Annual Report - Hitachi Home and Life Solutions - 2009-2010

HITACHI HOME AND LIFE SOLUTIONS (INDIA) LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Dear Members,

Your Directors have pleasure in presenting the Twenty Fifth Annual Report
and the Audited Financial Statements, for the year ended March 31, 2010.



Financial Highlights:

The highlights of financial results of the Company for the year under
review are given below:

(Rs. in Mn.)
For the year ended For the year ended
March 31, 2010 March 31, 2009

Income from operations 6,855.79 5,190.22

Less : Excise Duty 450.66 491.25

Other Income 118.31 72.35

Total Income 6,523.44 4,771.32

Profit before interest,
depreciation and tax 703.08 373.88

Interest 15.10 26.67

Depreciation 117.77 79.93

Tax 108.81 56.54

Profit after tax 461.40 210.74

Amount brought forward
from previous year 427.14 216.40

Balance available for
appropriation 888.54 427.14

Amount transferred to
General Reserve 46.14 -

Proposed Dividend (including
Corporate Dividend Tax) 40.16 -

Surplus carried to Balance Sheet 802.24 427.14

Dividend:

Your Directors recommend a dividend of Rs. 1.50 per Equity Share for the
year ended March 31, 2010. This is subject to the approval of the Members
at the ensuing Annual General Meeting.

Industry Structure & Developments:

Consumer Appliances Industry:

The Indian consumer durable industry is estimated to be in the range of
Rs.350,000 Mn. The home appliances industry (products that your Company
deals in) is estimated to be around Rs.55000 Mn. Room Air conditioners
contribute to the largest share of this at around Rs. 50,000 Mn. followed
by Refrigerators at around Rs. 5,000 Mn. (This size of Rs. 5,000 Mn. is for
the Frost Free Refrigerators above 300 Ltrs. capacity).

Air conditioning Industry:

Our estimate of the industry performance during FY 2009-10 is given below:

Total Industry Sales (in Mn.)
Category 2009-10 2008-09 Growth

Room Air conditioners (in Units) 2.51 2.01 25%
Ductable Air conditioners (in Tr.) 0.33 0.37 -11%

Air conditioner is now much more than a cooling appliance. Its image has
transformed to being a stylish and intelligent indoor Air conditioning
system. The customer's now look for various other features like aesthetics,
comfort features, designs, colours, latest technologies, higher energy
efficiency and better service. Split Air conditioners are fuelling the
growth of the industry with design innovations, elegant looks in a feature
packed indoor unit.

Room Air conditioners:

The Room Air conditioner category consists of both the Window and Split Air
conditioners for the use in residential and commercial spaces.

The Room Air conditioning industry experienced a growth rate of close to
25% in 2009-10 in comparison to about 7% growth in 2008-09. However
penetration of Room Air conditioners in India is still low at around 3%
only.

The demand of Split Air conditioners is continuously increasing. The market
share of Split Air conditioners is more than 65%, because Split Air
conditioners are more elegant in looks, produce much lesser noise and are
more energy efficient. Your Company has constantly formulated its
strategies to garner more share in this segment which has helped to achieve
a growth of over 52% in Split Air Conditioner category. Your company has
introduced a new range of Split Air conditioners to further strengthen its
position in this segment.

Your Company offers a wide range of Room Air conditioners. Through its
extensive research and development, your Company has remained at the
forefront of the Air conditioning industry. New technological breakthroughs
allow Hitachi to provide high quality, efficient and reliable Air
conditioning solutions.

Your company has grown @ 46% over the last year with 1.58 lac units against
1.08 lac units in last financial year in Room Air conditioners segment.

Your Company has launched a new range of Split Air conditioners 'i-TEC
(Inverter AC, Available in 1.5Tr.) and upgraded 'ACE Followme' (Tr. 0.9,
1.2, 1.5 & 2.0). These new Air conditioners, equipped with Direct Efficient
Technology are a perfect blend of absolute comfort, silence, durability and
elegant design. They ensure consistent cooling and are highly energy
efficient as well. This year we have also launched another Split Air
conditioner range 'KAZE' for Tier II Cities. We have done media launch of
'KAZE' in 31 towns and received comprehensive & positive coverage in all
leading media. Other ranges of Split Air conditioner are Atom Square', Ace
Cutout', 'Star', Atom XL', and 'Logicool' to cater to the specialized need
of specific segments. In Window Air conditioner segment 'Quadricool TM' &
'Quadricool SM' are available in Tr. 1.1, 1.5 & 2.0.

This year, the BEE (Bureau of Energy Efficiency, A Government enterprise
under the Ministry of Power) has made Energy Star labeling for Room Air
conditioners mandatory from January 2010. Your Company had adopted
voluntarily the scheme of Star Labeling last year hence the customers were
able to choose the Hitachi brand star rated Split Air conditioners. Your
Company's star rated Air Conditioners have been received very well in the
market. Last year 79% of Hitachi Split Air conditioners sold were having 5
star rating.

Ductable Range of Air conditioners:

The spread of the global economic downturn significantly affected business
environment in India as well. Your Company also faced similar pressure in
Commercial AC business. Because of restricted investment in infrastructure,
retail and IT & ITES, the Commercial AC business was affected. Your Company
has had a de-growth in the last financial year in the Ductable Split range
and Chillers. However, in the Telecom Air conditioner category your Company
continued and strengthen its leadership position.

In Commercial Air conditioning business, in the first half of financial
year market was sluggish due to global slow down impact, while from second
half of the year market started positive movement. In first half of year,
your Company de-grew but lower than the market de-growth rate, while in
second half of the year, your Company registered higher growth than the
market, which helped us to restrict de-growth lower than the market. Your
Company gained around 1% in market share in year 2009-10.

Your Company has the Takumi range of Ductable Air conditioners, which is
the emergence of Hitachi's engineered system to create One-of-a-kind
solution to Air conditioning industry. Its unique energy efficient
engineering design and flexibility in application provides pragmatic
solutions to suit best for cooling requirements. The range of these
products available is from 3.0 Tr. to 16.5 Tr. which are highly appreciated
and well received in the market. The customer of this segment comprises of
Retail Chains, MNCs, IT/ITES sectors, BPOs, Call Centers, Institutes,
Malls, etc.

Telecom Air conditioners:

This cutting edge Air conditioning system is specially designed for
unmanned Telecom Shelters/ Telecom BTS sites. Our specialized & unique
product, Spacemaker comes with higher cooling capacity, unique safety
features, lower power consumption and lower operating costs. Market share
of your Company in this segment is above 32%. Looking to the future growth
of the telecom industry, it is expected that we shall maintain our share in
this segment.

Refrigerators:

Your Company offers a wide range of stylish & premium refrigerators
available in 2-Door, 3-Door and Big French (4-Door) models. Range of
refrigerators not only adds depth and character to the consumer's kitchen
but also compliments with the strong cutting-edge technology to make
beautiful solutions for household needs.

The refrigerators are differentiated on account of their innovative
functionality, style and utility intertwined with the advanced features.
The Minus Zero Cooling, New Front Jet Freezing, Electronic Temperature
Control, Nano Titanium Filter Treatment and Digital Control Panel features
allow the food to stay fresh and healthy for longer periods. The advanced
Minus Zero Cooling mode preserves the nutritional value and the moisture in
the food stored and the Digital Control Panel helps in controlling the
temperature inside the refrigerator without opening the doors, thereby
saving energy consumption.

Your Company has grown by over 4% against last year. New models have been
introduced in 2-door & big French category. It is expected that your
Company will perform better in coming years in this category.

Set up of New Air conditioner Manufacturing Facility

Your company has inaugurated new Air conditioner manufacturing facility in
August 2009. This facility is one of the largest Air conditioner
manufacturing facilities in India and also one of the largest Air
conditioner manufacturing facilities of Hitachi in the world. The new
facility is adjoining the old plant, was built in a record time of 7!4
months. The plant is state of art and equipped with advanced machinery.
With this new plant the annual production capacity has increased to 2.30
Lac units in single shift working. The new facility would manufacture Room
& Commercial Air conditioners including Ductable Air conditioners and
Telecom Air conditioners. The Chiller manufacturing will start in the next
financial year.

Set up of Hitachi Customer Satisfaction Centers:

During the year under review, your Company has set up its own Service
Centers. These centers will be entirely owned & operated by your Company,
thereby assuring better & personalized service to every customer. In the
first phase, Company has opened Service Centers, in the major cities.
Gradually this concept will be expanded to smaller towns across the
country.

Future Outlook: Opportunities, Threats, Risks and Concerns Opportunities:

Growth in Smaller Towns:

Smaller towns are showing encouraging growth. These towns are very
critical, as the next round of growth will come from them. The relevant
consumer base is large and growing, as are affluence levels, which will
result in augmentation of purchasing power and branded product consumption.

Increased Affordability of Products:

Air conditioners are now affordable both in terms of initial investment and
running cost and are now treated as a necessity rather than a luxury item.
The reduction of the price gap between the Split Air conditioner and Window
Air conditioner has fuelled the growth of the Split Air conditioner
segment. With the emergence of the apartment culture in metros and non
metros the need of below 1.0 Tr. and between 1 Tr. and 1.5 Tr. capacities
has emerged. Understanding that need of the market your Company has
extended 'ACE Followme' range to 0.9, 1.2, 1.5 & 2.0 Tr. and other models
'KAZE' & 'Ace Cutout' also have the same tonnage class.

Increase in Income Levels:

Increasing affluence levels across the country will lead to increase in
consumption growth. Growing middle class with increasing disposable income
supported with robust economic growth are good signs for the industry.
Retailers are marketing their goods more aggressively by providing easy
financing options to the consumers by partnering with banks.

Increasing Share of Organised Retail:

The Indian retail market, which is the fifth largest retail destination
globally, has been ranked as the most attractive emerging market for
investment in the retail sector. The organised retail sector is all set to
witness maximum number of large format malls and branded retail stores in
the next two years. Tier II cities are emerging as the favoured
destinations for the retail sector with their huge growth potential.
Shopping malls are becoming increasingly common in Indian cities. This will
have a positive impact on the consumer durable industry, as organised
retailing would not only streamline the supply chain, but also facilitate
increased demand, especially for high-end and branded products.

Threats, Risks and Concerns:

1. During last one year the cost of steel, copper & plastic have been
rising sharply. Energy labeling initiated by the government is also adding
to the input cost of product.

2. Banks / NBFCs are tightening their consumer finances. In view of
problems at the world level in the banking sector, the funding options have
minimized. Inventory funding is also very tight, which is not a good
situation for dealers to run their operations.

3. Excise duty has gone upto 10% in the last union budget. Some of the
states have also increased VAT additionally upto 2.5%.

4. High electricity cost & quality of power supply remain a hindrance in
the growth of business. Long power cuts and voltage fluctuations may affect
the pace of industry growth.'

5. The import of low cost products from neighboring countries continues to
be a threat to the consumer durable industry.

Human Resources:

The total strength of employees (staff and operators) of your company was
557 as on March 31, 2010.

Hitachi Customer Satisfaction (HCS) was formed as a new Process at HHLI for
enhancing the service delivery to customers. A pool of Service Engineers
has been inducted into the System at 19 HCS centers.

In order to streamline the Customer Complaints redressal, the National
Service Centre (NSC) was strengthened with deployment of 25 Engineers
alongwith regular Customer Service Executives to centrally handle
customer's issues at Head Office level. It is handling regular customer
issues as well as Institutional Customers service co-ordination. Re-
Modeling of Compensation Structure was done with a uniform step wise
structure of Position Classes during the annual appraisal. Variable Salary
limits were also enhanced at all levels.

A unique team building programme was organised for all employees in which
each employee got an opportunity to visit and learn about the new State of
Art Plant at Kadi and then participate in the Out Bound Training (OBT) with
a cross-functional groups. This programme educated our employees about the
growth plans of the Company for 2010-11, the challenges to be taken and the
team work and passion required to take it forward.

Forty eight Graduate Engineer Trainees (GETs) were recruited. After the
intensive Plant Training, the GETs were assigned specific On the Job
Training (OJT) in various departments in Plant and Field under senior staff
for guiding and mentoring them.

The Central Air-conditioning business team is being continuously
strengthened with addition of manpower in areas of Project Design,
Estimation, Execution and Commercial for handling Central AC Projects.

Internal Control and Systems:

Company has adequate system of internal control to ensure that all the
assets pertaining to Company are safeguarded and protected. Internal Audit
has also been done through external Auditors at Plants as well as at all
the branches of the Company as per the detailed scope defined and approved
by the Audit Committee. The Internal Audit is planned to substantiate and
review the adequacy of controls and laid down procedures & systems.

Observations of Internal Auditors and the detailed plan of action is
reviewed and discussed at the meetings of the Audit Committee.

