Hindustan Aeronautics Ltd Directors Report.

To the Members,

Your Board of Directors takes great pleasure in presenting their 56th Annual Report on the performance of the Company, together with the Audited Financial Statements for the financial year ended 31st March, 2019, along with Reports of the Statutory Auditors and the Comptroller & Auditor General of India (C&AG) thereon.

Financial Highlights

The financial highlights for the year ended 31st March, 2019 are summarised as under:

(Rs in lakh)
PARTICULARS 2018-19 2017-18
Turnover 19,70,455 18,28,386
Exports 40,504 31,402
Profit Before Tax (PBT) 3,62,764 3,23,985
Provision for Tax 1,34,520 1,25,243
Profit After Tax (PAT) 2,28,244 1,98,742
R&D Expenditure 1,46,440 1,61,186
Earnings/ Share (in Rs.) 68.26 56.15*
Book Value / Share (in Rs.) 324 284

*Earnings per Share is calculated based on the weighted average number of equity shares outstanding

During the year under review, the turnover of the Company increased by 7.8 per cent, to Rs 19,70,455 lakh from Rs 18,28,386 lakh of the previous year. The Profit Before Tax for the year increased by 12 per cent to Rs 3,62,764 lakh from Rs 3,23,985 lakh in the previous year. The Profit After Tax (PAT) increased by 14.8 per cent to Rs 2,28,244 lakh from Rs 1,98,742 lakh in the previous year.

Production Highlights

During the year 2018-19, your Company produced 41 new Aircraft and Helicopters. Additionally, we produced 102 New Aero-Engines and Accessories.

During the year 2018-19 your Company overhauled 213 platforms of various aircraft. Further, 560 Russian and western origin aero-engines were overhauled by the Company during the year under review.

Dividend

The Board of Directors of the Company has formulated a Dividend Distribution Policy keeping in view the provisions of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI (LODR) Regulations), the Companies Act, 2013 (Companies Act) and Guidelines issued by the Department of Public Enterprises (DPE Guidelines) and the Department of Investment and Public Asset Management (DIPAM). The Policy is available on the Companys website at https://hal-india.co.in/Common/ Uploads/DMS/Dividend Distribution Policv.pdf

During the year, your Company has paid interim dividend of Rs 19.80 per share of Rs 10 each (198 per cent) for the financial year 2018-19, totaling to Rs 66,209 lakh, excluding dividend distribution tax of Rs 13,609 lakh. No Final dividend has been recommanded by the Board for the financial year 2018-19.

Reserves

During the year under review, Rs 21,488 lakh was transferred to Research & Development Reserve and Rs 1,26,938 lakh to General Reserve.

Borrowings

As on 31st March, 2019, the short term and long term borrowings of the Company stood at Rs 10,000 lakh and Rs 4,05,801 lakh respectively.

Indian Accounting Standards

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

Internal Financial Controls

The Company has in place adequate internal financial controls with reference to its financial statements. A detailed note on internal financial controls is provided in the Management Discussion and Analysis Report.

Significant Achievements

The Company has achived several milestones during the year under review. A few of which are highlight as under:

• Light Combat Helicopter (LCH) successfully completed all weapon integration and firing tests in January, 2019 and is ready for induction. Initial Operational Clearance (IOC) of LCH for Army version was accorded by CEMILAC on 15th February, 2019.

• The maiden flight of third prototype (PT3) of Light Utility Helicopter (LUH) was successfully conducted on 14th December, 2018.

• Advanced Light Helicopter (ALH) blade folding capability was demonstrated to customer on 19th December, 2018 on CG 855 helicopter. This is the First ALH manufactured for Coast Guard under 16th ALH contract of Coast Guard.

• The LCATejas successfully completed mid-air refuelling trial by Wet (actual) engagement on 10th September, 2018.

• Successfully accomplished 100 per cent running of HTFE- 25 core-2 engine with Inlet Guide Vane (IGV) modulation in March, 2019.

• Indigenously designed and developed (nations first ever) Gas Turbine Electrical Generator (GTEG-60) Auxiliary Power Unit (APU) to start the main engines of AN-32 Military Transport aircraft was flown successfully on 11th February, 2019.

• Astra Missile was successfully test fired by the IAF on 26th September, 2018.

• The LCA Naval Prototype - 2 (NP2), safely executed the first contact of the HAL-designed and developed Arrester Hook System (AHS) with arresting wire at moderate taxi-in speed on 2nd August, 2018.

• The first FOC standard Rear Fuselage Assembly of LCATejas has been completed. This is one of the major modules of LCA and jig out was done on 11th February, 2019, and Final Operational Clearance (FOC) of LCA received on 20th February, 2019.

• The first Mirage 2000 aircraft upgraded to IOC standard with indigenous modification kits was delivered by the Company to the IAF on 1st January, 2019.

• The Company successfully flew the Light Utility Helicopter (LUH) on 29th December, 2018.

Current Projects and Programs

During the year, the Company continued to carry out the production and supply of various type of aircraft held with IAF and aerospace structures to fulfil the requirements of our esteemed customers.

The Company has also continued its endeavour to design and develop new platforms towards contributing to new revenue lines for the Company.

