Germany.

Over the years, BEL has established its presence in many countries, supplying number ofequipment and components covering various types of Radios, Radar and spares, CommunicationSystem, Solar Products and Vacuum Interrupters. Export is a thrust area for BEL. YourCompany has been making efforts for continuous growth in this area and has also put-inspecific efforts and investments to address the emerging offset business opportunities dueto implementation of offset policy by the Government of India.

During the last financial year, newer markets and offset opportunities have beenaddressed and orders worth US $ 583.3 lakhs have been obtained including US $ 480 lakhspertaining to offset business segment. The orders obtained during the year, include Navalsystems such as Composite Communication System, Versatile Communication System, ESMSystem, Electro-Opic Fire Control System & their integration onboard the Fleet Tankerin Italy, airborne equipment such as Data Link II, IFF and Radar Finger Printing systemand Radar sub-systems. As on 1.4.2010, your Company has an export order book of US $ 738.9lakhs.

Finance

During the year, your Company has been able to meet its entire fund requirement towardsCapital investments and additional working capital needs without resorting to borrowings,through efficient management of funds. Your Company has been able to retain the highestrating by ICRA, for both short term and long term sanctioned bank limits, which willcontinue to help in securing the best rates for the services availed from the consortiumbanks. During the year, many of the activities related to accounting of transactions havebeen suitably changed to take advantage of the online ERP platform, thereby reducing thetransaction time of accounting. With passage of time the availability of centralised dataon a real time basis is expected to result in the desired improvement in the informationflow, thereby improving the decision making process further.

The inventory position of your Company has marginally increased from 169 days of valueof production as on 31st March 2009 to 172 days as on 31st March 2010. Efforts are on torationalise the procurement process further with a view to achieving further reduction inthe inventory levels. The level of debtors to sales has improved from 180 days as on 31stMarch 2009 to 152 days as on 31.03.2010. This reduction in debtors has been brought aboutby an increase in the collection of both opening debtors and the current year debtors,which could be achieved due to better even flow of sales throughout the year, aided byconstant follow up and regular reviews.

The working capital position will be closely monitored to ensure that the improvementseen in the position of debtors and inventory is sustained. During the coming year, it isplanned to take up the job of IFRS implementation and your Company will be able to preparethe accounts in line with the IFRS requirement within the scheduled dead line, asstipulated by the Accounting Standards Board.

Your Company does not have any public deposit scheme at present. However, the maturedpast public deposits is Rs. 38.55 lakhs as on 31.3.2010. Of these, 34 deposits amountingto Rs. 36.50 lakhs are claimed but not paid as these accounts are frozen on advice ofKarnataka Lok Ayukta. Remaining past deposits of Rs. 2.05 lakhs as on 31.3.2010 isunclaimed. The entire amount of public deposits outstanding as on 31.3.2010 is included inthe Current Liabilities, Schedule No. 12 of the Balance Sheet.

Performance against MoU

Your Company has been signing a Memorandum of Understanding with its AdministrativeMinistry, Ministry of Defence (MoD) every year. The performance of your Company againstthe MoU for 2009-10 is 'Excellent'. The MoU between the MoD and BEL for the year 2010-11was signed on 4 March 2010. Sales target set in the MoU for 2010-11 is Rs. 535,000 lakhsfor achieving 'Very Good' performance rating and Rs. 561,750 lakhs for achieving'Excellent' performance rating.

Order Book Position

The order book position of your Company as on 1 April 2010 was Rs. 1,135,000 lakhs, outof which orders worth Rs. 447,800 lakhs are executable during 2010-11. The balance willget executed in 2011-12 and beyond.

Research & Development

Research and Development is the core strength of BEL and focused attention was givenduring the year for nurturing and monitoring of R&D for the development of newtechnologies and products for business generation. Other than in-house efforts, BELR&D engineers had active interactions with DRDO and other national research anddevelopment agencies and academic institutes and also with foreign partners for jointdevelopment efforts.

Your Company continued its R&D activities in all the areas of its businesssegments, namely: Radars, Naval Systems, Communication, Encryption, Electronic Warfare,Command Control Systems, Opto-electronics, Tank & Weapon electronics, Fire ControlSystems, Avionics, Civilian equipment & systems and Components during the year.Development & Engineering Divisions attached to all the Strategic Business Units ofBangalore and Other Units concentrated on product development in the respective areas ofallocated business segments. Central D&E and the two Central Research Laboratories ofthe Company supported the D&E Divisions by way of developing specialised core modulesand other technology and software modules for the product development.

The analysis of turnover of your Company for the year 2009-10 indicates that 57% of theturnover is due to BEL designed products, 18% of the turnover due to DRDO and otherindigenous agencies developed products and remaining 25% is due to products for whichtechnologies were acquired through foreign ToTs.

During the year, R&D Divisions of BEL have completed more than 30 projects each inthe areas of equipment / systems and components. Some of the new products / systemsintroduced during the year include Integrated Air Command and Control System (IACCS),Advanced Naval Gun Fire Control System for IN Ships, Gap Measuring Device MK-III, StaticJammers, Frequency Hopping HF Transreceiver for Paramilitary forces, Data Facility Kit forVHF radios, V / UHF Protocol Analyzer etc. Brief information about some of the introducedproducts are given below:

(a) Advanced Naval Gun Fire Control System: This is a quick reaction multi-sensor andmulti-weapon based defence system mountedonboard navalshipsfor short / medium / long rangedefence system against air / surface / shore targets.

(b) Static Jammers: Static Jammers is a counter RCIED system meant for protection ofhigh risk and high value targets viz. Ship Building Centre etc. The system is installed inshelters, which are located at pre-defined positions in order to provide protection to theentire Security Threat area. This is a static broad band transmitting equipment used tomute the receivers likely to be operated remotely by hostile transmitters in V / UHF, GSM& CDMA bands.

(c) Frequency Hopping HF Transreceiver: This is a DSP based light weight 20W HighFrequency man pack radio providing complete solution to the short-range communicationrequirements in the HF band. The radio provides Voice, Data, Telegraphy and Flash MessageCommunication. Communication reliability has been enhanced with the introduction ofAutomatic Link Enhancement (Best Call) feature. Frequency Hopping feature of the radioprovides secure transmission and anti-jamming protection.

(d) V / UHF Protocol Analyzer: This equipment is used for analysis and decoding of widerange of signals. The equipment facilitates search and monitoring of signals,demultiplexing of both Frequency Division and Time Division Multiplexing structures andreconstruction of voice, fax, VFT (Voice Frequency Telegraph) and modem data.

Scientists from Central Research Laboratories and other R&D divisions of BEL havecontributed 38 technical papers in the national and international journals during theyear. R&D Engineers of BEL have submitted 2 Patent applications during the year.

