Annual Report - Hindustan Motors - 2009-2010

HINDUSTAN MOTORS LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors present their Sixty-eighth Annual Report together with
annual accounts of the Company for the year ended March 31, 2010.



With profound sorrow and grief, the Directors report the sad demise of Shri
G.P. Birla on 5th March, 2010. As Chairman of the Company during the period
from 13th January, 1982 to 26th November, 1997, Shri G.P. Birla, a
pioneering industrialist and a dedicated humanist, guided the affairs of
the Company from strength to strength. He was a doyen in the industrial
world and established a large number of industries in various sectors in
India and abroad like automobile, paper, cement, electrical, building
products and precision engineering products. He was a noble hearted soul
and a great philanthropist and established several large foundations,
hospitals and institutions for charitable and educational purposes. He was
awarded 'Padma Bhushari' in the year 2006 by the Government of India for
his outstanding services to the nation. In his death, the country has lost
a great industrialist and a philanthropist.

Financial Results:

During the year under review, the Company's revenue was Rs.736 Crores
compared to Rs.771 Crores in the previous financial year. The following
table gives a summary of the performance.

(Rupees in Crores)
2009-10 2008-09

Gross sales and services 735.99 770.70

Profit/(Loss) before Interest,
Depreciation and Taxes (4.59) (9.52)

Interest Payment 11.04 12.35

Depreciation 17.63 20.66

Profit / (Loss) before Tax (33.26) (42.53)

Provision for Tax 17.84 (3.67)

Profit / (Loss) After Taxation (51.10) (38.86)

The revenue account shows a loss of Rs. 51.10 Crores after providing
Rs.17.63 Crores for depreciation and Rs. 17.84 Crores for deferred tax and
other taxes. There was a debit balance of Rs. 81.17 Crores in the Profit
and Loss Account, which was brought forward from last year. After
considering the results of the year under review, there is a closing debit
balance of Rs 132.28 Crores in the Profit and Loss Account.

In accordance with the Order of the Government of West Bengal in September
2006 wherein the Company was allowed to develop 314 acres of land at
Hindmotor as Integrated IT Township & Auto Ancillary Park, the Company has
transferred the balance part of its land admeasuring 62.791 acres by
handing over physical possession thereof against payment to the Developer
and profit of Rs. 51.37 Crores thereon has been included in the Profit and
Loss Account during the year. The Company had entered into a full and final
out of Court settlement regarding disagreement/disputes with the Developer
and the said settlement was duly recorded by the Hon'ble High Court at
Calcutta. The amount of Rs. 5 Crores paid in pursuance of this settlement
has been netted off from the profit on sale of the land. With this, the
Company has completed the transfer of 314 acres of land to the Developer.

The accumulated losses of the Company at the end of financial year 31st
March, 2010 have resulted in erosion of more than fifty percent of its peak
net worth during the immediately preceding four financial years. While the
Company is taking necessary steps to protect further erosion, the Company
will report to the Board for Industrial and Financial Reconstruction about
such erosion of networth as envisaged under Section 23 of the Sick
Industrial Companies (Special Provisions) Act, 1985 forthwith upon
finalisation of the duly audited accounts of the Company for the financial
year ended 31st March, 2010. Shareholders are also requested to take note
of this erosion and consider the same at the Extraordinary General Meeting
of the members being convened for the purpose.

A Cash Flow statement for the year under review is also attached to the
enclosed Annual Accounts.

Review of Operations:

The Company has been focusing on automobile business and auto component
business namely forgings, castings and stampings with plants at Uttarpara,
Tiruvallur and Pithampur. In the automobile business, the main focus is on
Ambassador, Lancer, Cedia, Sports Utility Vehicles namely, Pajero, Montero
and Outlander and the recently launched goods carrying mini truck called
'Winner'.

Sale of automobiles during the year under review consisting of Ambassador,
Winner, Lancer, Cedia, Sports Utility Vehicle and other Utility Vehicles is
11003 compared to 9211 nos. during the previous financial year registering
a growth of 19%. However the benefit of enhanced volumes was offset by
adverse movement in foreign exchange rates affecting the profitability of
vehicles sold from the Company's Chennai Car Plant. Your Company was able
to persuade its foreign collaborator to reduce kit prices in order to stay
competitive in the market. The gains of such reduction, due to inherent
lead time in shipments, became available to the Company only in the later
part of the final quarter of the year under review. In addition, the
Company minimized pressure on margins by way of aggressive cost reduction
and value engineering measures.

