HBL Power Systems Ltd Management Discussions.

India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF). Favourable government reforms and stringent fiscal regime have supported the accelerated growth of the Indian economy since 2014. Despite few short-term disruptive policy initiatives and geo-political issues in large global economies, Indias GDP grew by 7.1% in fiscal 2016-17 demonstrating the fact that Indias economic fundamentals continue to be strong.

The growth momentum is expected to rise, driven by the Governments focus on Make-in-India and Digital India initiatives; growth simulation through investments in infrastructure; providing affordable housing to economically weaker sections; employment generation etc. This growth momentum will be ably assisted by the Governments policy initiatives in areas such as simplification of taxation (GST), attracting foreign direct investment (FDI), and the ease of doing business, among others.

Other major factors helping India stay as a bright spot in the global economic landscape include the subdued global oil price that is expected to have a positive impact on the countrys import bill, a well-regulated monetary policy by the Reserve Bank to stabilise prices and an improving fiscal condition.

The Governments endeavour to drive a bigger as well as cleaner GDP is expected to augur well for the economy in the medium and long terms.

However, the key concern for the country is the health of the banking system, which continues to battle with rising bad loans and heightened corporate vulnerabilities in certain key sectors of the economy. Besides, the firming up of crude oil prices, reduced commodity exports and almost stagnant non-commodity exports could impact trade and current account deficits.

Outlook

India is expected to be the third largest consumer economy, as its consumption may triple to US$ 4 trillion by 2025, owing to a shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by Pricewaterhouse Coopers. Also, the Prime Minister, Mr Narendra Modi has stated that India has become the worlds fastest growing large economy, and is expected to grow five-fold by 2040, owing to a series of policy measures.

HBL Power Systems Ltd is a listed Indian company, in business since 1977, with a focus on engineered products and services. The Companys business selection strategy has been pivoted on the ability to identify technology gaps in India which could be filled in by it through indigenous efforts-truly living up to the Make in India drive, since four decades.

The first products selected and successfully developed were Aircraft batteries-eventually leading to HBL offering the worlds widest range of specialised batteries. The Company leveraged the expertise gained in the battery business to capitalise on new opportunities. In doing so, the Company moved into new businesses and markets that use its batteries, such as industrial electronics, defense electronics, and railway electronics.

HBL re-organised its business into strategic business units-Batteries, Electronics and Defence. Battery revenues accounted for 80% of overall revenues in 2016-17.

Manufacturing facilitiesHBL has, by leveraging in-house developed technologies over its four decade journey, created one of the widest arrays of specialised batteries in the country that provide power back-up for niche applications. The batteries are manufactured at its fully-integrated facilities. The batteries that find application in telecom and railway sectors are the highest revenue generators in this Business Group. The Company has appropriately segregated its battery business into various product verticals, including manufacturing infrastructure, for focused business management and development

Telecom

HBL is the second largest supplier of batteries to the Indian telecom sector. Its 2V-VRLA batteries, designed for harsh cyclic application, enjoy the preferred battery status among telecom operators, tower companies and switching OEMs. Even as the product continued to experience patronage from all leading telecom companies in India, the Company successfully further improvised the product performance.

In addition, the Company focused on strengthening the service quotient for minimising the service turnaround time-it achieved 100% pan-India service TAT of 72 hours.

These initiatives have resulted in robust volume growth during recent years.

In 2016-17 the Companys product received approval from a leading telecom tower company operating in India, which would result in sustaining the growth momentum over the coming years. While the volume growth in current financial year is quite evident, the margins are expected to be under strain due to intense competition in the industry and enhanced negotiating power of the customers.

Railways

HBL enjoys a preferred supplier status with the Indian Railways and metro rail operators. Its batteries are used for varied applications namely air- conditioned coaches, train lighting, electric locomotives, diesel locomotive cranking and signaling applications.

Even as sales revenue increased over the previous year, the Indian Railways decision to switch over (completely) to VRLA from LMLA batteries for train lighting application-a relatively uncluttered space-could help the Company improve its market share in the current financial year.