Quality

The Company has adopted the 'Six Sigma' methodology about a decade back for achievingbreakthrough improvements. Quality Institute of Bharat Electronics has been impartingtraining on 'Six Sigma' since July 1999 and has trained 1,078 officers so far. During theyear, 265 six-sigma projects were completed, resulting in cost reduction, processimprovement and customer satisfaction.

BEL has adopted the 'CII-EXIM Bank Business Excellence Model' since 2002 and selectUnits / SBUs have been participating in the Award scheme of this Model every year sincethen. This Model depicts that Excellent Organisations achieve and sustain superior levelsof performance that meet or exceed the expectations of all their stakeholders.

During the year, four of our Units / SBUs applied for the 'CII-EXIM Bank Award forBusiness Excellence'. While MILCOM SBU became the first BEL Unit to receive higher level'Commendation Certificate for Significant Achievement', other three, viz. Ghaziabad Unit,Panchkula Unit and Components SBU received 'Commendation Certificate for Strong Commitmentto Excel' under this Award scheme.

With a view to institutionalise the 'business excellence' in the Company, an internal'BEL Business Excellence Award' scheme has been introduced from the year 2009-10. Underthis, all Units / SBUs of the Company will participate in this award scheme every year andbest four Units / SBUs will be identified and rewarded. Introduction of this scheme islikely to bring a healthy competition among the Units / SBUs to achieve higher levels ofexcellence.

As a part of our endeavor to enhance the customer satisfaction level, we have beenconducting customer satisfaction surveys every year. This survey is being conductedthrough a third party to bring in objectivity. Based on the feedback obtained from thesurvey, corrective actions are taken to improve our processes so as to enhance thesatisfaction level of customers. During the year 2009-10 the customer satisfaction surveywas conducted for six products, each belonging to a different Unit / SBU. Overall customersatisfaction index was found to be 82%.

SAP Implementation

Based on the study and recommendation by Tata Consultancy Services, your Companyundertook implementation of SAP across all Units / Offices of the Company. Implementationof SAP R / 3 including Payroll, Product Lifecycle Management module at all Units andOffices of BEL was completed in a phased manner by July, 2008. A number of improvements,checks and validations have since been incorporated in the system based on user feedback.Standard SAP package does not cater to several requirements such as Material Gate Pass,Visitors Pass etc. The following add on modules have been developed and released to usersduring 2009- 10: Material Gate Pass System, Visitors Gate Pass System, Vendor PaymentInformation System, Quality Control Circles Monitoring System, Six Sigma ProjectsMonitoring System and Contract Monitoring System Implementation of the following newdimension modules is in progress: supplier Relationship Management (SRM) and KnowledgeManagement (C Folders) modules have been configured and tested. Employee Self Service(ESS) module has been configured and testing is in progress. Customer RelationshipManagement (CRM), Strategic Enterprise Management (SEM) and Supply Chain Management (SCM)modules are under configuration. All the above modules are planned to be implementedduring 2010- 11.

Following new tools / modules have been licensed from SAP. These tools / modules areplanned to be implemented during 2010-11.

Test Data Migration Server (TDMS): This facilitates migration of select test data fortesting of new developments.

Adobe Forms: This facilitates users to generate information in an off line mode andupload the data to SAP directly.

Business Objects: This module facilitates presentation of reports to Senior Managementto see reports in a flexible and dynamic manner.

Procurement for Public Sector (PPS) Module: This module facilitates e-procurement withprovision for online bidding by vendors, 2 Part Bidding, Accounting of Earnest MoneyDeposit, opening of Bids by Tender Opening Committee etc.

Human Resources

The employee strength of your Company was 11,545 as on 31.3.2010 as against 11,961 ason 31.3.2009. The Company employed 2447 women employees as on 31.3.2010. As a reflectionof the Company operating in high tech area, it employed 3420 engineers and scientists ason 31.3.2010

The particulars of SC / ST and other categories of employees as on 31.3.2010 are asunder:

To address the learning and organisation development needs, various HRD trainingprogrammes were organised in Company's Learning & Development Divisions. Theseincluded in-house developed modules as well as modules developed and imparted with theassistance of various outside HR specialists. In addition, various management developmentprogrammes as well as technology programmes were organised during the year through premiertraining institutions for all grades of executives. The Company-wide per capita trainingdays for the year was 3.0. Some of the specific HR initiatives during the year arediscussed separately as part of the Management Discussion and Analysis Report attached.

Industrial Relations & Welfare

Industrial relations continued to be harmonious throughout your Company. During theyear pay revision, due from 1.1.2007, was implemented for Board level and below Boardlevel executives. Wage settlement with non-executive employees, also due from 1.1.2007,was concluded in May, 2010. Various programmes were organised for the benefit of allsections of employees and their families, some which were exclusively for women employeesand SC / ST employees to improve their awareness in legal issues, safety matters, etc.Special programmes were organised for differently-abled employees on the topics of TeamBuilding, Interpersonal Skills, Habits for Excellence & Improving Quality of Life.Besides various statutory and voluntary welfare measures, the Company encourages variouscultural and sports events for its employees.

Your Company's comprehensive medical scheme covers all employees, their dependentfamily members as well as retired employees and their spouses. BEL Hospital at Bangaloreextends outpaient medical treatment to the residents of neighbouring villages andemployees of BEL associate institutions / societies in addition to its own employees,their dependents and retired employees / their spouses. Welfare programmes organised byBEL Hospital during the year includes: Pulse Polio Immunisation programme, administeringof Vitamin A solution to children between 9 months and 5 years as measure of prevention ofblindness and to increase resistance to infection, Screening program, counselling andpreventive measures for respiratory diseases, Eye camp for screening Retinal diseases,Medical camp for Heart check-up was conducted for retired employees, programme foremployees, family members for detection and prevention of cancer, etc.

Educational institutions run by the Company for education of children of employees andalso of neighboring villages, performed well during the year.

Awards & Recognition

Important awards and recognitions received during the year by your Company and itsemployees include:

• Raksha Mantri's Awards for Import Subsitution, Design Efforts, Innovation andBest Performing Division among DPSUs. (2007-08)

• Commendation Certificate of "SCOPE Meritorious Award for R&D,Technology Development & Innovation" (2007-08)

• SODET Award 2008-09 for two of BEL's engineers in the Gold and Bronze categoryfor Technology Innovation and Development, respectively.

• Dun & Bradstreet Corporate Award 2009 in the category of Electrical andElectronic Equipment sector.

• Indian Semiconductor Association Technovation Award for the Best ElectronicProduct of the Year 2010 for the Pre-shower 32 Channel Silicon Strip Detector supplied toCERN, Geneva, for the Big Bang Experiment.

• Concern Age Care Award in recognition of BEL's contribution towards elderlycare.

• Ghaziabad Unit's Six Sigma project, 'Productivity Improvement in Assembly ofSTARS - V Accessory Cables, was adjudged first in the Lean Manufacturing Category by theSymbiosis Center for Management & Human Resource Development, Pune.

• Ghaziabad Unit won the International Safety Award for the 18th time from theBritish Safety Council, UK.