During the year, your Company introduced a new model of Outlander from the
Chennai Car Plant as well as the CNG version of Winner from the Uttarpara
Plant both of which have generated lot of enthusiasm in the market place
and are expected to increase the sales of your Company in the current
financial year.

Your Company is taking steps, subject to necessary compliances and
approvals, to close the Company's branch in Japan and the subsidiary in USA
engaged in engineering software services due to lack of remunerative
business opportunities in the export markets.

A detailed Management Discussion & Analysis Report (MDAR) forms part of
this report as Annexure-1.

Outlook for 2010-11:

In view of the revival in the economy as well as in the automobile

industry, the Company is taking various initiatives to improve the sales of
its products and expects to improve the performance in the current
financial year. The sale of Ambassador cars will continue to improve
initially due to demand from Kolkata taxi replacement market and
subsequently with the launch of Bharat Stage-IV versions of the Ambassador.
Most of your Company's vehicles either meet the Bharat Stage-IV emission
norms or are under final stages of development and testing. These norms
were made mandatory by the Government in 13 cities in India with effect
from 1st April 2010. The Company continues to focus on cost reduction
efforts and improvements in operational efficiencies as well as value
engineering activities to improve the margins. With these initiatives, the
Company expects improved performance in the current financial year.

Industrial Relations:

Industrial relations generally remained cordial and satisfactory.

Human resources initiatives such as skill level upgradation, training,
appropriate reward & recognition systems and productivity improvement are
the key factors continuously being focused for development of the employees
of the Company.

Corporate Governance:

The Company continues to remain committed for high standards of corporate
governance. The report on corporate governance as per the requirement of
the listing agreement with stock exchanges forms part of this report as
Annexure-2. The Company has complied with all the requirements of corporate
governance. The certificate from the Auditors of the Company confirming
compliance to the conditions of the corporate governance requirements is
also annexed.

Statutory Declaration:

The Company has complied with all the Accounting Standards prescribed by
The Institute of Chartered Accountants of India. In terms of the
requirement of Section 217 of the Companies Act, 1956, Directors'
Responsibility Statement is enclosed as Annexure-3 to this report. The
particulars of employees to be disclosed as per the provisions of sub-
section (2A) of the said Section are also given as Annexure-4.

Additional Information relating to conservation of energy, technology
absorption, foreign exchange earnings and outgo as required under sub-
section (1)(e) of the said Section is also given as Annexure-5 to this
report.

There has been no material change and commitments affecting the financial
position of the Company which have occurred between the end of the
financial year 2009-10 and the date of this report.

There has also been no change during the financial year under review in the
nature of Company's business or in the Company's subsidiaries. Steps are
being taken to close the business of Company's susidiary in USA subject to
necessary compliances and approvals.

Auditors:

The report by the Auditors is self-explanatory. Your Directors request you
to re-appoint auditors for another term beginning the conclusion of the
ensuing Annual General Meeting till the conclusion of the subsequent Annual
General Meeting and approve their remuneration as specified in the proposed
resolution attached to the notice.

Subsidiary Companies:

The statement pursuant to Section 212 of the Companies Act, 1956 in respect
of the three wholly owned subsidiary companies, namely Hindustan Motor
Finance Corporation Limited, HM Export Limited and Hindustan Motors
Limited, USA and their latest Annual accounts are attached to this Annual
Report.

Directors:

During the year under review, Shri Vijay Kumar Sharma was nominated by LIC
as Director of the Company with effect from 26th October, 2009 to fill in
the casual vacancy caused by resignation of Shri S.C.Jain as its nominee on
Company's Board. The Board places on record its high appreciation of the
valuable services rendered by Shri S.C.Jain during his tenure as Director
of the Company.

At the ensuing Annual General Meeting, Shri Naresh Chandra and Shri Kranti
Sinha, Directors of the Company, retire by rotation and being eligible
offer themselves for reappointment.

Shri R. Santhanam, Managing Director of the Company, has submitted his
resignation with effect from the close of business hours on 18th May, 2010.
The Board places on record its high appreciation of the valuable services
rendered by Shri R. Santhanam during his tenure as Managing Director of the
Company.

Shri Manoj Jha has been appointed as Managing Director of the Company with
effect from 19th May, 2010 for a period of five years.