Development Programs

The Company has achieved significant progress in various R&D / Development Projects, such as the Basic Trainer Aircraft (HTT- 40), Light Combat Helicopter (LCH), Light Utility Helicopter (LUH), Light Combat Aircraft (LCA), Jaguar Darin III Upgrade, Mirage 2000 Upgrade, Hawk-i, UAV and Development of Engines. A project update for each ofthem is listed below:

(I) Fixed Wing Aircraft Combat Aircraft

(a) Light Combat Aircraft (LCA) - Tejas

The LCA - Tejas is an indigenously designed and developed Make in India fighter aircraft. It is the smallest and lightest multi-role supersonic single engine fighter in its class in the world.Tejas has thus far completed over 4250 test flights, of which 523 were carried out during the year under review, towards Final Operational Clearance (FOC). Its Maiden Midair Refueling Trial was successfully completed with the Wet (actual) engagement in September, 2018. This capability provides the IAF a much desired advantage during combat operations. Aeronautical Development Agency (ADA) also handed over the Drawing Applicability List (DAL) and equipment Standard of Preparation (SOP) documents towards FOC configuration, to the Company on 31st December, 2018. It was duly cleared by the Centre of Military Airworthiness & Certification (CEMILAC) to proceed with the production of FOC-standard aircraft. More recently, the FOC was issued on 20th February, 2019, which has now enabled the Company to take up production activities towards delivery of fighters against the FOC contract. The Company has earlier completed production of all the fighters against the IOC contract.

(b) LCA Mk 1A

The Company has undertaken the design and development of LCA Mk 1A, which will have additional features like an EW Suite, Active Electronically Scanned Array (AESA) RADAR and Beyond Visual Range (BVR) Missile. A Request for Proposal (RFP) was received from Air HQ for manufacturing and supply of 83 LCA Mk 1A on 20th December, 2017. The Company submitted the Technical & Commercial proposal on 13th March, 2018. The contract is expected to be finalised during the financial year 2019-20 and once finalised will be a significant boost to the order book position of the Company and will pave the way for the large scale induction of this indigenous combat aircraft to Services.

Trainer Aircraft (a) Hindustan Turboprop Trainer (HTT - 40)

HTT - 40 is the Basic Trainer Aircraft (BTA) currently being designed and developed indigenously by the Company. The aircraft would be used for basic flight training, aerobatics, instrument flying and close-formation flights with its secondary roles including navigation and night flying. A total of three prototypes have been built, with two flying prototypes and one Structural Test Specimen (STS). The two flying prototypes are undergoing flight trials with 260 cumulative test flights completed towards certification. The STS ultimate test was completed for Ultimate load (165 per cent).

HTT - 40 completed Stall tests and achieved acceptable stall characteristics. It also completed hot weather, Sea level, Cross wind, Range & Endurance, and Night Flying trials. Aircraft successfully entered and recovered from a two turn spin using conventional controls in November, 2018. Further spin tests are under progress.

Once certified, the aircraft will ensure availability of an indigenous platform in this segment. Further with 0-0 ejection seat, the aircraft has better safety features compared to the currently operational imported variant. Being an indigenous product it will also provide greater maintenance support and reduced dependence on exports at a much lower life cycle cost. The customer has evinced interest in the Aircraft and the Company is likely to get future orders once the Aircraft is fully certified.

Aircraft Upgrades

(a) Mirage 2000

Service Use Clearance was accorded by RCMA for the FOC upgraded Mirage 2000 I/TI aircraft on 29th May 2018. In-house developed MC2 Mission Computer has been cleared for service use and series upgrade commenced during the year 2018-19. Provisional clearance for DASH IV Helmet was also accorded by RCMA during the year. The first upgraded Mirage 2000 aircraft to IOC standard with indigenous modification kits was delivered by the Company to IAF on 1st January, 2019.

(b) Jaguar DARIN III

Final Operational Clearance (FOC) Weapon trials carried out in May 2018. During the year, Service Clearance & Production clearance for Jaguar DARIN-III Mission Computer (MC) has been received and series manufacturing commenced in March, 2019. Clearances for all LRUs obtained from RCMA except for RWR, TCU & Lighting panel (Trainer). So far 436 flight trails have been completed and the programme is moving closer to FOC.

(c) Hawk Upgrade - Hawk-i

Hawk India (Hawk-i) is the indigenously-upgraded Hawk Mk 132 aircraft with enhanced operational and training capabilities. Flight evaluation of Radio Altimeter (RADALT), IFF Mk-XII, Solid State Digital Video Recording System (SSDVRS), Softnet Radio and ICU completed.

The Company has successfully integrated indigenous Smart Anti Airfield Weapon (SAAW), an aircraft-launched advanced precision strike weapon on Hawk-i aircraft, and completed its first sortie on 12th February, 2019. Spin & Stall trials of Hawk-i with CMDS modification were carried out up to two spins. Spin data analysis was completed and the report submitted to RCMA. Implementation of full Hawk Mk 132 functionalities through RTOS is in progress. So far, a total of 71 sorties have been completed.

(II) Helicopters

(a) Light Combat Helicopter (LCH)

The LCH is a dedicated combat helicopter designed and developed indigenously by the Company. It has the distinction of being the first attack helicopter to land at Siachen. Four Technology Demonstrators (TDs) have been built and were extensively flight tested this year. A total of 1,498 flights have been carried out so far, of which 291 flights were completed during the year 201819. LCH has successfully completed all development trials including weapon (Turret Gun, Rocket System and Air to Air Missile) integration tests and is ready for operational induction awaiting orders. The quote was submitted by the Company in March, 2018 against RFP for the supply of an initial batch of 15 helicopters and order is awaited. Initial Operational Clearance (IOC) of LCH for Army version was accorded by CEMILAC on 15th February, 2019. The commercial discussions are in final stage with the customer and the contract is excpected to be finalised during the financial year 2019-20.