Environment Management

Your Company is committed to clean and healthy environment and has been maintaining thesurroundings free from pollution. As an organisation accredited to ISO 14001:2004standard, the Company has great regard to environment and puts in every effort to preventpollution of any kind in all its activities. BEL adopts cleaner technology, zero effluentdischarge, rain water harvesting techniques, conservation of natural resources, use ofrenewable energy etc., to name a few, in it's endeavour towards maintaining a cleanerenvironment. The significant features of the initiatives are illustrated below.

Cleaner Technology: Efforts have been made to prevent pollution through introduction ofcleaner technology. Changing over to Cyanide-free Zinc and Copper plating inelectroplating process has resulted in elimination of use of hazardous Cyanide.Alternative electronic components have been introduced in many of the designs to excludethe hazardous effects of materials such as Polybrominated compounds, Hexavalent Chromium,Mercury, Beryllium Oxide, PVC and Lead. Use of Energy efficient devices introduced in theequipment designs results in resource conservation in addition to reducing the operatingcost. Other measures undertaken include minimisting significant environmental impacts byreplacement / change of Hazardous operation / process / chemicals with Non-Hazardousprocesses like replacement of Ozone depleting substance like Trichloroethylene with Ozonefriendly Non-chlorinated solvent, replacement of Asbestos sheet roof with Aluminum sheets,improvement in Elctro-Plaing processes and operation by modernisation of Electro-Plaingand ETP, provision of Acousic Enclosures for Noise generating systems, etc.

Water Management: Rainwater harvesting and innovaive recharging of bore wells enablethe Company to collect the runoff water and recharge the ground water table. Thelarge-scale rainwater-harvesting reservoir at Bangalore unit has a capacity of 1,700 lakhslitres with expected annual yield of around 2,340 lakhs litres. Rainwater harvestingreservoirs are set up in other Units also. During the year two more rain water harvestingsites were installed at Ghaziabad Unit covering a very wide catchment area of rain water.By Rainwater harvesting and recharging of bore wells ground water yield has improved.Water softening plant of 1.00 lakh litres per day is in operation at Hyderabad Unit forsoftening the ground water to reduce the scaling etc.

Waste water generated in the manufacturing process is treated to meet reusablestandards and recycled for production purpose. In the same way domesic waste watergenerated in the factory and colony is treated and recycled for horticulture purpose.

Emission To Air: Emission to air is checked through stack monitoring and withappropriate air pollution control equipments. Emissions passing through chimneys aretreated to bring down the level of pollutants much below the sipulaions of State PollutionControl Boards (SPCBs).

Hazardous Waste Management System: The problem associated with generation of hazardouswaste is addressed at root cause level itself. By utilisting appropriate chemicals in thewaste water treatment, less sludge is generated in the process of chemical detoxification.BEL has tied up with the State Pollution Control Boards "Treatment, Storage &Disposal Facility" operators for disposal of landfillable solid hazardous waste. Thehazardous wastes are disposed in a scientific manner as per the guidelines of StatePollution Control Boards.

Biomedical Waste: Biomedical wastes generated in hospital and medical centers arecollected and disposed of scientifically as per the regulatory guidelines.

OHSAS 18001(2007) - In addition to caring for the environment, BEL equally respects thewell being of its workforce through OHSAS 18001(2007) implementation. Bangalore Complexand Ghaziabad Unit are certified for OHSAS 18001: 2007.

Other Iniiaives: Your Company has taken action to mitigate climate change as per theNational Policy by establishing two Wind Energy power plants, one 2.5 MW plant nearDavanagere during 2006-07 and another 3 MW plant near Hassan during 2007-08. The two WindEnergy power plants together have generated 106.5 lakhs units of energy during 2009-10 andhas resulted in reduction in CO₂ emission to the tune of 9934 tons. The Companyhas taken up replacement of two old centrifugal chillers, which were running with ozonedepleting CFC 11 with new energy efficient screw chillers using eco-friendly refrigerantR134a. The replacement has resulted in energy savings to the tune of 1.5 lakhs KWhr peryear. Old air compressors, blowers & Air Handling Units have been replaced with energyefficient ones leading to energy conservation of around 75,000 KWhr per year. In order tokeep the environment of the factory and township green, 1,35,000 trees and 3,60,000 SqMtrs of lawn are being maintained at Bangalore Complex. A herbal park has been developedinside the Ghaziabad factory premises. During the year 1000 Jatropha Plants (Bio dieselcrops) were planted in Bangalore Complex. A green belt has been developed around TestPlatforms at Hyderabad Unit.

Subsidiary / Joint Ventures

Your Company's subsidiary at Pune, BEL Optronic Devices Ltd,. (BELOP) recorded aturnover of Rs. 5,874.48 lakhs as against the turnover of Rs. 3,114.67 lakhs in theprevious year, an increase of 89 % over the previous year. BELOP achieved Profit After Taxof Rs. 227.42 lakhs as against a net loss of Rs. 358.05 lakhs in the previous year. BELOPmanufactures mainly Image Intensifier Tubes (I.I. Tubes). These Tubes are supplied to theDefence customers and also used in the Night Vision Devices manufactured by BEL. Thoughthe subsidiary has performed well during the year as compared with its performance in theprevious year, it still has problems on the technology front. Indian Army, has shifted itsrequirement from II Generation I.I. tubes to higher specification I.I. Tubes for whichtechnology does not exist with BELOP. Efforts are on to source technology for the higherspecification tubes from available sources in the world market. Meanwhile, BELOP isimporting kits in SKD / CKD form to manufacture higher specification Tubes to take care ofthe immediate requirements of the customers. Due to this, the contribution is low andprofitability is affected.

In accordance with Section 212(8) of the Companies Act 1956 (the Act) your Company hasobtained exemption from the Govt. from attaching the Balance Sheet, Profit & LossAccount, Auditors' Report, Directors' Report, etc., of the subsidiary Company to theBalance Sheet of BEL. Hence, Annual Accounts of the subsidiary Company, BEL OptronicDevices Ltd., are not attached to the Balance Sheet of BEL. A copy of the Annual Accountsof BELOP and the related information will be made available upon request by any member ofBEL or BELOP. The Annual Accounts of BELOP are kept for inspection by investors at theregistered office of BEL and BELOP. Any investor interested to inspect the same may pleasecontact the Company Secretary of BEL or BELOP. A statement as per Section 212 of the Actrelating to the subsidiary Company, BELOP, is annexed to this report. Further, theinformation required to be disclosed as per the directions while granting exemption underSection 212(8) of the Companies Act 1956 is provided in this Annual Report.