Change in Managing Director:

During the year Mr. Shinichi lizuka, Managing Director, has moved to
Hitachi Appliances Inc., Tochigi, Japan on his new assignment. Board of
Directors do place on record its sincere appreciation for his significant
contribution made during his tenure in development and progress of the
Company by giving his mature advice and guidance. Mr. Motoo Morimoto has
been appointed as Managing Director of the Company with effect from April
01, 2010.

Auditors:

The Company's Auditors, M/s. S.R. Batliboi & Co., Chartered Accountants,
retire at the conclusion of the forthcoming Annual General Meeting and are
eligible for re-appointment, but have expressed their unwillingness to be
re-appointed.

Directors' Responsibility Statement:

Your Directors confirm that:

(i) in the preparation of the annual accounts, the applicable accounting
standards have been followed ;

(ii) such accounting policies have been selected 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 at the end of the financial year ended March 31, 2010 and of the
profit of the Company for that year;

(iii) proper and sufficient care has been taken 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 ; and (iv) annual
accounts have been prepared on a going concern basis.

Report of Corporate Governance:

Report on Corporate Governance under clause 49 of the Listing Agreement is
attached to this Report.

Particulars as per Section 217 of the Companies Act, 1956:

A statement showing particulars of employees as required under Section
217(2A) of the Companies Act, 1956, read with Companies (Particulars of
Employees) Rules, 1975 is attached with this Annual Report and information
pursuant to Section 217(1)(e) of the Companies Act, 1956 read with Rule 2
of the Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988, relating to Conservation of energy, technology
absorption and foreign exchange earning and outgo is given as Annexure-I to
this report.

Acknowledgement:

Your Directors thank all Customers, Suppliers, Investors, Bankers - State
Bank of India, ICICI Bank, Standard Chartered Bank and Mizuho Corporate
Bank and other stakeholders of the Company for their co-operation and
continued support during the year. We look forward to their continued
support in the future also.

We wish to place on record our sincere appreciation for the excellent work
put in by the employees of the Company at all levels.

For and on behalf of the Board of Directors

Motoo Morimoto
Managing Director

Place: Ahmedabad, Gujarat Anil Shah
Date : May 24, 2010 Executive Director

Annexure-I

Information regarding Conservation of Energy, Technology Absorbtion,
Research and Development and Foreign

Exchange Earnings & Outgo:

Conservation of Energy:

While setting up new plant, Company grabbed an opportunity to invest in
Green Technology like:

1. Use of natural lightening, turbo vent,natural air circulation and epoxy
painted light reflective floor which help in saving of electricity and
improve illumination.

2. Installation of efficient compressed Air pressure system which ensures
zero air leakage.

3. Reciprocating air compressors are replaced by screw compressors having
variable frequency drive which is giving significant power saving compared
to earlier reciprocating system.

4. Further, at new factory electrical installation, designed by experts,
minimizes overheating of cables and energy loss.

5. Company has installed new DG Set for Power backup having best fuel
efficiency and lowest sound level.

Research and Development (R & D):

R & D is key for ensuring local insights lead to Innovative models.

1. Company has launched Tropical DC Inverter in Split Air conditioner
category in which there is 50% power saving as compared to any 5 star rated
Split Air conditioner.

2. Company has launched 1.8 Tr. and 2.2 Tr. Star Series models in Split
Air conditioner category with 3.45 Coefficient of Performance (COP) which
is highest COP with Highest Cooling Capacity in its class.

3. Company has launched New 'KAZE' series specially for Tier II cities with
3 Star rating.

4. Company has upgraded 'ACE Followme' technology in its Premium segment
category.

5. Company has launched Window Air conditioner with 3 star rating. COP is
highest in its class.

Technology Absorption:

Your Company has successfully absorbed latest technology from Hitachi
Appliances Inc. Shimizu Plant.

1. Tropical Inverter Technology in Room Air conditioner category with many
unique patented subsystems and cycle components, use of 8 DC motor, make
it highest SEER machines.

2. Development of Water Cooled chiller with R-407C refrigerant with 0 ODP
(Ozone depletion potential).

3. Design and Development of standalone Free Cooling unit which can be used
in existing telecom sites and can use ambient cool air in winter season.
There is 30% saving in running cost.

Foreign exchange earnings and outgo during the year under consideration:

The required information in respect of Foreign Exchange Earnings and Outgo
has been given in the notes forming part of the Annual Report.