Appreciation:

Your Directors acknowledge and thank the customers, shareholders, dealers,
vendors, state government authorities, business associates, banks and
financial institutions for the support extended to the Company. Your
Directors also record their appreciation for the commitment and dedication
of the employees of your Company.

For and on behalf of the Board of Directors

Place: New Delhi C.K. Birla
Date : 1st May, 2010 Chairman

Annexure-1 to the Directors' Report

Management Discussion & Analysis Report

Industry Structure & Development:

During the year under review the overall economy registered a GDP growth
rate of 7.2% as per the Economic Survey tabled by the Government. The index
of industrial production increased by 10.1% in this year compared to 2.4%
in the previous year. Sale of Passenger Vehicles in the country grew by
25.57% compared to 0.13% in the immediate preceding year.

The table below summarizes the growth in sale of passenger vehicles:

Domestic Sales - Nos 2008-09 2009-10 % age
Increase
Passenger Cars 1220475 1526787 25.10
Utility Vehicles 225621 272733 20.88
Multi-purpose Vehicles 106607 150256 40.94
Total Passenger Vehicles 1552703 1949776 25.57

Source: Society of Indian Automobile Manufacturers - Flash Report

Sale of Company's vehicles during the year was 11003 numbers compared to
9211 numbers in the previous financial year registering a 19% increase on
year-onyear basis. However this favourable development was offset by
adverse fluctuation in foreign exchange severely affecting profitability of
Chennai Car Plant operation. The Company took counter measures in the form
of negotiating significant reductions with its overseas collaborator as
well as value engineering and cost reduction initiatives etc.

During the year, the Company's Chennai Car Plant introduced a new model of
Outlander in January 2010. This SUV has generated lot of enthusiasm in the
market place and the Company expects to increase its market share in the
SUV segment with the introduction of this new model. The CNG version of
small goods carrying commercial vehicle 'Winner' was also launched during
the year which is generating good demand in CNG markets like Delhi.

Opportunities & Threats:

In view of the revival in the economy, higher GDP and industrial production
growth rates, demand for the passenger vehicles is expected to continue to
grow during 2010-11. The forecast of GDP growth rate for 2010-11 is 8.5 +/-
0.25%. With the increase in capacities and introduction of newer models,
competition is expected to increase further. The rising interest rates,
removal of government incentives and stricter emission norms could impact
demand in short term.

The Company is hopeful of registering growth in sales during the current
year both from its Chennai Car Plant as well as from the Uttarpara Plant.
The Company expects to increase its market share in the growing SUV segment
with its existing models as well as by introducing new models in the
segment. The sale of Ambassador cars is also expected to improve initially
due to demand from Kolkata taxi replacement market and subsequently with
the launch of Bharat Stage-IV versions of the Ambassador. The recently
introduced small goods carrying mini truck called 'Winner' is also expected
to contribute significant volumes during the current year especially with
its Bharat Stage-IV compliant CNG version.

With the growth in the automobile industry, the opportunities in auto
component business have also been increasing. The Company is taking number
of initiatives for development of the auto component business by
approaching both domestic and overseas customers.

Financial Performance:

Total turnover of the Company during the year was Rs.736 Crores against
Rs.771 Crores in the previous year. The turnover declined by 5% compared to
previous financial year. The loss before interest, depreciation and
taxation for the year was Rs.4.59 Crores after including other income of
Rs. 66.58 Crores which includes profit from sale of immovable properties in
the State of West Bengal. The profitability of the Company was adversely
affected due to lower sales volume from Chennai Car Plant, adverse foreign
exchange and increase in material cost. Transfer of 314 acres land for
Integrated IT Township & Auto Ancillary Park at Hindmotor, in five lots has
been completed in accordance with the approval of Government of West Bengal
and periodic progress reports have been filed with the Government.

The Company is predominantly in automobile and auto component business. The
segment-wise results are indicated in the notes schedule to the accounts.

The Outlook for the year 2010-11 and status on Human Resources/Industrial
relations are given in the Directors' Report.

Risks & Concerns:

In the normal course of business, the Company is exposed to external risks
such as overall demand fluctuations in the market segment in which it
operates, reduction in relative market share for its products due to the
impact of competition as well as internal risks such as variations in
operational efficiency and cost structure. The Company is also exposed to
financial risks in the form of foreign exchange fluctuations and interest
rate variations. The Company is taking appropriate steps to guard itself
against these identified risks.