The Joint Venture Company (JVC) with General Electric, USA, viz., GE BE Pvt Ltd.,manufacturing CT Max and other latest version X-Ray Tubes continues to perform well. BELsupplies some parts required for the products manufactured by this JVC. GE BE Pvt Ltd.,achieved a turnover of Rs. 50,928.95 lakhs as against Rs. 52,820.49 lakhs in the previousyear. The Profit After Tax was Rs. 6,608.33 lakhs as against Rs. 5,249.55 lakhs in theprevious year. The JVC declared and paid 100% dividend for the year 2009-10 and BELreceived Rs. 260 lakhs as dividend from the JVC on BEL's share of investment.

The other JVC, viz., BEL Multitone Pvt Ltd., jointly promoted by BEL and Multitone plc,UK was set up to supply, install and service Private Paging Systems and Pagers. The JVC ispresently in shell stage with no business transactions being effected, and action is inprogress to close down this Company, as there are no business prospects for paging systemsin the country.

Consolidated Accounts

Consolidated Financial Statements of your Company and its Subsidiary and Joint VentureCompanies are attached to this Report.

Vigilance

The performance of Vigilance Department during 2009-10 has been satisfactory. 99.6% ofthe Executives of the Company have filed their Annual Property Returns. 1189 PurchaseOrders / Contracts including 536 high value Orders / Contracts have been reviewed /scrutinised during the year and found to be in order. As per the CVC / CTE Guidelines, 2teams for Inspection of Works Contracts and 2 teams for Inspection of Purchase Orders havebeen constituted. During 2009-10, 12 Works Contracts and 8 high value POs have beeninspected by in-house inspection teams and 2,341 Regular / Surprise inspections wereconducted.

During the year 225 Executives and 10 Non-executives have taken part in VigilanceAwareness Training Programme. 35 Executives & 50 Non Executives working in sensitiveareas for 3 years and above have been transferred to different posts.

In terms of CVC's guidelines for Leveraging Technology to ensure transparency througheffective use of website, the following information has been made available in the BELwebsite:

• Application forms for Registration of Subcontractors / Vendors online for beingincluded in the Approved Vendors List and applications for recruitment have also beenfacilitated online.

• Details of awarded Contracts / Purchase Orders valuing more than Rs. 10 lakhs inrespect of works contracts, service contracts, capital items and non-production items arebeing published on BEL website.

• Details of awarded Contracts / Purchase Orders issued on nomination / singletender basis value exceeding Rs. 5 lakhs are being published on BEL website.

• Details of awarded Purchase Orders / Sub Contract Orders for production itemswith a threshold value of Rs. 100 lakhs and above are being published on BEL website.

• Vendor Payments Information System is made available on BEL website.

In addition to the above, a new Vigilance page has been put on BEL website(www.bel-india.com). E-procurement is under development and it is expected to beimplemented shortly.

Integrity Pact

The Central Vigilance Commission (CVC) has advised Government organisations to adoptIntegrity Pact (IP) voluntarily in their major procurement activities. IP essentiallyenvisages an agreement between the prospective vendors / bidders and the buyer, committingthe persons / officials of both sides not to resort to any corrupt practices in any aspect/ stage of the contract. Only those vendors / bidders, who commit themselves to such apact with the buyer, would be considered competent to participate in the bidding process.The CVC guidelines further advises CPSUs to appoint Independent External Monitors asapproved by the CVC to oversee the compliance of obligations under the IP. BEL is pursuingthe adoption of IP in compliance with CVC guidelines.

Implementation of Official Language

Being a Government Company, BEL is committed to complying with the Official Languagepolicies of the Government of India. Nine Units / Offices have been notified under rule10(4) of OL rules and orders have been issued under rule 8(4) of OL Rules for those havingproficiency in Hindi to do their Official work in Hindi. Efforts are on to ensure theprogressive use of Hindi in all spheres of activities of the Company. Hindi workshops forthose having working knowledge in Hindi were conducted during the year. Company's websiteis available in both Hindi and English version and efforts are on to progressively havethe entire website in bilingual.

During the year the Committee of Parliament on Official Language has visited theCompany's Regional Office at Kolkata and officials of the Ministry of Defence inspectedthe Pune Unit and CRL, Bangalore. The Drafting and Evidence Sub committee of Parliamentinspected the Ghaziabad Unit. Ministry of Home Affairs (MHA) officials also inspected theRegional Office at Kolkata.

Implementation of RTI Act

The information required to be provided to citizens under Section 4(1)(b) of the RTIAct 2005 has been posted on the website of Company, www.bel-india.com. The informationposted on the website contains general information about the Company, powers and duties ofemployees, information about decision-making, rules, regulations, manuals and records heldby BEL, directory of the Company's officers, pay scales, procedure for requestingadditional information about the Company by citizens and associated request formats.During the year 2009-10 the Company received and attended to 91 requests for informationunder RTIA.

Directorate

Following changes took place in the Directorate of your Company since the last report.Three Independent Directors, viz. Mr Anil Razdan, ex-Secretary to Government of India,Prof. VK Bhalla, Professor, FMS, University of Delhi and Mr MS Ramachandran, ex-Chairman,Indian Oil Corporation Ltd., have been appointed w.e.f. 27 November 2009. Mr SatyajeetRajan, Joint Secretary (Electronics), Ministry of Defence has been appointed as part-timeOfficial Director w.e.f. 27th January, 2010 in place of Mr Gyanesh Kumar, Joint Secretary(Shipyards), Ministry of Defence. Mr Anil Kumar has been appointed as Director (OtherUnits) w.e.f. 3rd February, 2010.

Directors' Responsibility Statement

Pursuant to the provisions under Section 217(2AA) of the Companies Act, 1956 yourDirectors state:

(i) that in the preparation of the annual accounts, the applicable Accounting Standardshave been followed and in respect of Accounting Standard 17, necessary explanation fordeparture has been given in Note No. 19 of the Notes to Accounts (Schedule 21);

(ii) that the directors have selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and a fair view of the state of affairs of the Company at the end of thefinancial year and of the profit of the Company for the year;

(iii) that the directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

(iv) that the directors have prepared the annual accounts on a going concern basis.

Auditors

Pursuant to Section 619(2) of the Companies Act 1956, the Comptroller and AuditorGeneral of India appointed M/s R G N Price & Co., Chartered Accountants, Chennai asStatutory Auditors for the year 2009-10 for audit of accounts of Bangalore Complex,Hyderabad and Chennai Units and Corporate Office. M/s B R Maheswari & Co, CharteredAccountants, New Delhi, were reappointed as Branch Auditors of Ghaziabad, Panchkula andKotdwara Units for 2009-10. M/s Argade Shyam & Co, Chartered Accountants, Pune werereappointed as Branch Auditors for Pune and Taloja Units for 2009-10. M/s N Koteswara Rao& Co, Chartered Accountants, Guntur were reappointed as Branch Auditors forMachilipatnam Unit for 2009-10.

Auditors' Report

Auditors' Report on the Annual Accounts for the financial year 2009-10 and Comments ofthe Comptroller & Auditor General of India under Section 619(4) of the Companies Act,1956 are appended to this report.