(b) Light Utility Helicopter (LUH)

The LUH is a single engine, new generation 3-ton weight class helicopter, incorporating state-of-the- art technology features, planned to replace Cheetah and Chetak helicopters being operated by the Indian Armed Forces. During the year, the first flight of the third prototype (PT-3) of LUH was carried out on 14th December, 2018. All three prototypes are currently under flight trials with a total of245 flight tests completed, of which 154 flights were carried out during the year. LUH has also completed envelope expansion trials. Cold Weather trials, Sea level flights with maximum all up weight and Hot weather trials. Further, development flights are under progress towards certifications.

(III) Aero Engines

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

Design and development of a 25kN thrust class turbofan engine, which can be used on Basic/ Advanced military trainers, on small business jets and also large UAV applications is under progress. The engine can be used on a 5-ton weight class aircraft in single engine configuration and on aircraft of up to 9-ton weight class with twin-engine configuration. Two core engines have been produced so far and are undergoing development trials. So far 339 runs have been completed on Core-1 and Core-2 engines, of which 96 runs were completed in 2018-19. HTFE-25 was successfully completed cold light up at 14C with spark igniters and achieving 100 per cent max speed with and without IGV modulation. HTFE-25 engine was also successfully tested with a Technology demonstrator of Servo based Fuel Measuring Unit (FMU).

The Company has taken up the design and development of Afterburner Technology for HTFE-25 aero engine. The afterburner module was mounted on the PTAE engine followed by a successful demonstration of the basic afterburner technology using a fixed area propelling nozzle for HTFE-25 engine, in March, 2019.

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

The 1200KW Turbo shaft engine would be used as power plant for 3 to 6-ton category helicopters. One technology demonstrator of HTSE-1200 engine was built and is currently under testing. Sea level testing was conducted in DefExpo-2018 and a maximum speed of 76 per cent of engine has been achieved.

Technology demonstrators of Effusion Cooled Combustor and High Efficiency Compressor were developed and built for HTSE-1200 engine and successfully tested on the engine. Directionally Solidified Gas Generator (GG) Turbine blades were also successfully developed for the engine. So far 250 runs have been completed successfully.

Once certified, the above engine programmes promise self-reliance in the critical field of aero engines and availability of core engine technological capabilities within the country.

Order Book Position

We are pleased to report that the Order Book position of your Company as on 31st March, 2019 stands at Rs 58,588 crore.

Loans, Guarantees and Investments

Details of Loans, Guarantees and Investments are covered under the provisions of Section 186 of the Companies Act and form part of notes to the Financial Statements provided in this Annual Report.

Related Party Transactions

There were no significant related party transactions with the Companys promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. All Related Party Transactions were placed before the Audit Committee and the Board, wherever applicable, for approval. Information pursuant to Section 188(2) of the Companies Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 on contract(s) or arrangement(s) with related parties referred to in Section 188(1) of the Companies Act is attached to this Report as Annexure-I.

Consolidated Financial Statements

The consolidated financial statements of your Company and its joint venture and subsidiary companies for the year ended 31st March, 2019 have been prepared in accordance with the provisions of Section 129(3) of the Companies Act and applicable Accounting Standards, and form part of this report.

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

Subsidiary/ Associate/ Joint Venture Companies

As on 31st March, 2019, your Company has two Subsidiaries and fourteen Joint Venture Companies (JVCs) including two not-for- profit companies (Section 8 Companies). Naini Aerospace Limited, a wholly owned subsidiary of the Company is engaged in the business of manufacturing looms for aircraft and helicopters. During the year, your Company has made a further investment of Rs 2,000 lakh in equity shares of the Company.

Pursuant to the provisions of Section 134(3)(q) of the Companies Act read with Rule 8(1) of the Companies (Accounts) Rules, 2014, a Report on the performance and financial position of each of the Joint Venture and Subsidiary Companies is provided herewith and annexed as Annexure II.

Annual Return

In accordance with the provisions of Section 92(3) and Section 134(3)(a) of the Companies Act read with Rules 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return of the Company is made available on the Company website at http://www.hal- india.co.in/investors/Annual Reports.

Secretarial Standards

The Company complies with all applicable mandatory secretarial standards issued by the Institute of Company Secretaries of India.

Meetings of the Board

During the year, 11 (eleven) Board Meetings were held and the maximum interval between any two meetings was not more than 120 days. The details of meetings of the Board and Committees thereof held during the year are furnished in the Corporate Governance Report, which forms part of this Report.

Changes in Board of Directors and Key Managerial Personnel

The following changes took place in the Board of Directors and of Key Managerial Personnel (KMP) of your Company during the financial year:

S.N. Name of the Director Designation Date of Appointment Date of Cessation
1 Dr. C.P. Ramanarayanan Govt. Nominee Director 01.05.2018 19.06.2018 (Nomination withdrawn)
2 Shri Chandraker Bharti Govt. Nominee Director 15.05.2018 -
3 Shri D.K. Venkatesh Director (Engg. and R&D) - 31.05.2018 (Superannuation)
4 Shri Arup Chatterjee Director (Engg. and R&D) 01.06.2018 -
5 Dr. Tessy Thomas Govt. Nominee Director 02.07.2018 -
6 Dr. S. Malla Reddy Independent Director 24.07.2018 -
7 Rear Adml. K.C. Shekar (Retd.) Independent Director 24.07.2018 -
8 Shri C.V.Ramana Rao Director (Finance) & CFO - 31.07.2018 (Superannuation)
9 Shri C.B. Ananthakrishnan Director (Finance) & CFO 01.08.2018 -
10 Shri T. Suvarna Raju Chairman and Manging Director - 31.08.2018 (Superannuation)
11 Shri R. Madhavan Chairman and Manging Director 01.09.2018 -

On completion of tenure of Ms. Dipali Khanna, Part-Time Non-Official (Independent) Director on 7th January, 2019, the Ministry of Defence, DDP, re-appointed her for a period of one year w.e.f. 8th January, 2019.