The Company has put in place a risk management policy to identify the
nature and magnitude of risk associated with the Company and to take steps
for mitigating the impact of such risks. These are reviewed periodically
and placed before the Board.

Internal Control Systems:

The Company has established suitable internal control systems, which
provide reasonable assurance with regard to safeguarding the Company's
assets, promoting operational efficiency and ensuring compliance with
various legal and regulatory provisions. The Internal Audit department
reviews internal control systems in various business processes and also
verifies compliance of the laid down policies and procedures. Reports of
the internal auditor are reviewed by the senior management and are also
placed before the audit committee of the Directors. The statutory auditors
also review their findings with the senior management and the audit
committee.

For and on behalf of the Board of Directors

Place: New Delhi C.K. Birla
Date : 1st May, 2010 Chairman

Annexure-3 to the Directors' Report

Directors' Responsibility Statement

The Board of Directors confirms that:

A. In the preparation of the annual accounts, for the year ended 31st
March, 2010, all the applicable accounting standards prescribed by the
Institute of Chartered Accountants of India have been followed.

B. The Directors have adopted such accounting policies and have applied
them consistently and have made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the state of
affairs of the Company at the end of the financial year and of the loss of
the Company for that period.

C. The Directors have taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the
Companies Act, 1956 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.

For and on behalf of the Board of Directors

Place: New Delhi C.K. Birla
Date : 1st May, 2010 Chairman

Annexure-5 to the Directors' Report

[Additional information given as required under Section 217(1)(e) of the
Companies Act, 1956, read with the Companies (Disclosure of Particulars in
the Report of Board of Directors) Rules, 1988.]

A. ENERGY CONSERVATION:

A. I Important measures taken:

At UTP Division:

a. At Forge Shop the maximum demand has been kept at 10200 KVA by taking
following measures:

1. Application of power capacitors at different sub stations

2. Monitoring peak load time at different shops

3. Reducing number of man cooler fan

4. Installation of Induction Furnace for Billet Heating and

5. Installation of Heat Treatment Furnace.

b. Power factor has been maintained at 0.98 resulting in saving in energy
cost.

c. Water consumption has been reduced from 825 meter cube per day to 810
meter cube per day through water management.

d. Reducing the usage of Air-conditioners.

e. Power consumption for compressor has been maintained at the level of
8000 KWH per day by

1. Arresting leakage;

2. Increasing compressor efficiency and

3. Running compressor on demand.

At CCP Division:

a) Installation of energy efficient T5 series lamps in place of sodium
vapour lamp for street light

b) Power factor maintained at 0.98

At RTV Division:

a. The load demand was reduced in 2006-07 from 1000 KVA to 600 KVA.

b. Power factor is continued to be maintained at 0.98 - 0.99.

A.II. Impact of above energy conservation measures:

i) Total savings (for all the divisions) Rs. 80.17 lacs

ii) Energy saving per unit of output at

a. UTP Division
- Vehicles Rs. 700.00
- Steel Products Rs. 715.00
b. CCP Division Rs. 172.00

iii) Energy saving against total cost of energy at

a. UTP Division 4.5%
b. CCP Division 1.41%

B. TECHNOLOGY ABSORPTION, ADAPTATION & INNOVATION:

B. I In-house major research & development (R&D):

B. I A At UTP Division:

1. Specific areas in which R&D carried out

a. Introduction of CNG Variant on Winner Mini Truck

b. Compliance of all Ambassador and Winner models to new Government
Notification GSR 784(E) Phase II for new Central Motor Vehicle Rules
introduced from 1st October, 2009.

c. Approval of Ambassador CNG, Ambassador Petrol and Winner CNG meeting new
regulation Bharat Stage IV.

2. Benefits derived as a result of above efforts are

a. Introduction of new variants to meet the demand in developing market
segment.

b. Compliance of regulatory norms/requirements.

3. Future plan of action

a. Compliance of new Central Motor Vehicle Rules on all Ambassador & Winner
Models.

b. Compliance of BS-IV on other Ambassador & Winner Models.

c. Introduction of more variants on Winner Mini Truck.