Corporate Governance

A report on Corporate Governance along with a Compliance Certificate from the Auditorsas prescribed under the Listing Agreements with the Stock Exchanges on which BEL's sharesare listed as well as Government Guidelines on Corporate Governance for Central PublicEnterprises, is annexed to this Report.

Management Discussion and Analysis Report

Management Discussion and Analysis Report required under the Listing Agreements withthe Stock Exchanges on which BEL's shares are listed as well as Government Guidelines onCorporate Governance for Central Public Enterprises, is annexed to this Report.

Other Disclosures

Information required to be disclosed in accordance with Section 217 (1)(e) of theCompanies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Boardof Directors) Rules 1988 regarding conservation of energy, technology absorption andforeign exchange earnings and outgo, is attached to this report.

The particulars of employees to be given as per Section 217(2A) of the Companies Act1956, read with the Companies (Particulars of Employees) Rules 1975 are appended to thisreport.

Acknowledgement

Your Directors take this opportunity to acknowledge with a deep sense of appreciationthe support and co-operation received from the Government of India, Ministry of Defence,Departments of Defence Production, Defence Acquisition, Defence Finance and DefenceResearch & Development Organisation. The Board also gratefully acknowledges thepatronage extended to the Company by its esteemed customers, particularly the Indian Army,Indian Navy, Indian Air Force, para-military forces and others. We thank the Comptrollerand Auditor General of India, Chairman, Members and employees of the Audit Board,Statutory Auditors and Branch Auditors, Company's Bankers, collaborators and vendors. TheBoard appreciates the untiring efforts and contribution by the employees at all levels,which enabled your Company to achieve the significant performance during the year. TheBoard of Directors also wishes to place on record its appreciation and gratitude to allthe shareholders / investors for the trust and confidence reposed in the Company and lookforward to their continued support and participation in sustaining the growth of yourCompany in the coming years.

STATEMENT PURSUANT TO SECTION 212 Of THE COMPANIES ACT 1956 RELATING TO SUBSIDIARYCOMPANY

so far as those profits are dealt with, or provision is made for those losses, in theCompany's accounts.

Information related to BEL Optronic Devices Ltd., Subsidiary Company of BharatElectronics Ltd., for the Financial Year Ended 31.3.2010:

(Rs. in lakhs)

(a) Energy conservation measures taken during the year 2009-10

Energy conservation measures taken during the year 2009-10 include the following:

• Incorporation of variable frequency drives for AHU's, cooling tower motors andcentrifugal fans.

• Provision of PVC curtains for the identified doors of air-conditioned area tominimise losses.

• Optimising compressed air operation through decentralised compressed airsystems.

• Replacement of old Reciprocating Chillers in AC plants with energy efficientscrew chillers for meeting variable cooling load demand.

• KVA demand management by improving power factor using automatic power factorcontrollers.

• Installation of servo voltage stabilizers for optimising lighting voltage andEnergy consumption.

• Use of energy efficient light fittings in modernisation projects and day lightharvesting.

• Use of solar water heating systems for hot water applications.

• Incorporation of wind-driven roof ventilators based exhaust systems.

(b) Additional investments and proposals being implemented for reduction of consumptionof Energy

Additional investments made during the year for implementing the measures at (a) above,was around Rs. 169 lakhs.

(c) Impact of measures at (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods

The electricity consumption in KWhrs per each lakh rupee of production has come down to100 units during 2009-10 from 112 units during 2008-09.

The electricity consumption for the year 2009-10 is 51.8 MKWhrs, same as in 2008-09 inspite of additional facilities added and increased production activities.

The Company's two wind Energy power plants, 2.5 MW plant near Davanagere and 3 MW plantnear Hassan together generated 106.5 lakhs units of energy during 2009-10 and has resultedin reduction in CO₂ emission to the tune of 9,934 tons.

1. Specific areas in which R&D was carried out by the Company

During 2009-10, the Company has carried out R&D activities in all the areas of itsbusiness as already mentioned in the Directors' report under section Research andDevelopment. Some of the completed R&D projects during the year in the variousbusiness areas of the Company are:

2. Benefits derived as a result of R&D activities

As a result of R&D activities in the Company, a large number of new products weredeveloped, which will bring new business to the Company in future. Other than developmentof new business for the Company, R&D activities save foreign exchange for the Companydue to indigenous development of products and indigenisation of components &assemblies. R&D activities promote self-reliance in the area of technologydevelopment.

3. Future plan of action

R&D plan made for each R&D division of BEL for the next 3 years based oncustomers' perspectives and market feedback, will be closely monitored for the progress ofthe projects. Infrastructure, capital items and requisite manpower as required for theR&D divisions will be allocated on priority. Interactions with DRDO, other NationalLabs and design agencies and academic institutions will be further strengthened.Interactions with foreign companies for taking up of joint development projects will beencouraged where necessary.

4. Expenditure on R&D

During 2009-10, BEL has spent a sum of Rs. 31,594.64 lakhs on R&D. The expenditureon revenue account was Rs. 29,161.21 lakhs and on capital account was Rs. 2,433.43 lakhs.The total expenditure as percentage of turnover during the year was 6.05%.

(a) Efforts in brief, made towards technology absorption, adaptation & innovation

R&D divisions of BEL take interest in the absorption of state-of-art technologiesin the areas of BEL's business acquired either through indigenous or imported routes otherthan its own in-house developments.

In respect of indigenous technologies, BEL R&D divisions have made efforts tointeract with various Defence Research and Development Organisations' laboratories, otherNational laboratories, Private design houses, academic institutions etc., for eithertechnology absorption of state-of-art products developed by them or by taking up of jointdevelopment programmes with them.

During 2009-10, R&D Engineers of BEL have completed development of products likeTETRA System from C-DAC technology, Man pack version of Combat Net Radio from DRDO (DEAL)technology, Integrated Fire Detection and Suppression System for BMP from DRDO (CFEES)technology, BEACON MK-III from DRDO (CAIR) technology etc.

(b) Benefits derived as a result of the above efforts

BEL Engineers are able to absorb the indigenous technologies as a result of closeinteractions with DRDO and other National Labs. This helps to commercialise the productsat BEL and provide product support to the customers. BEL engineers try to bring outupdates of the existing technologies and apply the technologies acquired in differentapplications. All these efforts help to commercialise state-of-art technologies for thecustomers, develop further business, save foreign exchange and promote self-reliance.

(c) Information regarding technology imported during the last 5 years

During the last 5 years, certain technologies of interest from various countries havebeen imported and productionised at BEL and brought to the level of indigenous manufacturefor cost reduction and improving indigenous content. BEL engineers make effort to absorb /assimilate the imported technologies to provide necessary product support to thecustomers, try to bring out updates for these products and apply the knowledge gained inthe development of new products for business development.

C. Foreign Exchange Earnings and Outgo

Detailed information on export has been provided in the Directors' Report. ForeignExchange Earnings on account of export (FOB) was Rs. 9,936.71 lakhs as against Rs.7,227.96 lakhs in the previous year. Foreign Exchange Outgo was Rs. 2,14,573.86 lakhs asagainst Rs. 2,43,789.68 lakhs in the previous year.

