Tamil Nadu Telecommunications Ltd Management Discussions.

To

The Members

Your Directors present the Twenty Ninth Annual Report, together with the Audited Accounts of the Company for the year ended 31st March 2017.

Financial Results

(Rs. in Lakhs)
2016-17 2015-16
Revenue from operations 267.01 470.80
Other Income (Net) 0.79 0.89
Total Revenue 267.80 471.69
Total Expenditure 991.65 1195.25
Finance Charges 776.72 815.86
Extraordinary / Exceptional items 47.41 0.47
Gross Profit / (Loss) after interest before
Depreciation & Tax (1,547.98) (1,539.89)
Depreciation and Amortization Expense 31.41 31.64
Provision for Taxation / Deferred Tax - -
Net Profit / (Loss) (1,579.39) (1,571.53)
Other Comprehensive Income /(Loss):Item that
will not be reclassified to Profit and Loss (47.48) (9.53)
Total Comprehensive Income/(Loss) for
the Period (1,626.87) (1,581.06)

The net loss after Tax is Rs. (1,626.87) lakhs against net loss of Rs. (1,581.06) lakhs made during the previous year.

Review of Operations

During the year under review, the companys sales and other income was Rs.267.80 lakhs. The entire revenue is achieved from the Optical Fiber Unit. Overall the market condition of OFC was not encouraging during this year also and the order booking status was not as expected.

You are aware that BIFR has issued a Sanctioned Scheme to the Company on 21.07.2010. As per the Sanctioned Scheme the Board of Directors had issued 1,54,32,700 equity shares of Rs.10 each to M/s. Telecommunications Consultants India Limited (TCIL), 42,47,500 equity shares of Rs.10 each to State Bank of India, 20,70,600 equity shares of Rs.10 each to Andhra Bank and 12,65,200 equity shares of Rs.10 each to Punjab National Bank by converting part of the loans into equity during 2010-11. The shares in physical format were issued on 14.09.2010. Out of the bridge loan of Rs.12.50 crores from TCIL as per the Sanctioned Scheme of BIFR, the Company had availed Rs.11.66 crores during 2010-11 towards OTS to consortium bankers and towards the Tamilnadu Government land in possession of the Company. With the above restructuring the net worth became positive during 2010-11. However from 2010-11 onwards, the desired results as projected in the Scheme couldnt be achieved due to OFC market conditions. The OFC market from 2010-11 was not as projected and the order booking status was not encouraging. You are aware that the big order from BSNL during 2010-11 also could not materialize due to non availability of one of the critical Raw Material Nylon 12. Due to this, the Net worth has again eroded during 2011-12 and became negative. The year under review was also not encouraging due to lack of required level of executable orders. Hence this has again resulted in accumulation of losses and thereby the Net worth has further eroded. Your Company is looking forward for getting better improvements in the diversification front in future.

There are huge requirement of OFC in the country. Hence the company is hopeful of improvement in OFC market conditions. However hectic competition is prevailing in this field. Since the OFC market is picking up and the Company is also exploring successful diversification project, a Modified Draft Rehabilitation Scheme shall be prepared at appropriate time for submission to BIFR/NCLT through the Monitoring Agency. Once the decision of lead promoter TCIL/DOT is conveyed.

Market Scenario and Outlook

The demand for optical fiber is growing in a rapid scale due to development of infrastructure in smart city project and digital India promoted by Govt. of India.

The Smart City Mission (SCM) of the Govt. of India plans to accommodate the massive urbanization that is expected in the future-modernising the existing mid-sized cities. According to former president of India Shri.APJ. Abdul Kalam, 400 million fiber KM infrastructures is required in order to realize the dream of digital India.

As per Government initiative for smart cities development of trunk and internal infrastructure for 100 smart cities is planned which would require a large amount of requirement of optical fiber for seamless secure connectivity. The fiber optic network will run as a metro loop around the city and wireless access to the underlying fiber network will be provided by WiFi / RF Mesh/ Cellular/ Mobile technologies.

Also the Government initiatives a proposal to connect all Gram Panchayats with Optical fibre and the demand for fiber is increasing day by day. Around 205 KMs each Gram Panchayat in the Country will be connected through optical fiber cable (OFC).

Electricity Companies also extensively use optical fiber cables for monitoring and control purposes. Some of the companies like Sterlite Technologies and ZTT have invested in setting up production of OPGW manufacturing assembly cable which has bigger potential and demand in Indian market.