Committees of the Board

As on 31st March, 2019, the Board had five Statutory Committees namely Audit Committee, Nomination & Remuneration Committee, Corpoate Social Responsibility & Sustainable Development Committee, Stakeholders Relationship Committee and Risk Management Committee.

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

Declaration from Independent Directors

The Company has received necessary declarations from each Independent Director of the Company under the Companies Act stating that the Independent Directors of the Company met with the criteria of their independence laid down in Section 149(6) of the Companies Act and Regulation 25(8) of the SEBI (LODR) Regulations. Companys Policy on Directors Appointment and Remuneration

The appointment, tenure and remuneration of Directors (Functional Directors including CMD) are determined by the Government of India. Selection is made by the Public Enterprises Selection Board (PESB). The Terms & Conditions of appointment, including the period of appointment, the Scale of Pay and other entitlements are notified by the Government of India.

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

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

In view of the Gazette Notification No GSR 463 (E) dated 5th June, 2015 of the Ministry of Corporate Affairs (MCA), your Company, as a Government Company, is not required to frame a policy on Directors appointment and remuneration, including criteria for determining qualifications etc. under Section 134(3)(e) of the Companies Act.

Board Evaluation

Pursuant to the Notification No. 463 (E) dated 5th June, 2015 issued by the Ministry of Corporate Affairs, the statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors is not required for your Company, as the performance of directors is evaluated by the Administrative Ministry.

The performance evaluation of the Independent Directors was carried out by the entire Board and found to be satisfactory. The Board opined that all Independent Directors fulfil the conditions specified in the Companies Act and SEBI (LODR) Regulations, and are independent of the management.

The performance of non-independent directors and Board as a whole was reviewed by the Independent Directors during the year.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

As a defence Central Public Sector Enterprise (CPSE), your Company was granted exemption by MCA vide Notification GSR No.680 (E) dated 4th September, 2015. from the disclosure of information with respect to conservation of energy, technology absorption, foreign exchange earnings and outgo under the provisions of Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules, 2014.

Outsourcing

The Company has embarked on a path to be a lead integrator of aircraft and helicopter platforms on par with the global OEMs, Outsourcing had been taken up diligently even in upcoming platforms including LCA, HTT - 40, LUH, LCH etc.

Development and Implementation of Risk Management Policy

The Company has a Board approved Risk Management Policy in place. The policy aims at elimination or reduction of risk exposures through identification and analysis of various types of risks and facilitating timely action for taking risk mitigation measures. The policy envisages that all programs & project reviews will highlight the progress of risk mitigation plans until the closure and signing off the mitigation plans.

Corporate Social Responsibility (CSR)

Your Company, as a responsible Corporate, has been driven by a vision of a developed India, underlining its commitment to give back to the society and environment. This has influenced the design and implementation of the Companys CSR plans.

Pursuant to the provisions of Section 135 of the Companies Act and Companies (Corporate Social Responsibility Policy) Rules, 2014 & DPE Guidelines, the Company has undertaken various activities as per the CSR Policy. The projects / programmes / activities were taken up in line with Schedule VII of the Companies Act.

The Corporate Social Responsibility Policy of the Company is available on the Companys website at https://hal-india.co.in/ Common/Uploads/DMS/CSR_Policy.pdf. Salient features of the Policy form part of the Annual Report.

A separate Report on CSR activities undertaken by your Company during the year 2018-19 is enclosed as Annexure-III.

Business Responsibility Report

SEBI (LODR) Regulations stipulate that the annual report shall include a Business Responsibility Report describing the initiatives taken by the listed entity from an environmental, social and governance perspective in the format specified. Accordingly, the Business Responsibility Report for the year 2018-19 has been drawn up and appended to this Report.

Significant and Material Orders

There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and the Companys operation in the future.

Public Deposits

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

Maintenance of Cost Records

Your Company maintains cost records as specified by the Central Government under Section 148(1) of the Companies Act.

Transfer of Shares

During the year under review, 400 equity shares of Rs 10 each were transferred from Nominees of the President of India to the President of India.

Issue of Equity Shares with Differential Rights

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

Particulars of Employees and Related Disclosures

The provisions of Section 197 of the Companies Act and the relevant Rules do not apply to your Company, in view of the Gazette Notification No. G.S.R. 463 (E) dated 5th June, 2015 issued by the Ministry of Corporate Affairs, Government of India.

MoU with Government

Your Company continues to sign the annual Memorandum of Undertaking (MoU) with the Ministry of Defence, Government of India.

The performance of the Company for the year 2017-18 has been rated as Excellent in terms of MoU with the Government. MoU rating for the year 2018-19 is under review by the Government.

Events subsequent to the date of Financial Statements

There are no material changes and commitments affecting the financial position of the Company, that have occurred between 31st March, 2019 and date of signing of this Report.