UPS

Having initiated a presence in this application segment only in 2015-16, HBL made a heartening progress in establishing a foothold in the UPS space. During 2016-17, the Company received approvals for its products from leading banks and insurance companies operating in India. It also entered into contractual arrangements with certain banks. Besides, it partnered with OEMs in the UPS segment that enjoys national and regional presence. These initiatives hold the promise of robust growth over the coming years.

Solar

HBL is respected in the solar battery space for its diverse product range (MNRE approved) and high quality products that offer reliability. Although the tubular flooded batteries are the key revenue spinner in this space, the Company is focused on creating awareness for the tubular gel variants for its reliability and long life. During the year, the Company made a promising headway towards capitalising on the tubular gel opportunities provided by the solar business-it initiated supplies to Solar Power generating System integrators. And, while the Company is working towards a stronger presence in the first-fitment phase, the team remains keen to participate in the replacement opportunity when it emerges.

PLT (Pure-Lead-Tin) batteries

These specialty batteries, specifically designed to deliver high current for a short time-period are perfectly suited for large Data Centre applications and for DG and engine cranking purposes (large vehicles and battle tanks). The Company has been supplying its PLT batteries to Cummins for its DG sets under white label program-an association that has grown each year for over a decade.

In 2016-17, business with Cummins increased by 25% over the previous year. The Company remains focused on making an entry into defence space for these batteries for heavy vehicle applications-its products are currently undergoing the approval process. In addition, the Company is redesigning its product specifically for Data Centre applications-a huge opportunity in the horizon. This should open a high-value, high growth opportunity space for the Company over the coming years.

Ni-Cd batteries

HBL manufactures Ni-Cd batteries leveraging diverse technologies namely pocket plate, sintered plate and fibre plate-enabling it to create a complete basket of products serving critical applications in diverse sectors namely oil & gas, power, utilities, aviation, railways and defence. During the year, revenue from this vertical increased by about 30%. The Company focused on increasing their market share with OEMs in the process industry. In addition, the Company developed and launched a premium (ultra-low maintenance) Ni-Cd pocket plate ("Vent Pro") battery which was well received by the customers-which should make a meaningful contribution to revenue growth from this product vertical going forward.

Channel business

This retail presence strengthens the Companys domestic business model. Initiated in 2015-16, this vertical has made considerable headway in establishing a strong presence in the domestic market-revenue from this vertical leapfrogged by 90% over the previous year albeit on a small base.

This channel markets SPV roof-top kits, solar batteries, small and medium UPS batteries, inverter batteries and is gearing up to market DG batteries and e-rickshaw batteries as well. The Company upgraded its UPS batteries to suit the enhanced warranty requirement of the market, and trial tested E-Rickshaw batteries in aftermarket in 2016-17, the feedback on which is being incorporated into the product through redesign and re-engineering. Besides, the Company widened the channel network by more than 50% to further entrench its presence into demand pockets spreading pan-India.

To meet the demands of the steep rise in data usage and to deal with increasing complaints of call drops, telecom companies are investing in telecom infrastructure as it is the backbone for facilitating connectivity. This infrastructure includes both electronics and backup power, hence larger potential for batteries

The Company expects to strengthen business growth in its major revenue verticals under this business segment over the coming years. This optimism stems from the following factors:

Telecom

India is on the cusp of a formidable growth in mobile broadband technologies. Rapid network expansion of 4G, drop in prices of devices and data tariff are fueling the growth of mobile broadband in the country. Uptake of new-age technologies such as Internet- of-things (loT), evolving concepts such as smart cities, and new devices offering virtual reality experiences will all enhance data usage.

To meet the demands of the steep rise in data usage and to deal with increasing complaints of call drops, telecom companies are investing in telecom infrastructure as it is the backbone for facilitating connectivity. This infrastructure includes both electronics and back-up power, hence larger potential for batteries.

According to Ciscos latest Visual Networking Index (VNI) report, Indias Internet user base will touch 829 million (59% penetration) in 2021 from the base of 373 million as of 2016. Additionally, the number of connected devices is expected to go up to 2 billion in 2021, from 1.4 billion devices in 2016. And data usage on Internet is expected to grow 4x times at a CAGR of 30% to 6.5 Exabytes per month in 2021, up from 1.7 Exabytes per month as of 2016.