The optic fiber industry at home is also poised for a period of significant growth and the demand is expected to surpass the current manufacturing facility in the months to come. This favorable trend is expected to continue at least over the next few years. The company continues to take all initiatives to retain the competitive edge and be in a position to meet the requirements of the market. The medium / long-term prospects will augur well for the company. The company continues to emphasize on cost cutting through enhanced productivity, reduction in logistics and other costs. The company will continue its efforts to further prune all its fixed costs including administrative and discretionary overheads.

The Company is also exploring the possibilities for diversification in the related areas like manufacturing and supply of FTTH components manufacturer of optical cable, OFC accessories, tablet PCs etc. Though the Company has successfully executed assembling, validation and supply of Tablet PCs during 2012-13 under TCILs CSR project, could not get further orders. For implementation of any of this successful venture after feasibility study, the vacant land available with the Company will be utilized for this project by having tie up arrangement with suitable Joint Venture partner. Efforts are being taken to study the market and to identify a suitable JV partner to proceed further. Efforts are being taken through TIDCO also. On finalizing a successful project, action for executing in big volume will be considered after taking all relevant approvals.

Cautionary Statement

Statements in the Directors Report and Management Discussion & Analysis contain forward looking statements. Actual results, performances or achievements may vary materially from those expressed or implied, depending upon economic conditions, Government policies, subsequent developments and other incidental factors.

Risk & Concern

The industry is facing challenging cost pressures as the cost of major raw materials are varying because the market is volatile. The variations in exchange rate fluctuation are also a threat towards cost of production. The competition within OFC business is becoming fierce due to emerging new technologies and frequent new product introductions in Optical fiber products which command competitive prices and preference in the market. The market price of cables is also varying due to competition.

Directors

In accordance with Sec.152 (6) and (7) of the Companies Act, 2013, read with Articles 79 & 80 of the Articles of Association of the company, Shri. B. Elangovan (DIN 00133452) and Shri.M.S. Shanmugam (DIN 02475286) will retire from the Directorship of the company by rotation and being eligible, offers themselves for re-appointment.

Directors Responsibility Statement

As required under Section 134(5) of the Companies Act, 2013, the Directors of the Company hereby state and confirm that –a) In the preparation of the annual accounts the applicable accounting standards had been followed. b) They 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 at 31st March 2017, and the loss of the Company for the year ended on that date. c) They 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) They have prepared the annual accounts on a going concern basis considering the comparative growth in OFC market, future prospects of the Company with the support of TCIL. e) They have laid down internal financial control to be followed by the company and that such internal financial control is adequate and was operating effectively. f) They have devised proper system to ensure compliance with all provision of all applicable laws and that systems were adequate and operating effectively.

Extracts of the Annual Return

Pursuant section 92(3) of the Companies Act,2013 and Rule12(1)of the Companies (Management And Administration) Rules,2014, the extract of the Annual Return in Form MGT-9 has been attached as to form part of the Report.

Corporate Governance

A report on Corporate Governance with the Practicing Company Secretaries Certificate on compliance with conditions of the Corporate Governance has been attached as to form part of the Report.

Clarification on Practicing Company Secretaries observations is given below:

(i) Due to non appointment of Independent Directors, the Company has not complied with Regulations 17(1) (b), 18 (1) and 25 (3) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 in terms of minimum number of Independent Directors in the Board, Constitution of Audit Committee and conducting a separate meeting of Independent Directors respectively.

The Company is Joint sector Govt. Company with 49% of its shares held by TCIL, a Govt. of India Enterprise and 14.63% held by TIDCO, a Govt of Tamilnadu Enterprise. The Board, as well as management control of the Company lies with TCIL. Being a Govt. Company, action has already been taken for induction of Independent Directors in the Board of the Company through TCIL with the Dept. of Telecommunications and Ministry of Telecommunications & IT and the same are being followed up through TCIL for early appointment to comply regulation 17(1) (b). Constitution of Audit Committee as per 18 (1) of SEBI LODR and separate Independent Directors Meeting as per 25 (3) of SEBI LODR shall be conducted after appointment of required number of Independent Directors by the Ministry of Telecommunications and IT.

(ii) The Company has not constituted Nomination and Remuneration Committee as per Regulation 19(1) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Due to Companys sickness, only the BIFR Nominee Director is being paid sitting fees for attending the meetings. Managing Director, being on deputation from TCIL, A Govt. of India Enterprise, his salary is fixed as per TCILs norms applicable to his cadre. The Directors of TCIL and TIDCO, A Govt. of Tamilnadu Enterprise are also paid salary by their own Organization, applicable as per their cadre in their Organization. Only the travelling expenses and local conveyance for attending the meetings are incurred by the Company. In view of above, no separate Committee was constituted. After appointment of Independent Directors by the Govt., necessary action will be taken for constituting the Committee.