Research and Development Efforts

During the year, the Company continued to focus its efforts towards development of new platform, technology and activities to enhance its capability with a view to bring technological superiority to its products and in order to cope with the future technological challenges. Towards the progress of the R&D efforts, the Company has incurred a total expenditure of Rs 1,46,440 lakh for the year 2018-19 which is 7.43 per cent of the turnover.

The Company continues to work with premier R&D organisations like DRDO laboratories, CSIR-NAL, the IITs and IISc towards selfreliance in the Aviation field. The Company has established chairs at IIT Madras, IIT Roorkee, IIT Kharagpur, IIT Bombay, IIT Kanpur and IISc Bangalore to enhance its R&D efforts.

The Company has transferred a sum of Rs 21,488 lakh (10 per cent of Operating PAT) to the R&D reserve for contribution to the R&D corpus during the year 2018-19.

During the year, the Company filed 82 IPR applications, making a total of 1,621 IPRs filed by Company. 70 IPRs were granted during the year, taking the total IPR held by the organization to 178.

Exports

The Company has achieved export sales of Rs 40,504 lakh. The major exports include supply of one Do-228 aircraft to Seychelles Peoples Defence Forces, Structural Work Packages,

Forgings, Castings and Rolled Rings to major Aerospace OEMs and Repairables, Spares & Services to foreign aircraft operators.

Towards enhancing its brand and showcasing its products and capabilities, the Company participated in leading international Air Shows/Exhibitions, including Defexpo-2018 (India),ARMY-2018 (Moscow), Farnborough Air Show 2018 (UK), Africa Aerospace & Defence (South Africa), DEFPOL-2018 (Vietnam), Indo Defence Exhibition-2018 (Indonesia), EDEX-2018 (Egypt), Aero India 2019, and LIMA 2019 (Malaysia). The Company is also making efforts to secure export orders for aircraft and helicopter platforms arising out of bilateral Defence Cooperation agreements signed between the Government of India and the respective Countries.

With an objective to enhance business opportunities, your Companys focus is on securing long term projects towards meeting the entire global requirements, through Offset programs accrued from the Indian Defence Capital Acquisition. Various strategic initiatives were taken to establish and progress business framework / agreement with the OEMs.

Vendor Development

During the year, the Company conducted 27 vendor development programmes, of which eight were for Micro & Small Enterprises (MSEs) owned by SC/ST Entrepreneurs.

The Company has registered with RXIL and M1 exchange for enabling payments through TReDS platform. The Company has already made payments through TReDS-RXIL platform. All efforts are made to bring the MSEs on TReDS platform. Currently, several vendors are registered with TReDS platform and efforts are being made to bring other vendors also on the portal. The Company has also registered with MSME SAMADHAAN portal and the same is being monitored regularly for resolution of grievances of MSEs, if any. The procurement details are being updated monthly in MSME SAMBANDH Portal.

The Company has implemented the Purchase Preference Policy (Make in India) w.e.f 1st July, 2018 in line with provisions indicated in Public Procurement (Preference to Make in India), Order 2017 issued by the Department of Industrial Policy and Promotion (DIPP) to encourage Make in India and promote manufacturing and production of goods and services in India.

The Company has registered on DPE portal and the weekly data is regularly uploaded w.r.t procurement from MSME through GeM portal and payment through TReDS platform.

Procurement from Micro & Small Enterprises (MSEs)

During the year, the total value of procurement including outsourcing made from MSEs was Rs 73,389 lakh.

Indigenisation

The Companys endeavour to boost the indigenisation programme is consistently progressing to achieve self reliance in the field of Aeronautics. Obsolescence management, savings in foreign exchange and cost reduction of various items for manufacture and ROH of Aircraft and Helicopters are the consideration for Indigenisation. During the year, the number of items indigenized is 1,566 and total foreign exchange saving is Rs 11,767 Lakhs.

Make In India Initiatives

HALs Make in India Portal

In support of the Make in India programme, the Company has listed over 350 imported systems and subsystems used in its projects, including ALH, LCA, Do-228 and Jaguar. Private industries are invited to come forward for indigenous production of these systems, leading to import substitution.

The Company has also hosted more than 100 Tools, Testers and Ground Equipment for manufacturing/ ROH / maintenance of SU-30 MKI on its website underthe Make in India program.

Make-II Framework and Indigenisation Policy

The Company is in the process of implementing the following policy/ Framework promulgated by MoD:

• Framework for implementation of Make-llRs Procedure at DPSUs;

• Policy Initiatives for Indigenisation of Components and Spares Used in Defence Platforms for DPSUs.

Human Resource Development

The number of employees as on 31st March, 2019 stood at 28,345.

During the year 2018-19, opportunities for Officers to build their knowledge-based competencies were supported. Ten Officers were sponsored for M.Tech programmes at the Defence Institute of Advanced Technology, Pune / Indian Institutes of Technology and 5 Officers were sponsored for a PG Diploma in Public Policy & Management at the Indian Institute of Management, Bangalore. One Officer was sponsored for the 74th Staff Course at the Defence Staff College, Wellington, Tamil Nadu. Four Officers were sponsored for Ph.D Programmes at the IISc, Bangalore and IITs.

As on 31st March, 2019, a total of 4,105 Apprentices were engaged in the Company, comprising 10.29 per cent of the total employee strength including contractual staff.

Employee Welfare

The Company continues to extend welfare benefits to the employees and their dependants including comprehensive Medical Facilities, Housing Facilities, Canteen Facilities (for employees only), Educational Facilities for Employees Children, and Sports Facilities.