B. I B At CCP Division:

1. Specific areas in which R&D Carried out

a. Introduction of upgraded Pajero & Cedia

b. Introduction of upgraded Outlander (Model Year 10)

c. Approval of Outlander and Cedia meeting new Regulation Bharat Stage IV

d. Approval of Safety Parts meeting new regulations

2. Benefits derived as a result of above efforts are:

a. Compliance of regulatory norms/requirements

b. Market sustainability through product upgradation with contemporary
features

3. Future plans of action

a. Conformance of current and forthcoming Central Motor Vehicle Rules

b. Introduction of Montero meeting new Regulation Bharat Stage IV

c. Introduction of new Model Lancer Evolution

d. Introduction of new/upgraded Mitsubishi Models

B. IC At RTV Division:

1. Specific areas in which R&D carried out:

a. Certification of CNG Pick Up & Drive Away Chassis variants.

2. Benefits derived as a result of above efforts are:

a. Compliance of regulatory norms/requirements.

3. Future plan of action:

a. Introduction of manufacturing Collapsible Container

B. II The expenditure incurred for R&D during the year was

(For all the divisions taken together)

Capital Expenditure Rs. 0.64 lacs
Recurring Rs. 310.55 lacs
Total Rs. 311.19 lacs
Percentage of Turnover 0.54%

B.III Technology imported during the last 5 years


Technology for Year of Technology Has technology If not fully
Import Source / been fully absorbed, areas
Consultant absorbed where this has
not taken place,
reasons therefore
and future plan of
action
Mitsubishi 2005 Mitsubishi Technology for Localisation of
Cedia Elegance Motors in-house chassis parts not
& Sports Corporation, manufacturing taken up due to
Tokyo, Japan has been fully low volumes.
absorbed.

Mitsubishi 2006 -do- Technology for Localisation of
Lancer with in-house chassis
1600 cc manufacturing parts not taken up
Gasoline Engine has been fully due to low volumes
absorbed.

Mitsubishi 2006 -do- Technology for NA
Montero with CBU route has
Manual been fully
Transmission absorbed

Mitsubishi 2007 -do- Technology for NA
Montero with CBU route has
Automatic been fully
Transmission absorbed.

Mitsubishi 2008 - do - Technology for Localisation of
Outlander with in-house chassis parts not
Continuous manufacturing taken up due to
Variable has been fully low volumes.
Transmission absorbed


C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

During the financial year under review, the FOB value of exports of goods
by the Company aggregated to Rs.4.43 lacs as against the corresponding
figure of Rs.64.27 lacs for the financial year ended 31st March, 2010.

During the financial year ended 31st March, 2010, the Company has imported
components/spare parts, vehicles for trading and capital goods for an
aggregate CIF value of Rs.18029.20 lacs (against a corresponding figure of
Rs. 21604.49 lacs for the financial year ended 31st March, 2009). The
Company has also incurred expenditure in foreign currency towards
Royalties, Technical know-how fees, Interest and other expenses aggregating
to Rs.188.84 lacs (against a corresponding figure of Rs.350.14 lacs for the
financial year ended 31st March, 2009).

For and on behalf of the Board of Directors

Place: New Delhi C.K. Birla
Date : 1st May, 2010 Chairman

Disclosure

Disclosure of particulars of persons constituting 'Group' pursuant to
Regulation 3(1)(e)(i) of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997

Amer Investments (Delhi) Limited, Ashok Investment Corporation Limited,
Balsam Investment & Trading Co. Private Limited, Basant Properties Limited,
Bengal Rubber Company Limited, Bengal Stores Limited, Birla Brothers
Private Limited, Central India Industries Limited, Chhotanagpur General
Trading Co. Limited, Gwalior Finance Corporation Limited, Hindusthan
Discounting Company Limited, Hitaishi Investments Limited, India Silica
Magnesite Works Limited, Jaipur Development Co. Limited, Jaipur Finance &
Dairy Products Private Limited, National Bearing Company (Jaipur) Limited,
National Engineering Industries Limited, Rajasthan Industries Limited,
Ranchi Enterprises & Properties Limited, Shekhavati Investment And Traders
Limited, Soorya Vanijya & Investment Limited, Universal Trading Company
Limited, Miss Avani Birla, Miss Avanti Birla, Shri Chandra Kant Birla, Shri
Ganga Prasad Birla, Shri Raja Gopalan Santhanam, Smt. Amita Birla, Smt.
Nirmala Birla.

For and on behalf of the Board of Directors

Place: New Delhi C. K. Birla
Date : 1st May, 2010 Chairman