(iii) The Company conducted only 3 Board Meetings and 3 Audit Committee Meetings instead of 4 meetings in a calendar year 2016 against the regulation 17(2) and 18 (2) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 respectively.

The company conducted only 3 ( Three) Board Meeting and Audit Committee Meeting in the year 2016 and the fourth meeting was conducted on 18th January 2017 which should have been conducted before 31st December 2016. This happened due to retirement / change in the positions of Key managerial Personnel (KMP) Like Company Managing Director and Chief Financial Officer.

(iv) The Company has not complied with Regulation 17(1) (a) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 in terms of having woman director in the Board.

The Company is Joint sector Govt. Company as mentioned as replied at (i) above, action already taken for induction of Woman Directors in the Board of the Company through TCIL with the Dept. of Telecommunications, Ministry of Telecommunications & IT. The same is being followed up through TCIL for early appointment of woman Director.

Energy, Technology and Foreign Exchange

Particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Sec.134 (3)(m) of the Companies Act, 2013 are enclosed as part of the Report.

Details of Director or Key Managerial Personnel who were appointed or have resigned during the year

(i) Shri.V.S.Parameswaran on superannuation has resigned from the post of MD on 30.11.2016 and Shri.R.Deva Kumar deputed by promoter company TCIL has been appointed as Managing Director with effect from 01.12.2016.

(ii) Shri Christy Fernandez IAS (RETD), Special Nominee Director, has resigned as Special Nominee Director on 01.12.2016 representing BIFR on the Board of Tamilnadu Telecommunications Limited.

(iii) Shri T.S Sivaramakrisnan on superannuation has resigned from the post of CFO on 30.12.2016 and Shri.J.Ramesh Kannan, Joint General Manager (Finance & Accounts) deputed by promoter company TCIL has been appointed as CFO from 31.12.2016.

Personnel

The Managing Director and the Key Managerial Personnel (CFO) were on deputation from the Promoter Company TCIL which is a Govt. of India Enterprise, holding 49% stake in the Company and controlling the composition of the Board of Directors. Hence their remuneration were as per the scales applicable to their cadre in the promoter company.

The number of permanent employees as on 31.03.2017 was 69 excluding two officials on deputation from the promoter company.

None of the employees drew remuneration of Rs.60,00,000/- or more per annum / Rs.5,00,000/- or more per month during the year. This information is furnished as required under Rule 5(2)(i) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014.

Human Resources

Your company is glad to announce that the industrial relations continue to be very cordial. TTL has designated and implemented a large number of initiatives to build and improve knowledge base and competencies of employees at all levels. TTL has been encouraging its employees to come out with innovative suggestions, which will pave way for significant cost savings as well as overall development of the company.

Quality Management Systems

Your Directors are happy to report that as a commitment in meeting global quality standards, your company already has IS/ISO 9001:2008 quality management systems certification from Bureau of Indian Standards. The license is valid up to 22.02.2018.

Internal Control System

TTL has adequate internal control procedures in respect of all its operations. It has laid down internal control procedures to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and transactions are authorized, recorded and reported correctly. Internal Audit is being carried out by Independent Audit Firm of Chartered Accountants on an ongoing basis and it recommends appropriate improvements apart from ensuring adherence in company policies as well as regulatory compliance. The Audit Committee periodically reviews the audit findings.

Corporate Social Responsibility

Since the Company is continuously incurring losses, no CSR policy has been devised.

Auditors

In terms of Section 139 of the Companies Act, 2013, the Comptroller and Auditor General of India (CAG) had appointed M/s. S.VENKATRAM & CO, Chartered Accountants as the Auditors of the company for the year 2016-17 at a remuneration of Rs.1,00,000/-besides reimbursement of traveling and out-of-pocket expenses at actuals, subject to the other items and conditions as specified by the CAG.

Independent Auditors Report

Clarification on Auditors observations is given below:

Basis for Qualified Opinion

a) The Company has not recognised the following financial liability/asset at Fair Value in terms of IndAS 109 (including comparative figures as of 31st March 2016 and 1st April 2015):

i) Amounts due to: Fujikura Limited amounting to Rs. 1,89,45,590; and

ii) Trade Receivables (considered good) amounting to Rs.7,43,11,691.

Qualified Opinion:

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of matter described in the Basis for Qualified Opinion paragraph above, the aforesaid lnd AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including the lnd AS, of the state of affairs (financial position) of the Company as at 31st March, 2017, and its Loss (financial performance including other comprehensive income), Cash flows and the changes in equity for the year ended on that date.