Besides, the Governments thrust on digitisation (Digital India) and communication is expected to catalyse data consumption in India-the Governments Bharat Net program under USOF for expanding rural and tribal communication is a case in point.

UPS

The number of ATMs has grown at a rapid pace over the years. As per the Financial Access Survey conducted by the International Monetary Fund (IMF), the number of ATMs per 100,000 adults in India increased from 8.85 at the end of 2011, 17.80 at the end of 2014 to 19.71 in 2015. The momentum is only expected to continue as the Government focuses on getting an increasing number of citizens into the formal banking purview-the Jan Dhan Yojna is one such initiative towards this end.

Interestingly, India is pushing electronic payment in a big way-especially post demonetisation initiative-which could transform the position of the standby battery for the UPS application from necessary to critical, thereby accelerating demand.

Rising number of government initiatives to support development in IT/ITES,

BFSI, education, healthcare, retail and residential sectors in the country is expected to have a positive impact on the countrys UPS market in the coming years. Growing demand for continuous power supply even in Tier II and Tier III cities, coupled with major government initiatives such as, "Make in India" and "Digital India" are anticipated to drive UPS market in the years to come.

HBL enjoys a global presence across 80+ nations-represented by its subsidiaries (HBL, America and HBL, Germany-equipped with stocking and servicing capabilities) and agents, distributors and resellers in more than 25 countries.

The Companys exports are spearheaded by Nickel Cadmium (Ni-Cd) batteries catering to the Oil & Gas, Power and Utility, Railways segments-this product accounts for more than 70% of the export sales. Even as sluggishness prevailed in the global oil & gas sector in 2016-17, the Company was able to garner a robust order book primarily on account of securing additional product approvals, fortifying stronger ties with UPS OEMs and renewing its focus on the emerging markets for this product.

As a result, export revenue for Ni-Cd batteries improved by 20% over the previous year.

To de-risk its global presence from an overdependence on Ni-Cd batteries, the Company is working on creating a market for its other batteries-namely 2V-VRLA, 12V-VRLA and PLT batteries. As a first step towards this goal, the Company has secured UL approval for its 2V-VRLA variant even as seismic certification is under process. The Company is in the process of identifying suitable markets and securing approvals for its 12V lead acid products.

Aircraft batteries: A new opportunity window

HBL is the largest aircraft battery manufacturer in India and one of the few in the world. Its product range comprises batteries in Ni-Cd Sintered Plate, Sealed Lead Acid and Silver Oxide Zinc technologies that find application in defence and commercial aircrafts.

The Company is a major supplier to Indian Air Force and is an approved source for UAV OEMs. The Company has been supplying sealed lead acid aircraft batteries for Russian origin military aircrafts and helicopters. The Silver oxide Zinc/Ni-Cd Sintered Plate batteries are being supplied to several air forces across the world.

Fiscal 2016-17 was a significant milestone for the aircraft battery vertical as the Company received OEM business from Bombardier Aerospace for Lear 85 and Global 7000 Business Jet Aircrafts. In addition, the Company has recently signed an agreement with an American company to obtain necessary approvals with the American Airworthiness Authority, which will allow HBL to sell its aircraft batteries to airlines in the US and across the globe.

Optimism

The overall aircraft battery market is estimated to increase from US$160 million in 2016 to US$200 million in 2022 (Source: Stratview Research).

The market for Ni-Cd Sintered Plate batteries for civil and military aircrafts is estimated at around US$100 million in 2018.

HBL is the largest aircraft battery manufacturer in India and one of the few in the world. The Company received OEM business from Bombardier Aerospace for Lear 85 and Global 7000 Business Jet Aircrafts.

Ni-Cd batteries are projected to remain the preferred and largest battery technology in the global aerospace and defence industry, while lithium-ion is likely to be the fastest growing battery technology.

There are very few major manufacturers of Ni-Cd aircraft batteries. However the penetration will be slow, as the customers are very cautious in inducting new makes.