REPRESENTATION OF SC/STs

The position regarding representation of Scheduled Castes / Scheduled Tribes (SC/STs) is as follows: Representation of SC/STs in the total strength of the Company as on 1st January, 2018 and 1st January, 2019

Category

Total Strength as on

Number of SCs as on

Number of STs as on

(Grade / Scale of Pay) 1.1.2018 1.1.2019 1.1.2018 1.1.2019 1.1.2018 1.1.2019
Group - A (Grade - II & above ) 8,807 8,554 1,557 1,516 529 514
Group - B (Grade - I) 43 31 8 4 4 2
Group - C (Scale - 3 to Special Scale) 20,354 19,972 3,501 3,501 1,473 1,463
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis 15 15 4 4 - -
(ii) Safai Karmacharis - - - - - -
Total 29,219 28,572 5,070 5,025 2,006 1,979

Recruitments made during the period 1st January, 2018 to 31st December, 2018 and the SC/STs amongst them

Category (Grade / Scale of Pay) Total number of posts filled No. of Reservations made for

No. of Posts filled by appointment of

SCs STs SCs STs
Group - A (Grade - II & above ) 22 - - 2 1
Group - B (Grade - I) - - - - -
Group - C (Scale-3 to Special Scale) 233 64 35 55 22
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis - - - - -
(ii) Safai Karmacharis - - - - -
Total 255 64 35 57 23

Vacancy-Based Promotions made during the period 1st January, 2018 to 31st December, 2018 and the SC/STs amongst them.

Category (Grade / Scale of Pay) Total number Promoted No. of Reservations made for No. of Posts filled by Promotion of
SCs STs SCs STs
Group - A (Grade - II & above) 1,272 NA NA 203 67
Group - B (Grade - I) - - - - -
Group - C (Scale-3 to Special Scale) - - - - -
Group - D (Scales - 1 & 2 )
(i) Excluding Safai Karmacharis - - - - -
(ii) Safai Karmacharis - - - - -
Total 1,272 - - 203 67

Employee Relations (ER) / Industrial Relations

The Employee Relations Scenario in the Company has been peaceful and cordial during the year. Smooth relations were maintained between the Management and the Unions / Associations by effective communication Meetings with the representatives of the recognised Unions / Officers Associations at the Divisional, Complex & Corporate Levels were held to discuss issues.

Plant Level & Shop Level Committees with representatives from the Management & Workmen / Union Representatives are functioning in the Divisions to discuss and resolve production- related issues and other related matters. Grievance Redressal Mechanisms are in place to address Employee / Public Grievance / Representations in the Company.

Rajbhasha Implementation

In accordance with the Guidelines issued by the Department of Official Language, Ministry of Home Affairs, New Delhi, vigorous efforts are being made by all the Divisions of the Company towards implementation of the Official Language Policy (OL Policy) of the Government of India. To bring awareness about the OL Policy & Technical Facilities developed in the field of

Official Language, a two-day Training Programme on Usage of Technical Terminology & OL PolicyRs was organised in April 2018 for Bengaluru-based Divisions and Offices with the help of the Commission for Scientific & Technical Terminology, Ministry of HRD, GoI. A seminar was organised for all the Divisions of the Company on 21st April, 2018 and an OL Policy Booklet was released on this occasion. Hindi Fortnight was celebrated from 14th September to 28th September 2018 by all the Divisions of the Company that saw enthusiastic participation by the employees. The 16th All HALHindi Utsav was organised between 5th December, 2018 and 8th December, 2018. More than 300 Workmen / Officers took part in the various competitions organised during the Utsav.

During the year, Hindi Language Training (Prabodh, Praveen and Pragya courses) were organised for the Bengaluru Divisions with the cooperation of the Central Hindi Teaching Institute (CHTI), Bengaluru. A Training Session was conducted on filing up of Quarterly Progress Report (QPR) on 15th March, 2019.

The progress made towards OL Implementation by the Divisions of the Company was reviewed by the Hindi Margdarshan Samiti at the Corporate level. Inspections of various Divisions related to Official Language have been conducted successfully by the Department of Official Language / Ministry of Defence during the year.

Prohibition of Sexual Harassment of Women at Workplace

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

Internal Complaints Committees as per Section 4 of the Act have been put in place. Information for the year 2018, in terms of Section 22 of the Act, is as indicated below:

(i) Number of Cases pending - as on 1st January, 2018 2
(ii) Number of Complaints - of Sexual Harassment received in the year 2018 2
(iii) Number of Complaints - disposed off during the year 2018 3
(iv) Number of Cases pending - as on 31st December, 2018 & its status 1 Case was pending at the ICC Inquiry stage as on 31st December, 2018. However, the case was subsequently closed on 27th February, 2019.

Information Technology (IT) Initiatives

Your Company has taken up many IT initiatives to ensure Customer delight, Process Improvement and IT Security. Towards enhancing customer experience, a Flight Operations & Safety (FOS) portal was launched, to record and track actions related to accidents. The portal is integrated with Quality & Customer Service dashboards to follow up on issues related to these. The portal is also integrated with internal mailing system for automated reports on incidents/ accidents.

As part of employee enablement in the Company, an Employee Self Service (ESS) portal that facilitates automation of address proof, salary certificate, NOC etc., has been developed. The system has the provision to digitally sign the certificate by the issuing authority thereby providing for a paperless system with compliance to IT Security. In continuation with the efforts towards a performance appraisal for Officers, we have shifted Workmen performance appraisals online. Two portals have been launched for productivity improvement, viz., a

Task Management application, and a Meeting Management application for scheduling meetings with both external/ internal stakeholders. Both portals are configured with SMS/ mail alerts for faster collaboration.

On the infrastructure front, a Multi Protocol Label Switching (MPLS) Wide Area Network covering 16 locations of the Company has been established for high speed data transfer.

Your Company has been keen towards improving the IT Security posture by implementing best practices and complying with applicable guidelines. As part of this, details of all IT Assets in the Company have been collected and published on the IT Asset management portal. A set of directives for Mobile Device Security has been framed to prevent leakage of information from mobile devices accessing the Companys server/ network on the internet. The Electronic Information Asset Protection Guidelines, a set of directives to protect users from the risks emanating from sharing of confidential data outside the Company Network was also framed during this period.

Awards & Recognitions

During the year, your Company received various Awards and Recognitions. Some of the important awards conferred to the Company are as under:

• Golden Peacock Innovative Product / Service Award for the year 2018 for the project Repair of Non ToT Test Equipment ARM-RLSU (SNK-30 MK) used for Checking of Radar Complex of Su-30 MKI Aircraft, during the Global Convention held between 17th and 19th April, 2018 at Dubai.

• Star Performer Award for the year 2016-17 in the Product Group - Defence Related Items, Large Enterprise, was presented by the Engineering Export Promotion Council (EEPC) India on 31st May, 2018 at New Delhi.

• The Gold Trophy in recognition of outstanding contribution to Skill Development was awarded to your Company in the Best PSU- Public Sector Training Programme category, during the Summit-cum-Awards function on Skilling India, organised by ASSOCHAM on 1st November, 2018 at New Delhi.

• 41st EEPC Southern Region Export Award for Excellence in Export of Engineering ServicesRs for the year 2016-17 on 28th December, 2018.

• Governance Now 6th PSU Award for Technology Adaptation under Navratna Category at New Delhi on 17th January, 2019.

• The Apex India CSR Excellence Awards 2018 in the Aerospace Sector, for outstanding achievement in CSR Management of the Kumudvathi River Rejuvenation project was awarded by the Apex India Foundation, on 18th February 2019 at New Delhi.

• The HAL CSR Project Kumudvathi River Rejuvenation was declared as the joint winner under the Water & Sanitation category during the CSR Rotary Karnataka Conference 2019 organised by The Rotary District 3190, on 15th February, 2019 in Bengaluru. Vigilance

The Vigilance Department of the Company is headed by the Chief Vigilance Officer (CVO), an IPoS Officer on deputation from the Govt. of India. Vigilance Officers and Staff are posted to the Corporate Office and all the Divisions and Complexes of the Company. The Vigilance Department has been certified as ISO 9001: 2015 compliant, an initiative for delivering Quality Vigilance work. The Quality Management System (QMS) has been designed to effectively implement Quality Policies through Quality Objectives.

During the year, the Vigilance Department handled 313 complaints; and 1,123 Surprise/ Routine checks & CTE Type inspections were carried out in the Divisions in corruption- prone areas. Based on the outcome of checks/inspections and complaints, 34 cases were taken up for further investigation. The investigations on 27 cases were concluded with 14 cases referred for disciplinary action, six cases for administrative action while seven cases were closed with nothing adverse found during investigation.

During the year, final orders awarding 3 major penalties, 8 minor penalties, 25 advisory, 5 counselling, 1 warning and 2 exoneration were issued by the concerned disciplinary authorities.

Preventive and Proactive Vigilance has been the thrust area of theVigilance Department. Some of the major initiatives bythe Department during the year were:

• Amendment to Purchase Manual: Vigilance took initiative and organised a brainstorming session on the prevailing Supply Chain Management of the Company. As a result, 16 amendments were issued to the Purchase Manual which will help Managers in the decision-making and procurement process.

• System studies were carried out to streamline procedure for:

• Engagement of job contract labour/ skilled contract labour vis-a-vis their attendance and payments;

• Management of HAL schools including engagement of teachers;

• Procurement of medicines;

• Measures towards cost efficiency and cost reduction.

• Sensitisation on Vigilance: 76 (Seventy six) sessions were conducted to sensitise the HAL fraternity to be vigilantandjoin hands in curbing corruption. Workshops were held across the Divisions on Vigilance-related topics.

• Workshops: Several workshops were conducted with important functionalities/stakeholders in areas like Material Management, Finance, HR, Service Contracts, and Work Contracts.

Fraud Reporting

During the year, a fraud involving misappropriation of funds of Rs 1,876 lakh by a Company Official in Koraput Division of the Company was reported. The matter is under investigation by the CBI. The details of the same are covered under Clause 21 of Note No. 49 of the financial statements.

DIRECTORSRs RESPONSIBILITY STATEMENT

Pursuant to the provisions of Section 134(3)(c) of the Companies Act, your Directors state that:

(a) In the preparation of the annual accounts for the year ended 31st March 2019, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as on 31st March, 2019 and of the profit and loss of the Company for the year ended on that date;

(c) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) the directors have prepared the annual accounts on a going concern basis;

(e) the directors have laid down internal financial controls which are being followed by the Company and that such internal controls are adequate and are operating effectively;

(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively;

AUDITORS

Statutory Auditors

The Statutory Auditors of your Company were appointed by the Comptroller & Auditor General of India (C&AG). M/s. MaharajN.R. Suresh & Co., Chartered Accountants, Bengaluru were appointed as Statutory Auditors for auditing the Accounts of the Company for the year 2018-19 and 18 firms of Chartered Accountants were appointed as Branch Auditors.

The notes on the financial statements referred to in the AuditorsRs Report are self-explanatory and do not call for any further comments.

Auditors Report

The AuditorsRs Report on financial statements for the financial year 2018-19 and comments of the Comptroller & Auditor General of India (C&AG) under Section 143(6) of the Companies Act are appended to this Report. The statutory auditorsRs report does not contain any qualification, reservation or adverse remarks.

Cost Auditor

M/s. KPR & Associates, Cost Accountants were appointed as Cost Auditors for conducting the Cost Audit of the Company for the year 2018-19.

Secretarial Auditor

In terms of Section 204(1) of the Companies Act, the Company has engaged Shri S. Viswanathan, Practicing Company Secretary, Bengaluru to conduct Secretarial Audit of the Company for the year 2018-19. The Secretarial Audit report is annexed to this Report as Annexure - IV and forms part of Annual-Report. The said report does not contain any qualification, reservation or adverse remarks.

Annual Secretarial Compliance Report

The Company has filed the Annual Secretarial Compliance Report for the year 2018-19 with the BSE Ltd and National Stock Exchange of India Limited. The report was received from Practising Company Secretary and filed within the stipulated time as specified under Regulation 24A of the SEBI (LODR) Regulations.

Corporate Governance

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

In terms of SEBI (LODR) Regulations and DPE Guidelines, a report on Corporate Governance for the year ended 31st March, 2019 along with a certificate from the Companys Secretarial Auditor confirming compliance of applicable laws, rules and regulations is included in this Annual Report.

Management Discussion and Analysis Report

As per Regulations 34(2)(e) of the SEBI (LODR) Regulations, the Management Discussion and Analysis Report (MDAR) forms part of the Annual Report of the Company.

Vigil Mechanism

The Company has a Whistle Blower Policy approved by the Board and the same is made available on the Companys website.

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

Quality Initiatives and Safety

Quality Management System in all the Production Divisions and Research & Design Centers of the Company has been successfully transitioned to the latest version of International Aerospace Standard AS9100D. Overhaul Division was certified for AS9110C on Requirements for Aviation Maintenance Organization. Additionally, all Production Divisions and Research & Design Centers are approved by the Directorate General of Aeronautical Quality Assurance (DGAQA) as per their latest document Approval of Firm and its Quality Management SystemRs (AFQMS), Issue-II dated June 2018. Production Divisions catering to Civil Customers are approved by the Director General of Civil Aviation (DGCA) as a Production/ Maintenance Organization, while Production Divisions that are exporting products and services were also certified to the National Aerospace Defence ContractorsRs Accreditation Program (NADCAP) with approvals from OEMs such as Airbus, Boeing, Turbomeca, and Rolls Royce. HAL Laboratories is accredited to IS17025 by the National Accreditation Board for Testing and Calibration Laboratories (NABL).

The Research & Design Centers of the Company continue to hold the Design Organization Approval from the Centre for Military Airworthiness & Certification (CEMILAC) and Recognition of in-house R&D from the Department of Scientific & Industrial Research (DSIR), Ministry of Science & Technology, Government of India. The R&D Centre engaged in the development of Software is certified to Capability Maturity Model Integration for Development Maturity Level 3(CMMIML3) by KPMG.USA.

Quality improvement through employeesRs participation is being encouraged by practicing concepts such as Quality Circles, Quality Improvement Teams and Six Sigma Project Teams in the Divisions. Twenty six Quality Circle teams of 135 members, participated in the National Convention of Quality Circles (NCQC-2018) held at Gwalior in December, 2018.

Standardisation of QMS has been achieved in many areas through three additional Corporate Quality Assurance Guidelines. Of these, two guidelines are protected by the registration of copyright with the Registrar of Copyrights, New Delhi.

Five Inspection Agencies have been approved by the Company as Third Party Inspection Bodies to carry out inspections on behalf of the Company at the premises of the sub-contractors of Production Divisions and R&D Centres.

A Corporate Quality Digital Desk has been established for real time data management and monitoring of Quality related information and issues of all the divisions. The performance of all Divisions is being mapped and monitored on the basis of Quality Performance Indicators derived from Quality Rating Manual released by the DGAQA.

To enhance the knowledge level of Officers in Aircraft Accident Investigation, the IAF was approached to increase vacancies in the Aerospace Safety & Accident Investigation (AS&AI) course. Consequently, the course can now accommodate six Officers from the earlier two. The Company has conducted a Flight Safety and Accident Investigation capsule on 5th December, 2018 as part of the Post Graduate Diploma in Aviation Management course.

Acknowledgement

The Board places on record its sincere appreciation towards the Companys valued customers, in particular the Defence Services, for the support and confidence reposed by them in the Management of the Company, and look forward to the continuance of this mutually supportive relationship in the future.

Your Directors acknowledge with a deep sense of appreciation, the valuable support and cooperation received from the Government of India in particular the Ministry of Defence, Department of Defence Production, Defence Acquisition and Defence Finance as well as other Ministries of the Government of India in all the endeavours of the Company.

The Company wishes to place on record its appreciation for the cooperation extended and services provided by the Comptroller & Auditor General of India (C&AG), the Principal Director of Commercial Audit & Ex-officio Member, Audit Board, Statutory Auditors, Bankers, Collaborators, JV Partners and Suppliers.

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

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

For and on behalf of the Board of Directors
Hindustan Aeronautics Limited (R. Madhavan)
Chairman & Managing Director
Place : Bengaluru
Date : 27th July, 2019