Emphasis of Matter

Without qualifying our conclusion in respect of this matter, we draw attention to : a) S. No 3–Note–27-Notes to Accounts. As at 31st March 2017, the Companys accumulated losses of Rs. 117,76,41,518 (including a loss of Rs.16,26,87,588 for the year under audit) has eroded the Net Worth of the Company, indicating the existence of material uncertainty that may cast a doubt about the Companys ability to continue as a Going Concern. Based on the mitigating factors and events occurring after the reporting period as detailed in the said note, the Management believes that the Going Concern assumption is appropriate. b) S.No 21–Note–27-Notes to Accounts . The Company has not restated the amounts due to its holding company viz.,Telecommunications Consultants India Limited amounting to Rs.83,99,90,817 at Fair value, but retained the same at its book value. c) Considering the present inability of the Company to repay its debts, the Bridge Loan and the Working Capital Support received from Telecommunications Consultants India Limited amounting to Rs. 11,65,73,000 and Rs.6,19,50,290 respectively, should be treated as a Long Term Financial Liability in the books of the Company and not as a Short term Borrowings.

Companys Reply to para 11 a) regarding preparation of accounts based on going concern concept.

The requirement of OFC in the country is huge; however the delay in procurement is due to various procedural matters / issues in execution of big projects by the Government clients. The company is hoping to get continuous orders from 2017-18 regularly since the OFC market has picked up and presently the company has Rupees Six crores value of orders in hand to be executed in 2017-18. The order booking position is expected to be continuously good. Considering the scope expected during the immediate future and with the TCIL financial support, the accounts have been prepared on Going Concern Basis.

Companys Reply to para 9 a) (i) (ii), 10, 11 (b) and (c) regarding retaining certain financial liability/ asset at book value , instead of at fair value.

In the para 9a (i) and (ii), 11 (b) and (c) of independent auditors report, it is qualified/emphasised that the specified financial assets and financial liabilities are not complied in terms of Ind As 109 by not measuring at its fair value plus or minus transaction cost that are directly attributable to the said assets / liability.

As mentioned in our financials, TTL is regularly borrowing from the holding company TCIL for its raw material support and working capital support for running day to day operations. The balances of current liabilities and trade payable pertaining to related party / the holding company TCIL as on 31/03/2017 are given below:

(i) Current liabilities – short term borrowing

(a) Bridge Loan : Rs. 11,65,73,000
(b) Working capital support loan : Rs. 6,19,50,290
(ii) Trade payable – Sundry creditors for raw material support : Rs. 63,28,93,871
(iii) Other current liabilities – interest accrued : Rs. 2,85,73,657

Amounts due to Fujikura Limited amounting to Rs. 1,89,45,590;

Trade Receivables (considered good) amounting to Rs.7,43,11,691.

This is to state that the above items are reviewed and monitored on day to day basis in both TTL and TCIL. The balances are periodically reconciled with TCIL and also approved by board of directors of TTL.

The companys operations are dependent only on the related party TCILs funding which is being done on monthly basis for its working capital support and raw material support as and when required.

It may not be out of place to mention that all the realizations from TTL clients are routed through Escrow account which is auto credited to TCILs Account for which standing instructions were given to bank. Moreover, charge has been created in favour of TCIL against fixed assets and current assets of TTL for all the TCIL loans, advances and liabilities towards raw material supply. The loans are repayable on demand basis.

Ind AS 109 requires all financial assets/liabilities to be recognised initially at fair value and subsequently at amortised cost it satisfies the criteria with reference to Ind As 32 Para 11 and para 4.2.1 of Ind As 109. Since these financial assets/liabilities are current in nature, there is immaterial finance cost/income involved, therefore, as a general practice demand deposits are carried at cost and not at fair value/ amortised cost.

In view of the commitment to pay to TCIL, the holding company / related party on demand basis and the company is taking a conservative approach, management assume book value of current liabilities as a amortised cost i.e instead to book a profit by discounting a liabilities the company prefers to go and disclose liabilities with full amount under law of prudence.

Cost Auditors:

As per the provisions of the Companies (Cost Records and Audit) Rules, 2014, the operation of the company is not falling within the scope of cost audit. Hence cost auditor was not appointed for the financial year 2016-17.

Secretarial Audit Report

Clarification on Secretarial audit observations is given below:

(i) Due to non appointment of Independent Directors, the Company has not complied with Section 149(4), 177(1) and Schedule IV of the Companies Act, 2013 in terms of minimum number of Independent Directors in the Board, Constitution of Audit Committee and conducting a separate meeting of Independent Directors respectively.

