TVS Holdings Ltd

The directors have pleasure in presenting the fifty fourth annual report and the audited financial statements for the year ended 31st March 2016.

1. FINANCIAL HIGHLIGHTS

		(Rs. in Cr)
Details	Year ended 31.03.2016	Year ended 31.03.2015
Sales and other income	1517.17	1,401.11
Profit before finance cost and depreciation	235.78	178.05
Less: Finance Cost	32.83	36.88
Depreciation	54.95	59.82
Profit after finance cost and depreciation	148.00	81.35
Add : Exceptional Item (Income)	6.03	3.06
Profit before tax	154.03	84.41
Less: Provision for :
Income tax	12.00	9.50
Tax relating to earlier years	(1.57)	–
Deferred tax	4.00	3.75
Profit after tax	139.60	71.16
Surplus brought forward from previous year	103.23	77.63
Total	242.83	148.79
Appropriations:
First interim dividend paid	42.49	18.21
Second interim dividend paid	40.46	8.09
Third interim dividend payable	–	12.14
Dividend tax paid	0.06	–
Transfer to general reserve	–	7.12
Balance carried to Balance Sheet	159.82	103.23
Total	242.83	148.79

2. DIVIDEND

The board of directors of the Company at its meeting held on 9th February 2016, declared a first interim dividend of Rs.21/- per share (420%) for the year 2015-16, absorbing a sum of Rs.42.55 Cr. including dividend distribution tax. The same was paid to the shareholders on 20th February 2016. The board at its meeting held on 22nd March 2016, declared a second interim dividend of Rs.20/- per share (400%) for the year 2015-2016, absorbing a sum of Rs.40.46 Cr. The same was paid to the shareholders on 28th March 2016.

Hence, the total amount of both dividends paid for the year ended 31st March 2016 will aggregate to Rs. 41/- per share (820%) absorbing a sum of Rs.83.01 Cr on 2,02,32,085 equity shares of Rs.5/- each. The Company has set-off its dividend distribution tax payable under Section 115-O(1A) of the Income Tax Act, 1961 against the dividend distribution tax paid by one of its subsidiary company on its dividend declared to the extent available.

The board does not recommend any further dividend for the year under consideration.

3. PERFORMANCE

During the year 2015-16, the domestic macro-economic conditions largely remained consistent with that of the previous year. The Gross Domestic Product (GDP) registered a growth of 7.4% (2014-15: 7.3%). The Consumer Price Index (CPI) has been subdued at 4.9%.

Global economic environment continued to be weak and uncertain during 2015-16. In the US, the sluggish economy continued and consumer sales activity remained relatively tepid. The GDP in the US market registered a growth of 2.4% (2014:2.4%). The GDP in EU registered a growth of 1.5% (2014: 0.9%).

The following table highlights the performance of the Company during 2015-16:

	FY	FY	Variance
Particulars	2015-16	2014-15	(in %)
Sales (Tonnage)	45,675	44,065	3.6
Sale of goods (Rs. in Cr)	1,343.4	1,283.8	4.6
Domestic sales (Rs. in Cr)	796.5	752.9	5.8
Export sales (Rs. in Cr)	546.9	530.9	3.0
Profit before Tax (Rs. in Cr)	154.0	84.4	82.5

4. MANAGEMENT DISCUSSION AND ANALYSIS REPORT

I. Industry Structure and Development: Domestic

The segment wise performance in the Indian automotive industry is given in the following table.

	FY	FY	Variance
Category	2015-16	2014-15	(in %)
Two Wheelers	1,89,37,104	1,84,33,027	2.7
Passenger Vehicles	34,43,567	32,22,577	6.9
Commercial Vehicles	7,87,393	7,01,887	12.2

The Indian auto industry (domestic sales and exports) posted an overall growth of 3.5% (Source: SIAM). The industry's performance was muted during FY15-16 with motorcycle, tractor, light commercial vehicle and construction equipment segments remaining weak.