Information as per Section 217(2A) of the Companies Act 1956 read with the Companies(Particulars of Employees) Rules 1975 and forming part of the Directors' Report for theyear ended 31st March 2010

A) Industry Structure and Developments, Strengths, Weaknesses, Opportunities andThreats, Major Initiatives undertaken and planned to ensure sustained Performance andGrowth

(a) General outlook of economy, industry in which the Company operates,Government Budget, particularly the Defence Budget and how these impact the Company:

The economy has grown at 7.4% in 2009-10 and is expected to grow at 8% in the comingyear. India is emerging as a strong growing economy. This is substantiated by this year'spositive growth in the general Index of Industrial Production (IIP) compared to negativegrowth of last year. The cumulative growth in index of manufacturing sector is 10.9%during April-March 2009-10 compared to previous year and this has resulted in growth ofoverall General Index of IIP to 10.4%.

India is currently the 10th largest defence spender in the world with a 3rd highestgrowth rate. The Government of India has increased the total defence allocation from Rs.14,170,300 lakhs to Rs. 14,734,400 lakhs. This increase in defence budget and themodernisation plans of defence services has the potential for providing enhanced growthopportunity for the Company's products and services.

The Defence Public Sector Undertakings (DPSUs) have dominated the defence industry inthe past. This scenario is likely to change with the introduction of new DefenceProcurement Policy (DPP) allowing more participation from private companies to manufacturedefence products. On the other hand, the growing Indian defence market is attracting majorglobal defence equipment manufacturers to compete for business in India.

The above scenario provides an opportunity as well as a challenge to BEL. The challengeto BEL is to keep pace with technological developments so that state-of-the-art productscan be offered to the Defence customers. BEL is taking proactive steps to protect andfurther consolidate its leadership position in the Indian Defence Market while at the sametime accelerating the efforts to get into new business areas, aligned with its corestrengths.

The amendments in DPP have given an opportunity to BEL for forming JVs with leadingglobal defence players and acquire required critical technologies. The above approach willalso put BEL in a position, wherein it can source state-of-the-art subsystems / productsfrom such Joint Ventures and play the role of a system integrator for large strategicdefence systems.

The offset clause in DPP has also created an additional opportunity for BEL, with theforeign vendors approaching BEL for partnership to fulfill their offset obligations.Export revenues of BEL have grown due to offset contracts and this trend may continue inthe coming years.

(b) SWOT Analysis

Strengths:

• Clearly defined Vision, Mission, Objectives and Values.

• Good image and reputation resulting from performance and track record.

• Company under Ministry of Defence - Strong customer relationships

• In-depth understanding of Defence Market in India.

• Good R&D base - Technology and new product development.

• Close relationship with DRDO Labs.

• Good infrastructure and manufacturing facilities.

• Well-established systems and procedures, including use of advanced ERP.

• Skilled and committed workforce with excellent domain knowledge.

Weaknesses:

• Not proactive enough in providing futuristic solutions to customers.

• Dependence on defence market.

• Time to market - long product development cycle time.

• Slower response time.

• Limited value addition in system integration projects.

• Inability to attract top class talent.

• Inadequate International business knowledge and exposure.

Opportunities:

• Expanding defence acquisition plans.

• "Offset" business - Strategic alliances and access to global business.

• Large investments in infrastructure, energy and e-governance projects.

• Homeland security business.

• Maintenance, Repair and Overhaul (MRO) business.

• Upgrade programmes of defence.

• Access to critical technology.

Threats:

• Changes in defence procurement policies - growing competition with privateindustry participation in defence sector.

• Rapid changes in technology.

• Global sourcing of technology - Non-availability and exorbitant cost.

• Emergence of Joint Venture companies of foreign OEMs with Indian privateindustry.

(c) Major initiatives undertaken and planned to ensure sustained performanceand growth of the Company

1. Technology updation and R&D:

i. Challenges:

Core technologies of BEL's business involve applications of fast changing technologicalfields like Electronics, IT and Software. Some of the most challenging tasks of R&DEngineers of BEL are to keep abreast with latest technologies in the various fields ofBEL's business areas, quickly master the emerging technologies and apply them during thedevelopment of new products. The technologies required to manufacture various products inthe areas of BEL's business are required to be developed and upgraded continuously to meetemerging user requirements including overcoming of obsolescence issues. The need forconstant technological upgrades juxtaposed with the need for maintaining legacy systemsplaces an enormous responsibility on BEL to be not only current in the world classtechnologies but also to be innovative in finding means to tackle obsolescence of legacyproducts and systems.

ii. Measures:

BEL has responded to the above challenges with a positive note and has identifiedvarious measures to meet them. The measures include strengthening the technologydevelopment process through short, medium and long term technology roadmaps, increasedinvestments in R&D and setting up of a Company-wide knowledge management system toharness the complete potential of the R&D engineers and sharing of accumulated R&Dknowledge in various fields amongst the R&D engineers. BEL is enhancing its effortsfor in-house developments and also strengthening interactions with DRDO Labs, othernational research laboratories and R&D organisations including academia to enhanceindigenous developments. BEL is also taking adequate initiatives for joint developmentswith reputed foreign companies to quickly harness specialised technologies into the newproducts.

iii. Initiatives:

Following are some of the new initiatives undertaken by BEL in the areas of R&D andtechnology development during the year

2009-10:

• A new Central Research Laboratory has been established at Bangalore for carryingout research in new technologies of Electronic Warfare Systems and Electro-optics.

• A Radar Chair has been set up by BEL at the Indian Institute of Science forencouraging research in the frontier areas of Radar science and technologies.

• BEL Software Technology Centre, Bangalore has been upgraded to CMMI Level-5Certification to take up high end software module developments.

• Scope of in-house Excellence R&D Awards Scheme has been enhanced toaccommodate several new categories of awards for further encouragement of excellentR&D work at BEL.

• Obsolescence management process for legacy equipment has been simplified bylinking SAP with obsolescence Database Software

2. Manufacturing:

• State-of-the-art Digital Flight Control Computer (DFCC) manufacturing facility

The Company has set up a state-of-the-art integrated manufacturing facility forassembly, inspection and testing of Digital Flight Control Computer (DFCC), all under oneroof. DFCC is a state-of-the-art, multiple redundant (improving its reliability, onechannel will take over if another fails) Digital Fly-By-Wire Flight Control System of theLight Combat Aircraft (LCA), Tejas, which basically controls the maneuvering (pitch, yawand roll) of the aircraft.

The facility includes Thermal Cycling Chamber, Vibration Machine, DehumidifyingChambers for storing PCBs, high resolution inspection tools for identifying processerrors, Automated Test Equipment for rigorous performance testing and Engineering TestStation for testing the DFCC unit. The facility has ESD safe flooring and ESD safeguardsfor assembly, inspection and testing. Reflow and wave soldering facilities have been setup to enhance reliability. With this unique facility, BEL has acquired the capability tomeet the requirements of the LCA programme.