Focus areas for the current year

• Improve market share in telecom space by consolidating business with newly acquired customers

•  Improve service TAT from 72 hrs to 48 hrs in telecom sector

•  Fortify battery sales in solar segment directly and also through Solar Power Generating System integrators Launch new PLT batteries for data centers and process industries (high rate discharge applications)

•  Pursue approval of batteries for army vehicles operating at high altitude Enhance production capacities for UPS batteries to meet increasing demand

•  Focus on replacement potential for Ni-Cd pocket plate batteries catering to the Power and Oil & Gas segments

•  Enhance sales of premium N i-Cd pocket plate batteries ("Vent Pro")

•  Increase production capacity of Advanced VRLA batteries at VZM factory to meet peak demands

•  Widen the channel network and launch upgraded version of e-rickshaw batteries

• Explore emerging opportunities in Energy Storage Solutions and finalise business blueprint

• Enhance share of business with global OEMs for Ni-Cd pocket plate batteries

• Improve visibility of lead acid batteries among major users in target export markets.

Manufacturing Facilities

SHAMIRPET, Hyderabad,

Telangana

Product line: Electronics

Certifications: ISO 9001:2008; EMS; OHSAS; IRIS and EASA

THUMKUNTA,

Hyderabad, Telangana Product line: Electronics Certifications: ISO 9001:2008; EMS and OHSAS

The Electronics Group of HBL is organised into three divisions-Railway Electronics, Industrial Electronics and Defence Electronics. In view of the identified opportunities and the need to augment specialised capability, defence electronics was moved from the Defence Group to the Electronics Group. The solar division has been merged into the Industrial Electronics Division.

HBL offers a wide range of signaling products and solutions, designed & developed in house, to the Indian Railways.

HBLs signaling products comprehensively meet applicable RDSO specifications and CENELEC standards. HBL is recognised as a reputed supplier of signaling equipment and solutions, built over many years of experience. Some of the key technology offerings include:

Train Collision Avoidance System (TCAS)

TCAS is an automated system which protects trains from various types of collisions, monitors and applies speed restrictions as well as provides in-cab signal aspect display. In the year 2010, HBL initiated TCAS development and Estimate of three years market potential from 2018-19, for TCAS, EIS, TMS and DAC from the Indian Railways is about C3000 crore demonstrated the first version of solution to the Indian Railways in 2012. The trial version was installed in South Central Railway in 2015-16, over a 50km route. Extensive interoperability field trials, with equipment supplied by two other Indian companies, will be completed by September, 2017.

During 2016-17, RDSO improved the specification for TCAS for better reliability, safety and user experience. The final specification, based on trial experience, was released in May 2017, in preparation for rolling out TCAS over a 1,427 km stretch in South Central Railway. The tenders are expected to be finalised during the second half of 2017-18.

HBLs TCAS system is approved for Safety Integrity Level IV, by ItalCertifer, a reputed safety assessing agency in Italy.

Train Management System (TMS)

TMS is an integrated real-time traffic management system that offers monitoring and control of train movement. TMS acquires the signaling information like Signals, Track Circuits and Points etc. from the station interlocking system on a real time basis. TMS also gets the train/rake identification details from the originating point of the TMS zone/ territory. This information is processed and used to monitor movement of trains and facilitates timely decision making for the operators in regulating train movement, diversion of trains, induction of trains, withdrawal of trains and planning reversal of trains in the TMS zone/territory. TMS helps to significantly increase the traffic throughput over existing infrastructure, with considerably less investment.

HBLs TMS is the only indigenous solution available and has already been commissioned in Kolkata Metro and in a 50-station area of Eastern Railway in Howrah Division. The Indian Railways has made a budget provision of C136 crore in fiscal 2018 to expand TMS coverage in Eastern and Southern Railway. Any competition will be foreign.

Electronic Interlocking System (EIS)

Located at railway stations, this failsafe, automated system controls the movement of trains through multiple tracks in the station and prevents unsafe movements. This state of the art product was offered for testing by RDSO. This new system will be approved in the current fiscal year. Certification by ItalCertifer, Italy, for conformity with Safety Integrity Level 4, has been recently completed for EIS.