Exports

The following table highlights the North American and European truck registration figures in vehicle units: (in Nos)

		FY	FY	Variance
Market	Category	2015-16	2014-15	(in %)
North America	Class 8 Trucks	289,109	286,094	1.1
North America	Class 4-7 Trucks	234,736	216,785	8.3
Europe	Medium &
	Heavy trucks	270,099	226,117	19.5

Class 8 trucks reached the end of the cyclical upturn by mid of 2015. The sales and factory shipments declined by over 12% in the second half of the financial year.

II. Business Outlook and Overview

With no visible shift in the economic momentum, GDP growth rate in India for FY 2016-17 is likely to hover around 7.3% to 7.5%. A number of factors like low inflation, comfortable current account deficit (CAD), robust services growth, mild recovery in agriculture and supportive fiscal policy may help sustain growth rate at current levels.

In FY 2016-17, implementation of the seventh pay commission and government outlays under various schemes such as MUDRA, OROP are expected to support urban / semi-urban segments like passenger vehicle and two-wheeler. Rural demand will be contingent on healthy monsoon.

Given the economic outlook, the automobiles and auto-component sectors are expected to grow at similar levels in FY 2016-17.

Over the medium to long term, growth in the auto component industry is likely to be higher than the underlying automotive industry growth given the increasing localization by OEMs, higher component content per vehicle. Auto component export is another key growth driver. The "Make in India" pitch may further boost the growth of the component industry.

Globally, IMF continues to lower the GDP growth forecast. For 2016, the forecast has been reduced from 3.6% to 3.4%. Growth in advanced economies is expected to remain at 2.1%.

In the US, consumer spending and employment growth has been healthy, keeping the economy in the positive range. Instability in the financial markets may result in growth slipping to near recession conditions. Current data indicates that the US economy is continuing on its long-term, near 2% GDP growth rate.

The US truck market (Class 8) volumes are expected to significantly decline by over 20-25% in 2016. The market is expected to downshift to a lower, but more sustainable level.

The EU truck markets are expected to continue recovering in 2016 supported by gradually improving economic outlook. Lower fuel prices, credit availability and deferred replacement demand are all positive factors that are expected to support growth in 2016.

III. Opportunities & Threats

The Company supplies aluminum castings in machined condition for commercial vehicles, passenger cars and two wheeler segments of the automotive industry.

The revenue of the Company is derived from Medium & Heavy Commercial Vehicles (MHCV) (50%), followed by car industry (26%) and two wheeler industry (24%).

In the medium to long term, the projected growth of domestic auto industry, and ambitious export plans of the Indian OEMs are likely to benefit the Company.

In view of stringent emission norms and fuel economy regulations, the thrust towards light-weighting is bound to increase leading to higher content of aluminum in all vehicle types. The Company is well placed to leverage these emerging opportunities. This will provide for increased growth opportunities, since the company is already a preferred source for aluminum castings to major OEM's in India and abroad.

India is emerging as one of the major manufacturing hubs, thanks to availability of well-educated engineers, skilled workforce and good supply base.

Several Indian die casting companies and OEMs are either setting up new capacities or expanding existing capacities resulting in increased competition.

Intense competition makes it extremely difficult to seek price increases to compensate the effects of inflation bringing the margins under severe pressure. However, the Company's supply contracts provide for periodic price adjustments indexed to the international prices of aluminum and this should offer some protection against volatility of commodity prices.

IV. Risks and concerns Economy

There are possible risks on the horizon, both external and domestic. Spill-overs from weak global growth and potential global financial market volatility could be disruptive.

The international markets remain fragile. There are rising uncertainties concerning China's economy and its impact on both emerging and developed economies. After 2016, recession risks start to rise considerably.

Overall, globally downside risks continue to persist, reflecting global headwinds and geo-political uncertainty.

In India, delayed monsoon could pose challenges for rural growth. Uncertainties surrounding inflation path still remains (emanating from likely upturn in commodity prices, especially oil).

Industry specific

The Indian commercial vehicle industry has strong correlation with the agricultural growth, infrastructure development, the mining industry and is cyclical.

Competition has increased in the Indian market due to entry of new players and expansion plans of existing ones. The Company is aware of the increasing competition and is taking customer focused measures to remain competitive in the market place.

As no major economic recovery in China is expected, international prices of aluminum is expected to remain at levels witnessed in FY 2015-16.

Forex

With significant exports, import of raw materials and capital goods and foreign currency liabilities, the Company is always exposed to currency fluctuations. The Company has a well-defined forex hedging policy to mitigate the risks.

Contractual

The stipulation and requirements of the automobile industry demands high quality products. Robust quality management systems meeting international standards like TS 16949 are in place to ensure excellent product quality. However, appropriate recall and product liability insurance in line with standard industry practice have been taken.

Just-in-time delivery is another important contractual obligation. Robust quality and project management systems are in place to avoid delay in deliveries due to quality issues or project implementation.

Capacity utilization

The Company adds capacity to meet the projected demand of customers. The Company closely monitors the progress of customer projects / volumes and appropriately deploys the assets to protect from both underutilization and capacity shortages to meet the demand.

Risk Management Policy

The Board has established a Risk Management Policy which formalizes the Company's approach to overview and manage material business risks. The policy is implemented through a top down and bottom up approach identifying, assessing, monitoring and managing key risks across the Company's business units.

Risks and effectiveness of their management are internally reviewed and reported regularly to the Board. The Management has reported to the Board that the Company's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

The board is satisfied that there are adequate systems and procedures in place to identify, assess, monitor and manage risks. The Audit Committee also reviews reports by members of the management team and recommends suitable action. Risk Mitigation Policy has been approved by the board.

V. Internal control systems and their adequacy

The Company has a proper and adequate internal control system to ensure that all the assets of the Company are safeguarded and protected against any loss and that all the transactions are properly authorized and recorded. Information provided to management is reliable and timely. Company ensures adherence to all statutes.

Internal Financial Controls

The Company has an established Internal Financial Control framework including internal controls over financial reporting, operating controls and anti-fraud framework. The framework is reviewed regularly by the management and tested by internal audit team and presented to the audit committee. Based on periodical testing, the framework is strengthened, from time to time, to ensure adequacy and effectiveness of Internal Financial Controls.

VI. Operations Review A. Manufacturing

The Company has been using Total Quality Management (TQM) as the foundation of its management. The Company implemented the best practices like Total Productivity Management (TPM) and Lean Manufacturing in its manufacturing facilities. It also has in place best-in-class practices for safety, pollution control, work environment, water and energy conservation.

Continuous improvement projects are implemented to improve the product quality and productivity in all the manufacturing locations. The Company's journey of achieving manufacturing excellence was recognized and rewarded by the following customers during FY 2015-16.

• Hyundai	- Award for disaster management
• Cummins	- Best supplier - Six Sigma category
• Daimler	- Special award for globally competitive supplies
• DAF-PACCAR	- Certificate of honor for excellent PPM

B. Quality

Achieving customer delight by consistently providing products of excellent quality is the prime motto of the Company. This is achieved through state-of-art technology, training, effective quality system, continuous improvement and total employee involvement.

Poka-yokes, process audits, use of statistical tools for process optimization and online process controls also contribute towards improving and achieving consistency in product quality. The quality system is certified for ISO/ TS 16949 requirements.

TQM is a way of life in the Company. 100% employee involvement has been successfully achieved for many years.

Employees have completed 733 projects by applying statistical tools through Quality Control Circles (QCC) in 2015-16. The average number of suggestions implemented per employee was 42.

C. Cost Management

Cost management is a continuous journey and the Company manages the same through deployment of costs across all departments. A cross functional team is working on projects focussed on Value Added / Value Engineering (VA/VE) and operational efficiency. TPM and lean initiatives are deployed Company-wide to achieve reduction in manufacturing cost.