• Walk-in Thermal Chambers have been commissioned which can test the performanceof the products within a temperature range of - 40C to +70C.

• Spark 400 Machine has been commissioned for SMT Assemblies.

• Vibration Machine has been installed to carry out vibration test of largesubsystem / test rack of various projects like Combat Management System and CentralAcquisition Radar.

• Rapid Thermal Cycling Chamber (Capacity 270 Ltr), an Environmental StressScreening Chamber with very fast temperature change rate, has been installed.

• Electro-plating Facility for ferrous and Non-ferrous and magnesium metals hasbeen established in the plating shop at Machilipatnam Unit.

3. New initiatives taken, diversification / expansion plans

BEL is adapting to changing business environment with an objective to assess itsposition with emphasis on structured business development activity for understanding andoffering products / solutions to customers proactively by having a medium-term perspectiveplan in place.

(i) Preparation of 5 year perspective plan for the Company (2009-14)

A medium-term perspective plan of the Company has been prepared and released for theperiod 2009-14. The major systems and products of BEL for next 5 year dispatch period andR&D plans for the Company have been projected. The primary input considered for theseprojections is the marketing leads based on inputs from defence services and other inputsby direct interactions with customers. The perspective plan also lists the challenges,opportunities and strategies for BEL to face the current defence business scenario due toincreased participation by private companies.

Financial performance of the Company for the next 5 years based on the dispatch planshas been projected. Various initiatives in technology development and R&D, humanresource management, quality, cost reduction have been brought out, including export andoffsets strategies and new business initiatives planned. Few selected areas for priorityaction during the plan period also have been identified.

(ii) Benchmarking of BEL with leading Indian / foreign companies in the defencebusiness.

Benchmarking of BEL at a Company level has been carried out with the help of anexternal consultant. The Indian / foreign companies against which BEL has been benchmarkedare medium and big sized companies operating in the areas similar to major business areasof BEL. The key functional areas of the organisation have been considered for comparingperformance and position of BEL against the targeted companies. The findings show BEL asone of the strong companies among the Indian players. However in comparison withInternational companies, some gaps have been observed which needs to be studied andimproved.

(iii) Strategic alliances for emerging businesses through co-development,co-production, product manufacture through technology transfer.

BEL has been entering into strategic alliances with Indian and foreign players toensure business in a competitive market scenario. These alliances are for addressingvarious emerging markets where BEL ties up with suitable partners / defence labs forcollaboration. It is being pursued proactively and addressed at SBU / Unit level in theirarea of operation and strength. BEL has been pursuing the following partnerships:

• Technical collaboration agreement with M/s Indra Sistemas, Spain for Radar bandESM system (for Indian Navy).

• Development and ToT for Ani Submarine Warfare (ASW) system with NSTL, India.

• Co-operation on software defined Radio systems technology with M/s Thales.

• Development for medium power Radar with DRDO.

(v) Forming of Joint Ventures / acquiring technology companies (for bothexisting / emerging business areas)

BEL is discussing with reputed foreign / Indian players for forming Indian JointVentures in the areas of defence electronics, namely, missile electronics and guidancesystems with Rafael, Israel and with Thales, France for civilian and select defenceRadars. These proposals are in the advanced stages of discussions. BEL is also discussingwith BHEL for setting up a JVC for Solar PV manufacturing.

MoU signed with M/s Indus Teqsite, Chennai for exploring the setting up of JVC fordevelopment of digital subsystems and test systems for Radars, avionics, electronicwarfare etc.

(v) Identified areas of diversification

Currently BEL is engaged in executing large strategic weapon system contract receivedfrom MoD and many similar programs are on the anvil. This has necessitated BEL to assessand create necessary infrastructure to handle such large programs.

However, in order to sustain and enhance the growth of the Company and be in theforefront of professional electronics domain, BEL has plans to diversify into thefollowing new non-defence areas:

• ATM Radars.

• Solar PV business.

• Critical infrastructure (Government) protection systems.

• Interception and monitoring systems -Terrestrial wireless, satellitecommunication, email, etc.

• Next generation optical networking solutions.

• Nuclear, Biological and Chemical (NBC) warfare defence and protection.

• Mobile WiMAX broadband networks.

• Lightweight multipurpose shelters.

• Satellite On The Move (SOTM) systems.

• Terminals for micro financing agencies.

• Pilot project for railway communication / disaster management.

(d) Specific Measures on Risk Management, Cost Reduction and Indigenisation

1. Risk Management:

The Risk Management Committee constituted by the Company has identified the variousrisks associated with different areas of operations of the Company and recommended riskmitigation measures. These measures are being implemented. To address the product andtechnology related risks, two separate Divisions have been set up at the Corporate Office,viz., (i) "Strategic Business Planning Group" and (ii) "Technology PlanningGroup".

The Company has adopted the Project Management concept to minimise / mitigate the riskof losses on liquidated damages due to delays in execution of projects and projectmanagers and associated executives are being trained on latest Project Management systems/ tools.

The marketing function is also being strengthened and marketing executives are impartedintensive training on marketing skills in a competitive environment. To enhance marketingskills to compete in a fast changing market, marketing executives are continuouslynominated for a 6-months residential Marketing program at IMI, New Delhi. The program isfocused on providing key marketing knowledge and skills required for business.

All the assets of the Company are covered by Insurance. Necessary measures are beingtaken to manage risks associated with FE variation and other areas of Finance, HRD, etc.

2. Cost Reduction:

In the era of global and private participation in Defence sector, there is a constantand compelling need for the Company to remain competitive in all areas of its operations.One of the approaches to retain this competitive edge is to constantly strive to achievereduction in costs in an environment in which technological superiority has to be matchedwith competitive price. To give more impetus to this, BEL has adopted cost reductionstrategy as one of the thrust areas from late 90s. Various avenues like design change,alternate material, labour, indigenisation, alternative sourcing, inventory management,process / yield improvement, energy conservation, quality initiatives like Six Sigma, QCC,Suggestions, Value Engineering are identified for cost reduction. During the year2009-2010 more than 50 task forces were working on cost reduction in various Units / SBUsand the Company achieved a cost reduction of Rs. 19,400 lakhs.

3. Indigenisation:

Self-reliance is one of the objectives of the Company to meet the strategic needs ofthe nation. In view of the increasing competition in the open market era, indigenisationactivity has become one of the thrust areas of BEL to be cost competitive. Each of theunits of BEL takes measures towards indigenisation activity for the high cost importedassemblies & modules used in the BEL products under manufacture.

Apart from indigenisation of imported components / assemblies, indigenised technologyat BEL is developed in the following ways.

• Development of indigenous technology through in house R&D efforts at BEL.