The Company is Joint sector Govt. Company with 49% of its shares held by TCIL, a Govt. of India Enterprise and 14.63% held by TIDCO, a Govt of Tamilnadu Enterprise. The Board, as well as management control of the Company lies with TCIL. Being a Govt. Company, action has already been taken for induction of Independent Directors in the Board of the Company through TCIL with the Dept. of Telecommunications and Ministry of Telecommunications & IT and the same are being followed up through TCIL for early appointment to comply minimum number of Independent director as per sec 149(4), Constitution of Audit Committee as per section 177(1) and separate Independent Directors Meeting as per schedule IV shall be conducted after appointment of required number of Independent Directors by the Ministry of Telecommunications and IT.

(ii) Due to non appointment of Independent Directors, the Company has not complied requirement of constitution Nomination and Remuneration Committee as per sec 178(1) of the companies Act, 2013.

Due to Companys sickness, only the BIFR Nominee Director is being paid sitting fees for attending the meetings. Managing Director, being on deputation from TCIL, A Govt. of India Enterprise, his salary is fixed as per TCILs norms applicable to his cadre. The Directors of TCIL and TIDCO, A Govt. of Tamilnadu Enterprise are also paid salary by their own Organization, applicable as per their cadre in their Organization. Only the travelling expenses and local conveyance for attending the meetings are incurred by the Company. In view of above, no separate Committee was constituted. After appointment of Independent Directors by the Govt., necessary action will be taken for constituting the Committee.

(iii) The Company conducted only 3 Board Meetings and 3 Audit Committee Meetings instead of 4 meetings in a calendar year 2016 against the sec 173 of the Companies Act ,2013 and 18 (2) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 respectively.

The company conducted only 3 ( Three) Board Meeting and Audit Committee Meeting in the year 2016 and the fourth meeting was conducted on 18th January 2017 which should have been conducted before 31st December 2016. This happened due to retirement / change in the positions of Key managerial Personnel (KMP) Like Company Managing Director and Chief Financial Officer.

(iv) The Company has not complied with Section 149(1) of the Companies Act, 2013 in terms of having woman director in the Board.

The Company is Joint sector Govt. Company as mentioned as replied at (i) above, action already taken for induction of Woman Directors in the Board of the Company through TCIL with the Dept. of Telecommunications, Ministry of Telecommunications & IT. The same is being followed up through TCIL for early appointment of woman Director.

(v) The Company has not complied the Regulation 29 read with Regulation 33 of SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of financial results.

The Board has assured to comply with these regulations in future.

Comments of the Comptroller and Auditor General

The Comments of the Comptroller and Auditor General of India under Section 143(6)(b) of the Companies Act, 2013 for the year ended 31st March 2017 are enclosed as part of the Report.

The Company has not disclosed the details of Specified Bank Notes (SBN) held and transacted during the period from 8 November 2016 to 30 December 2016 as stipulated in Ministry of Corporate Affairs (MCA) Notification dated 30 March 2017. Further, the statement of Statutory Auditors in point no. 14(h) (iv) of their Report that the company has disclosed in its IND AS financial statements the details of the Specified Notes (SBN) held and transacted during the period from 8th November 2016 to 30th December 2016 and they are in accordance with the books of accounts maintained by the company is not factual in view of the above.

Companys Reply : Specified Bank Notes are being maintained in the books of accounts (i.e) cash book, on the daily basis. Separate statement was prepared for disclosure in the notes to accounts providing transactions during demonetization period from 8th November 2016 to 30th December 2016. It was inadvertently omitted. The company has undertaken to carry out the inclusion of this statement while printing the annual report and accordingly hereby disclosed as under:

Amount in Rupees

Denomi- nations SBNs Amount Other denomination notes Total
Closing cash in hand on 8th November 2016 1,000*5 6,000 2,527 8,527
500*2
(+) Permitted Receipts - - 66,066 66,066
(-) Permitted Payments 1,000*5 6,000 57,267 63,267
500*2
(-) amount deposited in banks - - - -
Closing cash in hand on 30th December 2016 - - 11,326 11,326

Acknowledgements

The Directors wish to place on record their sincere appreciation for the encouragement, assistance, support and co-operation given by Government of India, Government of Tamilnadu and the Promoters. The Directors appreciate your whole hearted efforts during the year and solicit your continued support and cooperation. Your Directors acknowledge the continued trust and confidence you have reposed in this company. They also wish to place on record their appreciation for the hard work put in by the employees at all levels.

For and on behalf of the Board
Place: Chennai R.Deva Kumar B.Elangovan
Date: 11.08.2017 Managing Director Director
(DIN 07687666) (DIN: 00133452)