Digital Axle Counter (DAC)

DAC counts the number of axles between specified entry and exit points on a given section of the track. If the two numbers match exactly, it signifies a vacant track and therefore permits the next train to go through.

HBLs DAC system is assessed and certified by Bureau Veritas, Italy, for compliance with the stringent CENELEC standards for Safety Integrity Level 4, and is undergoing field trials for approval by RDSO. The approval will be in place by end of the current fiscal year.

Integrated Power Supply (IPS) System

IPS is a centralised power management solution that receives AC power from the grid, converts it into AC and DC power of different voltages to replace multiple systems earlier used to operate the various electronics and signaling equipment at a railway station.

HBL is a Part 1 (preferred) supplier to the Indian Railways for this solution.

The Company is witnessing significant revenue growth every year for the past three years, with about C50 crore revenue targeted in fiscal 2018.

Optimism

The Indian Railways is among the worlds largest rail networks. The Indian Railways network is spread over 115,000 km, with 12,617 passenger trains and 7,421 freight trains each day from 7,172 stations. The Indian Railways is focused on reducing the number of accidents and improved safety and signaling is an important tool to this end. The Government has committed to create a fund named "Rashtriya Rail Sanraksha Kosh" worth C100,000 crore (US$ 15 billion), which will be directed towards passenger safety. The signaling share of such safety budgets varies from 5% to 10%. Though safety and signaling has been a high priority, the progress so far has been slow due to the exorbitant and unaffordable costs of imported electronic systems. Thus Indigenous solutions will be affordable and will have a good market.

Industrial Electronics division has three business units-Battery Chargers, Electronics for Solar Power and Permanent Magnet Machines.

Battery Chargers

HBL has been manufacturing and supplying analog thyristor controlled battery chargers for more than 25 years. In fiscal 2018, this product line will be expanded to include digitally controlled thyristor chargers with advanced communication and remote monitoring and control features. HBL is also working on the development of IGBT controlled battery chargers, which give higher efficiency and are smaller in footprint. With new models of advanced technology being introduced in fiscal 2018 and 2019, revenues from the business unit are expected to grow in fiscal 2019.

Solar Electronics

HBL developed Grid Tie String Inverter(s) for on-grid solar application. These inverters convert the DC power into AC power to be fed into the grid for downstream usage. Connected in parallel, inverter(s) can be used for up to 200 KW SPV power plants. Field trials and seed marketing will be the focus in fiscal 2018.

HBL has also developed solar pump controllers that convert the DC power into AC power, which can be used to run water pumps. These are available in 3, 5 and 7.5 HP ratings with various pump heads.

Revenue in fiscal 2018 from the above products is targeted at C30 crore.

Optimism

The Government of India is taking numerous initiatives to augment renewable energy capacity, including a 10-year tax exemption for solar energy projects. Renewable energy capacity has gone up from 27.5 GW in 2013 to about 50 GW in 2017. The countrys renewable energy capacity target is 175 GW by 2022 and 275GW by 2027. The solar power cost is becoming cheaper by the year, and is well below the cost of thermal power.

In 2017, the solar energy sector is likely to add nearly 9 GW of capacity, doubling to 18 GW. The Ministry of New and Renewable Energy has pledged to achieve 100 GW of solar energy capacity by 2022. The predominant part of generation will be on-grid. As per Company estimate, the cost of inverter(s) accounts for 8% of total project cost-offering enormous potential for Grid Tie Inverter(s).

Permanent Magnet Machines

There is a substantial technology gap in India for brushless DC machines, which are more efficient in terms of energy usage, lighter, smaller and easier to control. Such a technology gap attracts the attention of HBL, consistent with its vision of preferring high value engineered products for demanding customers. The focus is on both motors and alternators.

High efficiency, light weight and compact motors, and associated electronic controllers have been developed for use in electric vehicles, and are completing in house tests. HBL is investing significantly in R&D efforts for development of drive train solutions for e-vehicles, to supply to OEMs. The drive train will include permanent magnet motors, electronic controllers, lithium batteries and battery chargers.

Design of 30 KW alternator required by the Railways for achieving selfgeneration in LHB coaches has been completed. Prototype approval by the Indian Railways is expected to be completed in fiscal 2018, and field trials will be completed in fiscal 2019.

A 300 KW motor for propulsion of torpedoes is also designed and prototype manufacture is in progress. The Company expects to supply this motor to the customer in fiscal 2019.

The Company expects to see considerable revenue potential from fiscal 2019 from this business unit.

Optimism

The National Electric Mobility Mission Plan 2020 envisages large scale deployment of electric 2-wheelers, 3-wheelers, cars and buses. Going ahead, India is looking at the ambitious plan of having an all-electric car fleet by 2030 with an express objective of lowering the fuel import bill and running cost of vehicles. If India has to achieve this ambitious goal, the country would require more than 10 million electric cars in 2030, compared to the near to 1.3 million on the road worldwide in 2015.

HBLs deep engineering knowledge, in-house developed cutting-edge technology, sophisticated infrastructure and robust operational systems and processes enable it to support foreign companies to meet their obligations under the offset-clause.

The Company possesses the capabilities of both Build to Print and Build to Specification to support this offset demand.

HBLs ability to partner global defence majors is reflected in the successful completion of a few projects.

This is expected to open the doors to many more such profitable growth opportunities over the coming years.

• Successfully partnered with DCNS of France, for producing and supplying IPMS (Integrated Platform Management System) and Steering Consoles for four Scorpene submarines being built at Mazagon Dock Limited.

• Produced and delivered two Fire Control Systems (FCS) for torpedoes used in submarines.

• Partnered with Elbit of Israel, for supplying communication systems for armoured vehicles, and positioned as prime contractor for the large order from the Indian Ministry of Defence.

The last phase of supplies will be completed in August 2017.

In fiscal 2018, HBL is introducing an advanced technology headset (hitherto not used in India) for use by Special Forces, which will allow them enhanced situational awareness, while remaining connected with others on a radio communication link. These headsets, based on bone conduction technology, bring hi-fidelity audio performance while being extremely comfortable for the user to wear and operate. The headset will find application in the police forces as well.

Optimism

India ranks among the top 10 countries in the world in terms of its military expenditure and import of defense equipment. Offsets are a provision in the Indian Defence Procurement Policy that require any foreign arms manufacturer securing an order worth more than C2000 crore (enhanced from C300 crore in the year 2016) from India to source components worth 30% of the value of the order from India.

The offset opportunity is expected to rise from US$ 2.4 billion in 2013-14 to over US$ 10 billion per annum in the next few years, just on the basis of current capital purchase requirements.

Focus areas for the current year

• Secure product approval for Electronic Interlocking System; Digital

• Axle Counter and 30KW alternator from the Indian Railways

• Complete development of IGBT based chargers

• Leverage seed marketing efforts in building awareness among customers-for HBLs Solar Grid Tie Inverters and Pump controllers

• Roll out advanced hi-fidelity handsets for armed special forces

• Realign manufacturing infrastructure to support scale and production of varied products.

• Commence development of RF seekers for missiles

• Begin development of improved version(s) of TCAS to support operation at higher train speeds.

Manufacturing facility

SHAMIRPET, Hyderabad, Telangana

Product line: Specialty batteries Certifications: ISO 9001:2008; EMS; OHSAS; IRIS and EASA

HBL is the largest battery manufacturer in India for defence sector. The Companys in-house developed product basket comprises batteries for diverse applications-fighter aircrafts, helicopters, transport aircrafts, UAVs, submarine propulsion, light weight and heavy weight torpedoes, battle tanks, missiles and artillery fuzes, among others.

The Company has developed and secured approval for high performance batteries meant for Kilo class submarine (in 2015-16) and Scorpene class submarine (in 2016-17) applications. The Company also participated in an Indian Navy tender for supplying batteries for Scorpene class submarines.

These high margin products are expected to result in profitable business growth as they are critical defence components.

Ammunition

Painstaking efforts spanning more than a decade have made HBL self-sufficient in the design and manufacture of all types of electronic artillery fuzes for different calibers of artillery guns. The Company will shortly bid for a ten-year contract for supplying artillery fuzes to the Indian Army. In addition, the Company is also pursuing potential export orders for these fuzes.

HBL is also bidding for contracts for supplying rockets and anti-tank ammunition to the Indian Army. The Company is negotiating with overseas OE manufacturers for technology transfer to enable it to commence manufacturing operations. The Company has acquired requisite land for a dedicated facility and construction

of the plant is likely to commence by the end of fiscal 2018.

Optimism

The Ministry of Defence under its Make in India initiative is actively facilitating the participation of private sector players for manufacturing ammunition for the armed forces, an opportunity hitherto reserved for the state-owned ordnance factories. This is expected to open a high-value, high-growth business opportunity for the private sector going forward.

The Indian Ministry of Defence has recently approved key policy changes to give priority to locally made defence equipment and fund Indian private sector research and development in defence. The Defence Acquisition

Council (DAC), has approved changes to its Defence Procurement Procedures (DPP) to introduce a new category for indigenously made products. Under the new policy for Indigenously Designed, Developed and Manufactured (IDDM) equipment, it will be mandatory for 60% of the equipment content to be sourced locally.

Focus areas for the current year

• Investment in automation of components production for artillery fuzes, to meet expected bulk demand.

• Secure statutory clearances and create necessary infrastructure for producing ammunition-namely, explosives licenses, industrial licenses, buildings and security arrangements

Responsibility beyond business

HBLs vision of harnessing Indian engineering talent to build a sustainable business goes hand in hand with its purpose of contributing to socio-economic development that improves the quality of life in the communities where it is operating.

HBL has been doing what is now being termed as CSR, even before it had become a statutory obligation. Since inception, HBL had put in place a viable program addressing key societal needs of healthcare, primary education, availability of potable water and sanitation-making an enduring impact on the lives and livelihoods of people around its operations.

HBL has set itself a clear roadmap with a substantial increase in both the coverage and spend in all of its CSR initiatives. The Company has added a new focus area of Old-Age Homes as a part of its CSR initiatives.

Healthcare: As stated in the Convention on the Rights of the Child, nutrition is a crucial and universally- recognised component for a child to grow into a healthy adult. This is especially true for children in the age group of 3-6. Healthy children are harbingers of an enthusiastic and energetic society. In keeping with this belief, HBL supports child welfare centers in local communities by providing safe, nutritious and wholesome meals to children in this age group. The Company has increased its spend in this area by 10% in fiscal 2017 over the previous year.

Education: Girl child education, an often neglected area, has been a pet initiative of HBL for long. HBL continues to passionately support this initiative by providing scholarships to encourage them to pursue higher education. The Company also supports pre-primary and primary education by providing learning aids, sponsoring teachers and creating a joyful school environment, thereby drawing kids to attend school. The Company has increased the coverage of children by 23% and investment by 30% in fiscal 2017 over the previous year.

Potable water: Access to potable water, a basic amenity that every Government promises to provide its citizen, continues to remain a daunting challenge in India. HBL is working with local communities to create facilities that enable access to safe, potable water to local communities.

Sanitation: Awareness of good sanitation practices is the first step towards adopting them. HBL has been conducting periodic programs and workshops with the local communities to educate them on the benefits of good sanitation practices. As a supplementary activity, HBL has been helping them by devising waste collection and management mechanisms and by providing garbage collection vehicles. These initiatives have resulted in significant improvements in sanitation levels in the local communities.

Old Age Homes: Senior Citizens in their sunset years deserve physical and emotional support after having strived for their families. While many senior citizens enjoy this support at home, but a rapidly increasing number lacks this life imperative. These elderly citizens then have to rely on old age homes in their later years. This is a new CSR initiative of HBL and will be pursued in earnest.

Joy of Giving: HBL had organised a joy of giving program for the first time in October 2016. A week long program was successfully conducted across all locations with active participation of the entire staff and workforce. Contributions, collected in cash and kind, were distributed among several needy people-senior citizens and young children. The employees organised medical camps, blood donation camps and Swachh Bharat initiatives as well.