• Development of indigenous technologies jointly between national labs (like DRDO,ISRO, CSIR, C-DOT, academic institutions, etc.,)

• Product ionisation of indigenous technologies of interest of BEL developed byvarious indigenous design houses in India.

• System & turnkey projects designed by BEL and realised through integrationof bought out subsystems for faster availability of desired systems to customer.

During the design stage, all out efforts are made to identify the indigenous source ofprocurement for components / modules. The source identification is carried out with thehelp of a well-developed online (SAP) Approved Vendor Directory (AVD) of all components /modules available across 9 units of BEL spread across the Country.

Every year the Company introduces new products as well as upgrades the existingproducts through indigenous efforts. BEL has been receiving prestigious RM awards in thecategory of import substitution. The turnover from indigenously developed products during2009-10 was 75%.

B) Internal Control System and its Adequacy

The Company has an adequate system of Internal Controls implemented towards achievingeffectiveness and efficiency of operations, reliability of financial reporting andcompliance with applicable laws and regulations.

The system comprises well defined organisation structure, pre-identified authoritylevels and procedures issued by management covering all vital and important areas ofactivities, viz., Budget, Purchase, Material Management, Works, Finance & Accounts,Human Resources, etc. These procedures are updated from time to time and are subject tostrict compliance.

The Company has implemented ERP (SAP) System in all of its manufacturing Units /Offices. This has further strengthened the Internal Control Systems with its in-builtchecks and balances at various levels of operations.

The Company has an Internal Audit Department which continuously reviews compliance withCompany's procedures, policies, applicable laws and regulations with well defined annualaudit programme. The Company revised the Internal Audit manual during the year to ensureadequate audit coverage under SAP environment. Significant audit observations are reportedto the management level Audit Committee / Audit Committee of Board of Directors. TheInternal Audit function is headed by General Manager (Internal Audit) reporting to theChairman & Managing Director.

The Internal Control Systems are reviewed by the Audit Committee. The adequacy ofInternal Control procedures is reviewed and reported by the Statutory Auditors in theirAudit Report. BEL being a Government Company, is subject to Government Audit also.

1. Strategy & Objectives

The main objectives of the financing strategy of the Company are as follows:

(i) To make available the required funds through internal accruals and / or byeffective cash flow management with a view to have the least interest cost.

(ii) To maintain the highest credit rating in the short-term to be able to raise fundsat most economical rate if required.

(iii) To meet the expectations of the various stakeholders.

(iv) To effectively execute tax planning thereby improving the post tax yield to theshareholders.

(v) To maintain highest standards of financial reporting by following the mandatory aswell as recommendatory accounting standards.

Each of the objecives listed continue to be accorded the highest priority by BEL.During the financial year, the entire working capital needs and the funding for capitalexpenditure was met from the internal resources without resoring to any externalborrowing.

2. Performance Highlights

(Rupees in lakhs)

3. Analysis of Financial Performance of 2009-10

• Turnover registered a growth of 12.89 %, from Rs. 462,368.89 lakhs in 2008-09 toRs. 521,977.40 lakhs in 2009-10.

• Value of Production has marginally decreased from Rs. 527,327.27 lakhs in2008-09 to Rs. 524,788.20 lakhs in 2009-10. Reduction of 0.48 %.

• 3.34% decrease in Profit After Tax, from Rs. 74,575.97 lakhs in 2008-09 to Rs.72,087.10 lakhs in 2009-10.

• Reduced PAT to Sales Raio, from 16.13% in 2008-09 to 13.81 % in 2009-10.

• Sales Per Employee has increased from Rs. 38.66 lakhs in 2008-09 to Rs. 45.21lakhs in 2009-10.

• Earning Per Share has decreased from Rs. 93.22 in 2008-09 to Rs. 90.11 in2009-10.

• Book Value Per Share has increased from Rs. 472.96 in 2008-09 to Rs. 540.66 in2009-10.

• Networth has grown from Rs. 378,368.15 lakhs in 2008-09 to Rs. 432,525.59 lakhsin 2009-10.

D) Development in Human Resources

In order to address the Learning and Organisation Development needs, various ManagementDevelopment programs as well as technology programs were organised in the year 2009-10.These programs were organised through premier training institutions for employees atdifferent levels. The Company-wide per capita training mandays for the year 2009-10 was 3.

Some of the important HRD initiatives during the year included:

• Competency modeling intervention has been initiated to identify the criticalcompetencies having an impact on business outcomes that had to be demonstrated at alllevels across the Organisation. The competency model for BEL has 9 competencies and wasarrived at with the help of an external consultant. A total of 70 job descriptions andcompetency profiles have been made for senior executive roles. Development centres havebeen conducted through an external HR Consultant for 61 senior executives including GMs /AGMs and individual development plans have been made for addressing their developmentalneeds.

• Outward bound learning program was conducted for executives to internaliselearning from the performances in realistic situation. This training takes the participantaway from the comfort zone, in an informal risk-free environment, thereby enabling theparticipant to experiment and explore their hidden potential. Three cross-functional teams- a total of 70 participants were sent for the training during the year 2009-10.

• To enhance marketing skills to compete in a fast changing market, 21 executivescompleted a 6-months residential marketing program at IMI, New Delhi. The program wasfocused on providing key marketing knowledge and skills required for business.

• In order to strengthen the leadership capability, three Programs on '360 DegreeFeedback and Leadership" were conducted and 60 AGMs / Sr DGMs / DGMs attended theprogram.

• Four Leadership Review Workshops were conducted in various units with assistanceof Prof T V Rao from M/s TVRLS. 71 DGMs / Sr DGMs / AGMs attended the program. The actionplans were reviewed.

• To enable our senior executives to be change agents, 4 programs on "Leadingthe Change" was conducted at MDI, Gurgaon. 83 executives in DGM / Sr DGM / AGM gradeattended.

• In order to hone Project Management skills, executives were trained in ProjectManagement and 58 executives are PMP certified.

• Technology Programmes to enhance the knowledge of BEL engineers in varioustechnology areas were conducted: Finite Element Method, basic course on Digital SignalProcessing, advanced course on Digital Signal Processing, VHDL, Embedded System Design, RFMeasurement, Basics of LAN / WAN technologies, Advanced Data Communication, Designing withVHDL and essentials of FPGA, basics of Digital Communication and advanced FPGA.

E) Corporate Social Responsibility (CSR)

BEL is committed to contributing to the socio-economic development of its stakeholdersand the business decisions of the Company will be in line with its obligations of CSR. TheCompany's sustained initiatives shall aim at earning the goodwill of the community andenhancing the image of the Company. Pursuing this objective, the Company has prepared apolicy on Corporate Social Responsibility. The CSR policy has laid down the followingbroad areas for providing benefit to the stakeholders:

• Health care

• Education

• Rural development

• Environment protection

• Conservation of resources

During the year the Company has approved the following CSR initiatives with a totalfinancial outlay of Rs. 259.3 lakhs: