Crompton Greaves Ltd

What is CG? With a global turnover in excess of US$ 2 billion, Crompton GreavesLimited (‘CG’ or ‘the Company’) has manufacturing facilities inBelgium, Canada, Hungary, Indonesia, Ireland, France, the UK, the USA, in addition to over14 manufacturing and design locations in India. Employing 8700 people from differentnations across the world, CG is a multi-national, multi-cultural, multi-product andmulti-services company. It is diversified and differentiated, yet bound by the desire forcustomer delight and best-in-class global excellence.

CG has three major businesses: Power Systems, Industrial Systems and Consumer Products.

› At Rs.6,503 crore in FY2011, it accounted for 65% of CG’s consolidatednet revenues.

› Has overseas facilities at Mechelen and Charleroi (Belgium), NorthernFrance, Cavan and Dublin (Ireland), Tapioszele (Hungary), Nottingham and Jarrow (UK),Winnipeg (Canada), Washington (Missouri, USA), Albany, Connecticut, Idaho, Maryland,Pennsylvania, Florida, Texas and Arizona (USA), and Bogor (Indonesia).

› Has Indian facilities at Kanjur Marg (Mumbai), Malanpur and Mandideep(Madhya Pradesh), Nashik and Aurangabad (Maharashtra), and Gurgaon (Haryana).

› Net revenue in FY2011 was Rs.1,497 crore, or 15% of CG’s consolidatedtop-line.

› Has facilities at Tapioszele (Hungary), Mandideep and Pithampur (MadhyaPradesh), Kanjur Marg (Mumbai), Ahmednagar and Mahape (Maharashtra) and Goa.

› Earned net revenue of Rs.2,021 crore in FY2011, and accounted for 20% ofCG’s consolidated net revenue.

› Has facilities at Bethora and Kundaim (Goa), Baddi (Himachal Pradesh),Kanjur Marg (Mumbai), Ahmednagar (Maharashtra), and Vadodara (Gujarat).

ACQUISITIONS

As mentioned in last year’s annual report, on 29 April 2010 CG concluded anarrangement for acquiring three businesses of Nelco Limited — traction electronics,SCADA and industrial drives — for a value of approximately Rs.92 crore. Thisacquisition formally occurred during FY2011. It should enable CG Industrial Systems tobecome a stronger player in its railways business and also build capabilities in designingand manufacturing drives.

Acquisition of Emotron

On 19 May 2011, CG acquired Emotron of Sweden for an enterprise value equivalent to_57.8 million.

Established in 1975 as a merger of three companies, Emotron is engaged in the design,engineering and manufacturing of drive solutions — with the latest insulated gatebi-polar transistor (IGBT) based technology for variable frequency drives (VFDs) from 200V to 690 V, and 0.2 kW to 3,000 kW. These are used for:

• Flow controls, such as pumps, fans and compressors;

• Material handling, e.g. cranes, crushers, mills and conveyors; and

• Lift controls such as elevators.

It also manufactures soft starters and shaft power monitors that are widely used inseveral industrial applications, as well as rotary heat exchangers with switch reluctancemotors for saving energy. For the year ended 31 December 2010, Emotron earned revenueequivalent to 537.3 million, with an EBIDTA of 54.4 million.

Emotron has had a long experience in West European markets especially Germany and theBenelux countries, and is respected for its knowledge and use of drive technology. Withthis acquisition, CG has taken a big step in being able to offer energy saving solutionswith latest power electronics technology.

Rising energy costs and a global focus on energy efficiency and lower carbon emissionsis expected to catapult the world market for VFDs from US$10 billion in 2010 to US$16billion in 2014. Together with Emotron, CG should substantially increase its business andbecome a major force in global VFD/industrial motors markets — in Europe, theAmericas and India. This acquisition fills the gap in the automation solutions space forCG’s Industrial Systems business.

Acquisition of QEI

On 27 May 2011, CG acquired QEI Inc of USA for an enterprise value equivalent to US$30million.

QEI is a market-leading provider of SCADA and automation systems and allied productswhich are used to manage electric transmission and distribution networks in electricutilities and electrified transit. Servicing a large customer base, its major products andsolutions include:

• Complete and fully integrated SCADA systems;

• Master stations and control centres;

• Distribution management applications;

• Sub-station automation systems and products;

• Feeder automation systems and products; and

• System installation and integration services. QEI is based in Springfield, NewJersey, USA.

With this acquisition, CG has further strengthened its position in SCADA andsub-station automation. QEI should help CG in further penetrating the North Americanautomation market, and in also creating capabilities for distribution automation in Indiaand Europe.

The above two are CG’s eighth and ninth acquisitions in six years. The others havebeen Pauwels (2005), Ganz (2006), Microsol (2007), Sonomatra (2008), MSE Power Systems(2008), Power Technology Solutions (2010) and three businesses of Nelco (2010).

NEW BUSINESS AREA

CG has been awarded a contract for acting as the distribution franchisee of MaharashtraState Electricity Distribution Company Limited (MSEDCL) for power distribution in theJalgaon Circle (Maharashtra) for a period of ten years. A Letter of Intent for the samehas been executed between CG and MSEDCL. CG will attempt to reduce currently high levelsof technical and commercial losses by modernising the distribution infrastructure,improving collections, and bringing in place more efficient management, vigilance andapplication of corporate best practices.

KEY PERFORMANCE

The key performance highlights of CG for FY2011 are given to the right.

STRATEGIC BUSINESS UNITS (SBUS)

CG has three SBUs: (i) CG Power Systems, (ii) CG Industrial Systems, and (iii) CGConsumer Products. CHART F gives the comparative shares of business of the threeSBUs on a consolidated global basis for FY2010 and FY2011.

› CG POWER SYSTEMS NET REVENUES grew by 4.8% — up to Rs.6,503 crore inFY2011.

› NET REVENUE FROM CG INDUSTRIAL SYSTEMS increased by 18.9% — fromRs.1,259 crore in FY2010 to Rs.1,497 crore in FY2011.

› NET REVENUE FROM CG CONSUMER PRODUCTS rose by 25.4% from Rs.1,612 crore inFY2010 to Rs.2,021 crore in FY2011.

CHART G shows that in FY2011, CG Power accounted for almost 65% of theCompany’s consolidated net revenues; followed by 20% for CG Consumer Products; and15% for CG Industrial Systems.

Figures have been re-grouped wherever necessary to make them comparable.

2 PERFORMANCE OF CG POWER OVERSEAS

YEAR ENDED 31 MARCH IN RS. CRORE

CG POWER SYSTEMS: CONSOLIDATED PERFORMANCE

CG Power Systems (or CG Power) represents the Company’s global transmission anddistribution businesses, and is the largest SBU. It manufactures power transformers,distribution transformers, extra high voltage (EHV) and medium voltage (MV) circuitbreakers, gas insulated switchgear (GIS), EHV instrument transformers, lightningarrestors, isolators and vacuum interrupters. It provides turnkey solutions for T&Dthrough customised sub-station projects, EPC and other integrated end-to-end contractsthat involve solutions, design, products, procurement, construction, erection andservicing. Its facilities abroad and in India have been listed earlier in this chapter.

The key performance indicators of CG Power (global as well as Indian) are in TABLE 1.As is evident, the SBU’s performance has been somewhat muted. The reasons are givenlater in this chapter.

› Net sales of CG Power grew by 5% to Rs.6,503 crore in FY2011.

› EBIDTA increased by 6% to Rs.937 crore in FY2011, and EBIT by 5% to Rs.807crore.

› There was a 29% increase in capital employed to Rs.2,159 crore. This waspartly due to more investments; as well as some key customers not taking delivery ofapproved and successfully tested orders, and thus tying up working capital.

› As on 31 March 2011, the unexecuted order book (UEOB) was up by 10% toRs.6,565 crore.

Those familiar with the Management Discussion and Analysis of the previous year willrecall that while CG Power India did very well in FY2010, CG Power Overseas had sufferedon account of the falling demand for distribution transformers (DT) in

Europe and the USA. This year, the story is the reverse.

There were no operational constraints for CG Power Overseas in FY2011. DT sales bouncedback; power transformers, wind and sub-stations grew very well; and the overseasbusinesses witnessed healthy growth in terms of volumes and value. However, there was anegative impact of 12% on account of currency translation. However, in CG Power India,despite a 17% growth in physical output (measured in terms of mega-volt ampere or MVA),pricing pressures dampened revenue growth. Moreover, some key customers in India delayedtaking delivery of, or installing power transformers, switchgear and sub-stations —even when these had been tested to their satisfaction. Thus, there were instances whererevenue could not be booked, in spite of the equipment being ready for shipment andinstallation.

Notwithstanding this ‘blip’ in India in FY2011, the outlook for CG Powercontinues to remain robust. According to the International Energy Agency’s WorldEnergy Outlook, 2010, global demand for primary energy will rise from 12 billion metrictons of oil equivalent in 2010 to almost 17 billion metric tons in 2035. Global energy usewill grow by 42% in 25 years, with non-OECD countries accounting for almost all of theincrease. China will lead the pack, with a demand surge of almost 75%. Followed by India.It is estimated that approximately three-fourths of this growth in energy demand will beaccounted for by India and China.

It is inevitable, therefore, that the world will witness a steady increase in demandfor T&D equipment and end-to-end solutions — both for replacement as well as fornew projects. Despite T&D outlays falling below plan targets in FY2011, there is everyreason to believe that India will see significant growth in power sector investments,spanning generation, transmission and distribution. CG Power is well placed to exploitthese opportunities.

CG POWER OVERSEAS: FINANCIAL PERFORMANCE

The Financial Performance of the CG Power Overseas is given in TABLE 2.

Thanks to a significant revival of the DT business both in the USA and in Europe,coupled with major growth in the demand for wind energy solutions, the top-line of CGPower Overseas grew by 21% in Euros. However, the impact of currency translation muted thegrowth to 9% — to reach Rs.4,060 crore (or US$ 891 million). EBIDTA rose by 14% toRs.456 crore (US$ 100 million). EBIT grew by 13% to Rs.347 crore (US$ 76 million). Therewas a 25% growth in capital employed, thanks to key investments, especially theacquisition of Power Technology Solutions in the UK. This led to ROCE reducing by 2.5 percent points to 23.5%. The unexecuted order book (UEOB) increased by 22% and stood atRs.3,608 crore as on 31 March 2011 (US$ 792 million).

TABLE 3 gives the key performance indicators for FY2010 and FY2011.

Net sales of CG Power India was muted — growing by 2% over last year to reachRs.2,554 crore. EBIDTA decreased marginally to Rs.482 crore. So has EBIT to Rs.460 crore.Return on year-end capital employed (ROCE) fell by 24.3 per cent points to 68.5% —which, despite the fall, remains by far the highest ROCE in the industry. The unexecutedorder book (UEOB) reduced by 3% to Rs.2,957crore as on 31 March 2011.

› MANUFACTURING EXCELLENCE: CG Power’s global capacities were increasedby 10,000MVA in one year by (i) setting up of a new medium power transformer plant in theUS and new low power transformer plants in Mechelen (Belgium) and Malanpur (near Gwalior,India); (ii) enhancing capabilities to higher kV and higher MVA classes across all plants;and (iii) productivity improvement of almost 15% in power transformers throughmodernisation and automation.

› GLOBAL SOURCING: Achieved significant savings on global material purchasesby shifting procurement to low cost and emerging economy vendors. In FY2011, 46% of CGPower Systems total purchases came from Eastern Europe, India, China and the rest of Asia.There are plans to increase this share to 57% in FY2012.

› ONE WORLD QUALITY: This is a key driver to standardise best qualitypractices across all power transformer units. A critical parameter has been identified— namely, test bed failure, however rare, and subsequent de-tanking. The task is tobring de-tanking to below 5% at a global level, irrespective of the increased volume ofproduction. One World Quality has been behind the success of manufacturing 765kV powertransformers across different global facilities. Based on the uniformly high qualityparameters, irrespective of where these transformers were manufactured, CG Power hassecured repeat orders for 20 more units.

› UNIPOWER PROJECTS: Four major projects are being conducted throughout CGPower to design and implement best-in-class processes for various transformers. Whensuccessfully implemented, these should save significant costs per year.

› CG Power Overseas saw a sales growth of 21% in FY2011, measured in Euros.The power transformer divisions in the aggregate grew by 26% in numbers, and by 17% interms of MVA. The distribution transformer divisions grew by 36% in terms of numbers, andby 6% in MVA.

› There were several notable developments globally.

• Mechelen manufactured 765MVA, 380kV auto-transformers and 60MVAr, 380kV reactorsfor the first time. The new low power transformer plant began operations. The existingdistribution transformer plant was modernised.

• In Hungary, four 765kV power transformers were tested at the Tapioszele plantfor the first time. The tanking facility at Szolnok produced 765kV tanks — also forthe first time.

• Ireland saw the first production of 4MVA transformers.

• The new best-in-class medium power transformer plant in the US has commencedoperations.

• The plant in Indonesia has been upgraded to the 500kV level with a new test bay.It is now ready to take 500kV orders from the Indonesian utility major, PLN, as well as330kV orders from Australia.

• In 2010, the Systems Division of CG Power (Belgium) has commissioned its firstoffshore sub-station — of a 165MW wind-farm called Belwind, located 50 km in thecoastal waters of Belgium. The project connected offshore wind-farms to the main highvoltage grid. Based on its success, CG has filed a patent for customised off-shore gridconnections.

› CG Power Overseas has created a joint venture in Saudi Arabia to manufacturemedium power transformers to meet growing demand in the Middle East. The plant will havethe capacity to produce transformers of the 100MVA, 132kV class. In addition, it will beable to undertake repairs for units up to the 120MVA, 220kV class. It is targeted forcompletion by FY2013.

› CG will soon be establishing a greenfield power transformer plant up to100MVA and an HT switchgear plant in Brazil. The objective is to create a localmanufacturing platform that will transform CG into a significant player in Latin America.Brazil is the largest transmission and distribution market in South America and has aburgeoning domestic demand. The plant’s facilities can also be used as an exportplatform to other Latin American countries. CG has completed the acquisition of land toset up the manufacturing facility.

› CG Power Overseas secured several significant orders. Some of these include:

• Large orders of 1.5MVA, 1.7MVA and 6.2MVA SLIM transformers for the wind segmentin Europe.

• Increased share of frame contracts from wind energy transmission majors inEurope, such as Enercon (Germany), Elia (Belgium), Union Fenosa (for Belgium) and Acconia(Spain).

• Frame contracts for 400kV and 275kV transformers with the National Grid of UK.

• Orders for 450MVA onshore and 245kV offshore GIS from Energinet of Denmark.

• The first order of 40MVA transformers from Kosovo.

• A major GIS substation order from Malta, and another from Finland. In addition,two utilities are sponsoring CG’s GIS in the UK.

• Secured for the first time orders from Genesis (New Zealand) for 20MVAtransformers. Won repeat orders from Meridian Energy (New Zealand), TNB Malaysia and PETECAustralia.

› In the wind segment, CG installed products of almost 700MW in the US in2010, accounting for 24% of the US market share in wind applications. For 2011, it hasprojects in hand of over 1,056MW. In Europe, Middle East and Africa (EMEA), for 2010,distribution transformers including SLIM and Bio-SLIM transformers, accounted for 40%of the market — most of which was concentrated in western Europe. Globally, CG nowenjoys 42% of the market share for offshore wind transformer applications.

› The T1 division (Kanjur Marg, Mumbai) achieved 30% growth in terms of MVA.It crossed the threshold of 20,000MVA of production; continued to earn revenue in excessof Rs.1 billion (US$ 220 million); and retained its position as the largest transformermanufacturing unit in India. It also manufactured India’s largest rating reactor of125MVAr for PGCIL and the Gujarat Energy Transmission Corporation Limited.

› The T3 division (Mandideep, Madhya Pradesh) designed, manufactured, testedand dispatched seven units of 333MVA 765kV transformers for the Unnao substation of UttarPradesh Power Transmission Corporation Limited (UPPTCL). The plant also secured approvalfrom the Nuclear Power Corporation of India Limited (NPCIL), thus paving the way toproduce capital goods for the country’s nuclear power programme.

› The new low power transformer plant at Malanpur (near Gwalior, India)started production in FY2011.

› The switchgear division at Ambad (near Nashik, Maharashtra) designed,developed, tested and dispatched the first 1,200kV capacitative voltage transformer (CVT)in the world. It also designed, developed, tested and dispatched a 765kV circuit breakerfor UPPTCL at Unnao.

› CG has created a joint venture (JV) with the ZIV Group of Spain to providesubstation automation solutions. The JV was formed on 10 September 2010 and is calledCG-ZIV Power Automation Solutions Limited. The proposed factory will be located atBengaluru (in Karnataka, India).

› CG’s Engineering Projects Division (EPD) has been revitalised under anew project management team trained at CG’s

There is a significant revival of the overseas distribution transformer business.

overseas locations, which has resulted in the division significantly increasing itsrevenue contributions during FY2011. Among other activities, the EPD is constructing the765kV substation for UPPTCL at Unnao. This business is now well set to generate higherrevenues in the future.

› CG is setting up one of the world's largest UHV research centres at Nashik,which will be operational by FY2012.

› CG Power India’s exports did well in FY2011. It achieved leadershipposition in Bangladesh and Sri Lanka by accounting for over 50% of the transformer orders;generated new businesses in Ghana, Mali, Honduras and Sri Lanka; retained a market shareof 60% in Malaysia, despite strong competition from Chinese and South Koreanmanufacturers; secured repeat orders in Venezuela; and booked orders to facilitatebusiness for the Indonesian and Belgian plants as well as the services business inBelgium.

› Major orders received from domestic market during FY2011 were:

R Against intense competition from low cost foreign manufacturers, CG bagged an orderfor 17 units of 500MVA 765kV auto transformers worth Rs.175 crore from PGCIL.

R In partnership with ZTR Ukraine, CG received yet another order for the supply of 11units of 80MVAr 765kV shunt reactors. Of these, ten will be manufactured at T3, Bhopal andone will be manufactured by ZTR. Value of the Indian portion of the order is worth Rs.50crore.

› This year, CG added a major account to its list of customers in the field ofprivate power projects. It received an order for seven units of 270MVA 420kV generatortransformers worth Rs.42 crore from Adani Power for their 2 X 660MW super-critical thermalpower plant at Kawai, Rajasthan.

4 PERFORMANCE OF CG INDUSTRIAL SYSTEMS BUSINESS

YEAR ENDED 31 MARCH IN RS. CRORE

CG INDUSTRIAL SYSTEMS

The CG Industrial Systems SBU manufactures the following types of products:

• HIGH TENSION (HT) MOTORS

• RAILWAY TRANSPORTATION EQUIPMENT

• LOW TENSION (LT) MOTORS

• DIRECT CURRENT (DC) MOTORS

• AC DRIVES

• RAILWAY SIGNALLING EQUIPMENT

• FRACTIONAL HORSE POWER (FHP) MOTORS

• AC GENERATORS

• STAMPINGS

TABLE 4 gives the financial performance of Industrial Systems over the last twoyears. Industrial Systems’ net sales increased by 19% over the previous year to reachRs.1,497 crore. Because of higher input costs and some pricing pressure, EBIDTA fell by 7%to Rs.275 crore. EBIT, too, fell by 4% to Rs.264 crore. Given a significant increase incapital employed — on account of the acquisition of NELCO’s three businesses,and other expansion and modernisation programmes — and a marginally lower EBIT, theSBU’s ROCE fell to 62.9%. The unexecuted order book increased by 59% to Rs.601 crore.

› The HT Motors division secured its single largest order to manufacture 62 HTslip ring motors for Grasim Industries for two cement (clinker) plants and five grindingunits. There was another order for HT slip ring motors of 5400kW from a new customer,Chettinad Cement of Chennai, which was the highest rating slip ring motor commissioned inFY2011. The division also supplied its largest frame HT motor of the year of 900 framesize to Binani Cement.

› Received the single largest order for 160 traction motors (HS15250A) fromthe Chittaranjan Locomotive Works (CLW), amounting to 70% of that tender quantity. Alongwith it, won an order to supply 260 HS15250A armatures. Also won 85% of the tender foranother 150 traction motors from CLW.

› Won the single largest order of 19 sets of high horse power diesel electricmultiple units (HHPDEMU) from the Integral Coach Factory, Chennai.

› Won substantial orders for data loggers from the Konkan Railways and theEast Central Railways.

› Successfully developed the first of the new N-Series motors, which arebenchmarked to the best-in-global-class. The power-to-weight ratio of these motors arehigher than the existing one; they have greater efficiency; better heat dissipation;lesser vibration; and lower noise. The first N-series has been delivered to Alstom(India). Higher frame sizes will be developed and tested in the course of FY2012.

› Won a significant order of 36 three-phase AC motors for the DieselLocomotive Works. This order is strategically important given that the future of IndianRailways is in AC traction.

› New products accounted for 21% of total sales of the Industrial Systems SBU.For critical facilities like M7 at Mandideep, it was as high as 47%.

› To create greater synergies, the key resources of the NELCO businesses— technical people, facilities and traction electronics, SCADA and industrial drivestechnology — were identified and shifted to CG’s Mandideep facility.

› There were significant productivity improvements. De-bottlenecking oftraction machines production facilities helped increase the physical output of tractionmachines by over 90%. The M7 plant at Mandideep achieved an average utilization of 97%during FY2011. Cycle times were decreased across the board. Better shop floor andproduction layout and the introduction of new Goliath cranes at the manufacturingfacilities improved productivity. FY2011 saw significant improvement in supply chainmanagement including new vendor development.

CG CONSUMER PRODUCTS

The CG Consumer Products business supplies fans, lighting equipment (light sources andluminaires), pumps, range of electrical household appliances and provides solutions forintegrated security systems, home automation and street lighting. The financialperformance of the SBU is given in TABLE 5. The CG Consumer Products business— CG’s second largest SBU in terms of revenues and its most significant cashgenerator — grew net sales by 25% to Rs.2,021 crore in FY2011; EBIDTA increased by32% to Rs.312 crore; EBIT by 27% to Rs.293 crore. The SBU’s ROCE stood at 364%.

CG is one of the fastest growing consumer product brands in India. It is the marketleader in fans with a strong brand image; occupies the number 2 position in lighting, andis expanding its product portfolio; is the fastest growing brand in home appliances; andis the leader in the domestic pumps segment.

› CG fans continued its overall leadership status, and further increased itsmarket share by growing at 31%, which was faster than the industry as a whole. It retainedits ‘Superbrand’ status for the fifth year in succession. New products accountedfor over 25% of total fan sales. The fans division has developed and started selling a newrange of energy efficient fans with 5-Star ratings. It has also introduced a new range ofindustrial fans and is working towards providing integrated air management solutions.

› CG’s lighting also retained its ‘Superbrand’ status for thefourth consecutive year, with an overall number 2 position in India. CG continues to enjoyindustry leadership in high intensity discharge lamps which are used for public lighting.In FY2011, lighting grew by over 16% compared to the previous year. New products accountedfor over 18% of total lighting sales.

› CG is the first company in India to produce a highly energy efficient lightemitting diode (LED) lamp, consuming just 5 watts of power, with the light equivalent of a40 watt bulb, and an average life of 50,000 burning hours. It is using public-privatepartnerships, government-led initiatives and municipal-level projects to popularise energyefficiency through LED lamps.

› The pumps division grew by 29% in FY2011, which was considerably faster thanthe market. In domestic pumps, CG grew by 31%, and retained its leadership position in thesegment. The division is focusing on agricultural pumps to grow the size of business. InFY2011, CG’s sale of agricultural pumps increased by 23%. The division is also activein the industrial pumps segment. New products accounted for 33% of total pump sales. Thedivision is developing a set of product-based solutions to create integrated watermanagement systems.

› CG’s appliances division grew by 20% in FY2011 versus the previousyear, and has started to emerge as a strong domestic brand. It has become a significantplayer in geysers — where it has grown by 26%. Over 53% of sales of the appliancesdivision consist of newly designed products.

› After sales service is important for CG Consumer Products, and committedactions have been initiated to offer world class service to consumers through a widespreadnetwork of well equipped service centres.

› CG is fast becoming an integrated solution provider in urban India —offering end-to-end solutions that integrate appliances management, lighting, fans, watermanagement, security, building management and home automation. A programme forestablishing an array of CG galleries, which will exclusively showcase the diversity ofthe entire Consumer Products portfolio and integrated solutions is under implementation.

The Board of Directors of CG has set some challenging targets for Global R&D by2015. These are:

• At least 25% of total sales should come from integrated solutions business.

• At least 15% of total sales should come from new products.

• At least 15% of total sales should come from superior, knowledge-based productsand services.

• There should be five major breakthroughs in platform technology and CG’stechnology should be benchmarked with the top three players in the world in the respectivebusinesses.

• The cycle time for new product development should be reduced by 75% compared towhat it was in FY2008.

• There should be no less than 1,000 IPRs.

• In achieving the above, the R&D budget should increase to 4% of total sales.

This section summarises the Company’s achievements in R&D during FY2011.

New Product (NP) Development The Company has a clear metric to determine NPdevelopment. In FY2011, for CG Power India, NP accounted for 22% of the SBU’s totalsales revenues. For CG Industrial Systems, it was 21%. And for CG Consumer Products, itwas 27%.

R For CG Power India, some of the new products were the 765kV, 333MVA single phase autotransformer; the 200MVA, 400kV/132kV/33kV auto transformers for the Power Grid Corporationof India Limited (PGCIL); the 200MVA, 400kV single phase generator transformer for theNational

5 PERFORMANCE OF CG CONSUMER PRODUCTS

YEAR ENDED 31 MARCH IN RS. CRORE

The fans division has developed and started selling a new range of energy efficientfans with 5-Star ratings.

Thermal Power Corporation’s (NTPC’s) Simhadri unit, the 245MVA, 420kV/21kVsingle phase step up generator transformer for NTPC’s Korba unit; and the 45MVAauxiliary transformer for NTPC’s Simhadri unit. All these have been either deliveredor successfully tested.

• For CG Industrial Systems, R&D has helped in creating new products such asdifferent models of high tension vertical motors, high efficiency alternators and newgeneral purpose motors up to 1HP.

• For CG Consumer Products, R&D has played a role in successfully introducingseveral new products, such as the 4" submersible jacketed pump-set; a new design of athree-phase open submersible pump; more efficient pedestal and table fans; and a SolariumPlus instant water heater.

Other significant developments in CG’s Global R&D during FY2011 have been:

• Successfully developing a 36kV isolator with 12% cost reduction.

• Enhancing the capacity of a 245kV circuit breaker from 3,150 amperes to 4,000amperes.

• Delivering the first N-Series motor, where the test results exceeded thebenchmarked parameters.

• Completing the design and development of a SCADA system based on the IEC101 andIEC104 protocols, and receiving orders for their supply.

• Developing and commercialising smart LED street lighting solutions, with thefirst integrated package being sold in August 2010.

• Reducing the height of the 72.5kV breaker interrupter by 15%.

• Reducing the weight of the 315MVA power transformer by 8.5%, and power loss by148kW.

Technology Initiatives

During FY2010, several platform technology initiatives were identified. In FY2011,these were rolled out. Some of these involved areas such as designing high tension motorswith low noise and vibration; developing nano-based insulation technology for instrumenttransformers; GIS technology; medium voltage drives technology; vacuum interruptertechnology; high efficiency CFLtechnology for indoor lighting; and high temperature, highreflective coatings for luminaires.

IPR Achievements

FY2011 saw CG apply for 159 patents, and 161 design registrations, or 320 IPRs intotal. Of the 159 patents applied for, 37 were from CG Power India; 18 from CG ConsumerProducts; 44 from CG Industrial Systems; and 60 from Global R&D. During the year,eight patents were granted, out of which five patents were in India, two in the USA, andone in Russia.

Technology Networks

R&D sustains 21 technology networks consisting of experts and their laboratories inIndia and abroad. Ten such networks were added in FY2011. These cover power systems, powerquality, high voltage products, cryogenics and vacuum technology, dielectrics, drives,rotating machines, solar energy, wide area monitoring, material science, reliability,electronics and others.

Integration with CG’s overseas units

There have been several R&D projects initiated in FY2011 in association with CGGlobal’s units in Belgium, Hungary, Ireland, Canada, Indonesia and the US.

Recognition by India’s Department of Scientific and Industrial Research (DSIR)

In FY2011, the DSIR officially recognised 11 R&D units within CG’s SBUs inIndia: four in CG Power India, three in CG Industrial Systems; and four in CG ConsumerProducts. These recognitions are an indication of the quality of R&D work carried outby the Company; they also allow the units to claim fiscal benefits on account of R&D.

HUMAN RESOURCES (HR)

In FY2011, CG continued to concentrate on strengthening its HR philosophy of‘Performance Excellence and Meritocracy’ across all employees — executivesand workers. Within this, the thrust was to further focus on HR initiatives abroad, giventhat more than half of CG’s 8700 employees are located across various nations outsideIndia.

Common themes were chosen across all locations — ones that could be immediatelyunderstood, put in motion in a uniform manner and monitored globally. Some of these were:(i) talent management, (ii) performance management, (iii) CG Productivity System (CGPS),(iv) corporate social responsibility (CSR), (v) employee engagement, and (vi) CG brand andwhat it stands for. Globally, CG invested dedicated management time on integrating variousinitiatives under these themes to achieve the desired business outcomes.

The year witnessed greater momentum in the area of talent management — especiallyin integrating talent management imperatives into key HR processes. Decisions on careerprogression of executives were evaluated vis-a-vis the CG Competency Model, to create abetter alignment on the proficiencies needed for tomorrow’s managers and leaders. Tofurther strengthen functional capabilities, a dedicated Functional Leadership Academy hasbeen launched in many areas.

Overseas locations went through a detailed talent identification initiative,supplemented by workshops and development centres, to strengthen executive capabilitiesthrough individually structured development plans. Approximately 70% of CG’sleadership positions have been successfully filled by internal candidates — whichbears testimony to the quality of the leadership team, and the ability of entrants toleadership positions to deal with significantly greater responsibilities.

CG continued its initiative in preparing select executives for global leadership. Withthe success of the first ‘Leading a Global Organisation’ (LAGO) programme, asecond batch has been launched in April 2011. This programme exposes participants fromdifferent countries to future global trends and best practices, in addition to buildingcontacts and connections across CG. LAGO is structured through three intensive modules andis conducted in Belgium, India and the USA.

In FY2010, the Company re-oriented its approach to training and development by focusingon trainings based on ‘business drivers’. This approach continued in FY2011,with positive outcomes.

A voluntary Employee Engagement Survey was conducted across all locations abroad, witha very high response rate by global standards. It has yielded many insights into ouremployees’ expectations after acquisitions, and has provided useful information forsenior management to increase employee engagement. Senior management, together with the HRfunction, has identified priorities for action, and has put in place regular reviewmechanisms for enhancing employee engagement.

CG’s compensation philosophy continues to be governed by an approach that combines‘performance, potential and person’ with ‘market realities’. Thisapproach has helped CG appropriately design its reward and recognition systems, which hashelped contain CG’s attrition rates.

In India, the thrust on productivity improvement continues. All wage settlements signedin FY2010 contained an ingredient of CGPS at 133%. In FY2011, production related normshave been recalibrated at many divisions, resulting in an increase by further 10-20percentage points — thus contributing to higher productivity output with the sameinfrastructure. CGPS studies for the residual units will be completed in FY2012.

On the global front, after successfully implementing CGPS at Indonesia and Hungary,studies are underway at the CG plants at Canada, Ireland and Belgium. These initiativeswill gain momentum during FY2012, in addition to CGPS being started at its US facilities.

CG has prided itself in fostering collaborative relationships with its blue collar workforce. As in earlier years, CG has not experienced a single day’s work stoppage orindustrial unrest during FY2011.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Actively supported by CG’s management and its employees at all levels, the CSRmovement at CG has entered its fifth year. Given below are the key initiatives.

CSR in India

As in the past, the key CSR areas of CG in India are (i) health and sanitation, (ii)creating employability, (iii) affirmative actions, (iv) industry-academia interface, (v)HIV/AIDS and, more recently, (vi) agriculture and animal husbandry initiatives.

Much of CG’s CSR focus is in villages near its plants and facilities. In India,these are at: Nandurvaidya (near Nashik), Shevta (Aurangabad), Rithora (Gwalior),Bhatkhadi (Indore), Ratanpur and Gurarighat (Bhopal),Gametha (Vadodara), Matoor (Chennai),Hingangaon, Nimgaon and Nimblak (Ahmednagar), Kanjur (Mumbai), and Kunkoliem and Bethora(Goa).

As a new initiative in the area of agriculture and animal husbandry, a division ofIndustrial Systems has started experimenting with innovative practices in waterharvesting, organic farming, multi-cropping, horticulture, as well as improvement ofcattle yield for dairy. A pilot project has been initiated in the village of Ratanpurtogether with BAIF, a well known NGO with expertise in these activities.

To accelerate efforts in creating employability, the Northern region has

Approximately 70% of CG’s leadership positions have been successfully filled byinternal candidates.

expanded its Graphic and Multimedia Training Centre and, in FY2011, another 200students were selected to study eight different courses.

Providing equipment and infrastructure is also a part of the Company’s commitment.The Lighting Division at Baroda is setting up a solar powered, LED-illuminated lightingsystem in the village of Gametha, near its Vadodara facilities. It has also introduced asix-month practical training course in collaboration with the MS University in glass andceramics technology. CG continues its collaboration with the Industrial Training Institute(ITI) at Satpur, Nashik — a five year commitment under the Government of India’spublic-private partnership programme. Through this, CG will foster a ‘learn andearn’ environment at the ITI; alter the syllabus wherever required to better reflectneeds of neighbouring industries; increase employability of participants through betterindustry networking; create better marketability of the graduating students; and developthe ITI into a profit centre.

A summary of some other CSR initiatives are given below:

• SCHOOL RENOVATION & RECONSTRUCTION Nine schools near various CGfacilities have been renovated and reconstructed, benefiting approximately 1,800 studentsannually.

• MULTI-MODULE KNOWLEDGE BUILDING PROGRAMMES 567 engineering students fromaffirmative action backgrounds have benefited from multi-module knowledge buildingprogrammes.

• SKILL DEVELOPMENT PROGRAMMES 397 school drop-outs have been impartedskill development programmes.

• TOILET CONSTRUCTION 335 toilets have been constructed in line withCG’s emphasis on health and sanitation.

• SELF-HELP GROUPS 57 self-help groups have been formed, with increasingamounts of revenue being generated in each group.

Each year, CG continues its commitment to the three dedicated days - the WorldEnvironment Day (5 June),the Voluntary Blood Donation day (1 October), and the World AIDSDay (1 December).

CSR in the Rest of the World

Each unit abroad has adopted three days every year as facility-wide CSR days, such asthe Forest Day (21 March), World Health Day (7 April), the Earth Day (22 April), theAnti-Tobacco Day (31 May), the Blood Donation Day, and the World AIDS Day. In addition,different countries/units have focused on various CSR activities, some of which are givenhere:

BELGIUM

CG has been supporting Foundation Yvens (at Boons) for children who cannot go to schoolbecause of sickness, or because they are hospitalised.

IRELAND

CG employees have been mentoring ‘willing and able’ students, and have helpedthem secure employment. In addition, the facility has directly sponsored and helped thelocal Lions Club Annual charity fund raiser, and has begun to assist the local nursinghome for the aged.

HUNGARY

Has been supporting the local junior football and handball team, and has madesignificant financial contributions to local school programmes.

CANADA

Raised US$ 4,750 for The United Way campaign.

USA

Employees raised over US$ 12,000 for the Junior Achievement fund-raiser, with CGcontributing an extra US$ 5,000. It also raised US$ 26,228 for The United Way.

INFORMATION TECHNOLOGY (IT)

CG possesses a high speed IT network spanning all locations in India and abroad. It hasa well equipped data centre at Kanjur Marg (Mumbai), which houses all servers runningcritical applications such as SAP, Business Warehouse, Dealer Portal, After- Sales Serviceportal, CGHR4U and Six Sigma. It also has a full-fledged, and frequently tested disasterrecovery site at Chennai. CG’s IT policy covers key aspects of security: physical andelectronic access to information; access to critical areas; electronic distribution; andsharing of information.

› HARDWARE REFRESHING AND RESTRUCTURING: CG’s hardware, supportingenterprise-wide resource planning under SAP, which was established in 2004, needed to beupgraded. This was done in FY2011. The hardware systems now deployed at Kanjur Marg andthe disaster recovery site at Chennai can comfortably cater to increased volume ofbusiness and significantly more users. Moreover, CG has also restructured its hardwareenvironment by implementing virtualisation of servers. This will significantly benefit CGby saving server space in the data centres, saving power consumption and reducing theservice costs for maintenance of individual servers.

› ERP UPGRADE PROJECT: In FY2011, CG embarked on a major upgrade of the SAPERP system from version 4.7 to ECC6.0. This was achieved in a cost effective manner bydeploying internal expertise. The success of the project lay in the fact that none of thebusiness processes were affected during the transition. Today, post- upgrade, CG is at anadvantageous position with respect to the new product features and modules of SAP.

› THE NEW CG WEBSITE: CG’s website was renewed as a part of its new brandidentity. It is a single global website offering

6 STAND-ALONE PERFORMANCE OF CG

IN RS. CRORE, EXCEPT EPS

information on all its businesses, products, services and capabilities in a logicallycoherent manner — united by the common CG brand. It has a single address:www.cgglobal.com. In addition to providing business related information, including newsand events, a new CSR section has been incorporated in the site.

› DASHBOARDS FOR MEASURING CORPORATE PERFORMANCE: Graphic representation ofdata is an extremely effective way of inferring relevant information. In FY2011, the ITteam implemented a powerful business intelligence (BI) tool and created corporateperformance dashboards for its different businesses. This includes tracking of CG’sbusinesses with that of its competitors for comparative trend of performance versus peersover defined periods.

FINANCIAL PERFORMANCE

We first highlight CG stand-alone results, after which we discuss the financialperformance of overseas entities and, finally, the consolidated financials for theCompany.

CG: Stand-alone Performance

The stand-alone results of CG for the year ended 31 March 2011 and 2010 are detailed inTABLE 6. TABLE 7 gives the key ratios (profitability, assets efficiency andleverage ratios) of the stand-alone entity for FY2010 and FY2011.

• GROSS SALES grew by over 13.8% to reach Rs.6,276 crore. Net salesincreased by 12.6% to Rs.5,951 crore.

• MANUFACTURING, CONSTRUCTION AND OPERATING EXPENSES as a percentage

7 STAND-ALONE PERFORMANCE OF CROMPTON GREAVES — KEY RATIOS

8 CONSOLIDATED FINANCIAL

PERFORMANCE OF THE OVERSEAS ENTITIES

to net sales grew by 150 basis points to 70.1% in FY2011.

• OPERATING EARNINGS BEFORE INTEREST, DEPRECIATION, AMORTISATION AND TAXES(OPERATING EBIDTA) grew by 8.8% over the previous year to Rs.933 crore. OperatingEBIDTA to net sales margin reduced by 50 basis points, from 16.2% in FY2010 to 15.7% inFY2011.

• OPERATING PROFIT BEFORE TAXES(OPERATING PBT) grew by 5.8% to Rs.848 crorein FY2011.

• PROFIT AFTER TAX (PAT) grew 12.5% to Rs.694 crore. Excludingextraordinary items, PAT increased by 20.3% to the same number, i.e. Rs.694 crore.

• RETURN ON YEAR END CAPITAL EMPLOYED (ROCE) was 38.9%; and return on networth (RONW) stood at 30.1%. Earnings per share before extraordinary items increased fromRs.9.0 for each Rs.2 share in FY2010 to Rs.10.8 in FY2011. It was the same afterextraordinary items.

• As a stand-alone entity, CG is a debt free company, with an interest coverageratio that stands at 253.0.

CG Overseas

The consolidated financial performance of all overseas entities is given in TABLE 8.

For the CG overseas entities:

• NET SALES GREW by 8.6% in rupee terms to clock Rs.4,151 crore in FY2011.In US$ terms, it increased by 13.7% to US$ 911 million.

• OPERATING EBIDTA grew by 15.2% to reach Rs.440 crore in FY2011; and by20% in US$ terms to US$ 96 million.

• PBT grew by 10.3% in rupees to Rs.331 crore; and by 14.3% in US$ terms toUS$ 72 million.

• PAT before extraordinary item increased by 4.7% to Rs.244 crore; and by8.2% to US$ 53 million.

TABLE 9 gives the consolidated performance of CG. TABLE 10 sets out the keyratios of the consolidated entity.

Key financial achievements of CG as a consolidated entity were:

• NET SALES AND SERVICES: CG’s net sales were US$ 2.2 billion inFY2011, or Rs.10,005 crore.

• OPERATING EBIDTA stood at US$ 295 million, or Rs.1,344 crore.

• OPERATING PBT was US$ 248 million, or Rs.1,129 crore.

• PAT (after accounting for minority interests and share of associatedcompanies, and before extraordinary items) was US$ 203 million, or Rs.927 crore. PAT(after accounting for minority interests and share of associated companies, and afterextraordinary items) was US$ 195 million, or Rs.889 crore.

RISK MANAGEMENT

CG views risk management as a value creating function, responsible for bringing about aculture change and preparing the organisation to face uncertain events.

With this perspective, FY2011 saw a more comprehensive risk management policy beingre-launched in CG — which is being implemented across all divisions and branches,both in India and abroad. This policy strengthens CG’s ability to better visualiseenterprise, process and compliance risks, and to proactively undertake mitigation actionsto minimise such risks — and thus increase the likelihood of business success. Thepolicy recognises that risk is not just about downsides or things going wrong; and that itshould be equally focused on missing out the upside or added value that opportunitiespresent.

CG has a corporate risk management department, which has the responsibility ofimplementing this policy and monitoring the risk mitigation measures. Comprehensive risktemplates have been introduced for continuous review, focussed assessment and monitoringof action steps. During FY2011, based on the revised policy, there was a detailedevaluation of the risks associated with various aspects of

9 CG, CONSOLIDATED FINANCIAL PERFORMANCE

CG’s businesses across major locations — India, EMEA and the Americas. TheRisk and Audit Committee of the Board of Directors conducts quarterly reviews regardingadequacy of risk management.

INTERNAL CONTROLS AND THEIR ADEQUACY

CG believes that a strong internal controls framework is an essential pre-requisite ofgrowing businesses. It has well documented policies, procedures and authorisationguidelines commensurate with the size of the organisation, as well as an independentinternal audit system to conduct audits of various divisions, sales offices, corporateheadquarters and overseas operations. The Risk and Audit Committee of the Board is updatedon significant internal audit observations, compliance with statutes, progress of riskmanagement and effectiveness of working of the control systems every quarter. InternalAudit also extensively interacts with the external auditors. During FY2011, a Risk ControlFramework (RCF) software was developed. RCF is a process embedded in the organisation tounderstand the risk and control environment from the perspective of each unit within anSBU. It also highlights the lack or weakness of controls, assessing what risk thesepresent to the business, and how these risks are to be reduced.

10 CG, CONSOLIDATED FINANCIAL PERFORMANCE, KEY RATIOS

OUTLOOK

The outlook for FY2012 is more positive than before. CG sees significant growth in itspower systems business in India, Asia, as well as in Europe and the Americas. Powertransformer demand is picking up everywhere, and so too is the demand for distributiontransformers in Europe and the Americas. Wind energy is back in a reasonably significantmanner, and CG ought be able to leverage its strengths in this sector.

One thing is becoming clear. Future success for CG will depend upon being an end-to-endsolutions provider in all its businesses, especially power and industrial systems. GivenCG’s acquisitions up to date, including Emotron and QEI, and potential acquisitionsthat it is pursuing, the Company is now well poised to becoming a global end-to-endsolutions provider.

SM TREHAN

Managing Director Mumbai,1 June 2011

CAUTIONARY STATEMENT

The management of Crompton Greaves has prepared and is responsible for the financialstatements that appear in this report. These are in conformity with accounting principlesgenerally accepted in India and, therefore, may include amounts based on informedjudgements and estimates. The management also accepts responsibility for the preparationof other financial information that is included in this report. Statements in thisManagement Discussion and Analysis describing the Company’s objectives, projections,estimates and expectations may be ‘forward looking statements’ within themeaning of applicable laws and regulations. Management has based these forward lookingstatements on its current expectations and projections about future events. Suchstatements involve known and unknown risks, significant changes in political and economicenvironment in India or key markets abroad, tax laws, litigation, labour relations,exchange rate fluctuations, interest and other costs and may cause actual results todiffer materially.