D. Information Technology

The Company uses ERP system that integrates all business processes across the Company. Suppliers and customers are also integrated into the system for better planning and execution. During the year, several dashboards were added to improve the productivity, quality and reduce the cost of operations. Projects were also implemented to further enhance the Information Security.

VII. Human Resource Development

The Company considers employees as vital and most valuable assets. Human Resource Development (HRD) is aligned to business needs to enhance business performance and results. HRD is practised through an overall HRD framework with its constituents as resourcing, employee engagement, performance & compensation management, competency based development, career & succession planning and organization development. Each of these constituent has a structured approach and process to deliver.

As a part of the long term strategies of the Company, collaborative education program has been initiated with three reputed institutes to develop role-ready engineers with Company-specific knowledge at the entry level.

Career development workshop is conducted to identify high potential employees. Such employees are groomed for taking up higher responsibilities. A reward and recognition system is in place to motivate and also provide fast track growth for the high potential employees.

Our engineers and executives are sponsored for advanced study offered by both Indian and foreign institutions. Customized technical and leadership competency improvement programs are developed and delivered through reputed institutions.

The Company continuously measures and reports employee engagement every year and identifies improvement areas to work on. An excellent industrial relations environment continues to prevail at all the manufacturing units of the Company.

As on 31st March 2016, the Company had around 2,255 employees on its rolls.

VIII. Environment & Safety

The Company is fully committed to the ultimate goal of employee safety. Safety management is integrated with the overall Environment, Health and Safety (EHS).

The Company has been certified under Integrated Management System (IMS) combining ISO 14001 and OHSAS 18001 systems and procedures.

Cautionary statement

Statements in the management discussion and analysis report describing the Company's objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas market in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

5. DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 134(5) of the the Act 2013, with respect to Directors' Responsibility Statement, it is hereby stated -

i. that in the preparation of annual accounts for the financial year ended 31st March 2016, the applicable Accounting Standards had been followed and that there were no material departures;

ii. that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that were 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 profit of the Company for the year under review;

iii. that the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. that the directors had prepared the accounts for the financial year ended 31st March 2016 on a "going concern basis";

v. that the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and vi. that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

6. CORPORATE SOCIAL RESPONSIBILITY (CSR)

CSR activities have already been textured into the Company's value system through Srinivasan Services Trust (SST), the CSR arm of the Company, established by the group companies in 1996 with the vision of building self-reliant rural community.

Over 20 years of service, SST has played a pivotal role in changing lives of people in rural India by creating self-reliant communities that are models of sustainable development.

The Company is eligible to spend on their ongoing projects / programs, falling within the CSR activities specified under the Act, 2013, as mandated by the Ministry of Corporate Affairs for carrying out the CSR activities.

The Committee formulated and recommended a Corporate Social Responsibility Policy in terms of Section 135 of the Act, 2013, along with a list of projects / programmes to be undertaken for CSR spending in accordance with the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Based on the recommendation of the CSR Committee, the board has approved the projects / programs carried out as CSR activities by SST, having a track record of more than the prescribed years in undertaking similar programmes / projects.

During the year 2015-16, the Company had spent Rs.47 Lakhs, constituting more than 2% of average net profits, for the immediate past three financial years, towards CSR activities through SST.

Presently, SST is working in 3,449 villages spread across Tamil Nadu, Karnataka, Maharashtra, Himachal Pradesh and Andhra Pradesh covering about 20,90,000 population and 4,63,500 families. Its major focus areas are Economic development, health care, quality education, environment and infrastructure.

Of the 3,449 villages, 2,654 villages (16,72,620 population and 3,67,170 families) have been funded by the Company during the year.

Achievements in 2,654 villages are:

Economic development:

• 2,27,667 families living in these villages have a monthly income of above Rs.15,000/-. They have financial security.

• 1880 farmers groups have been formed with 31,323 members.

• Improved agriculture practices enabled 1,51,862 farmers owning 1,64,124 hectares to increase the yields than the state average by 15%.

• 1,36,050 families earn more than Rs 3,500/- per month through livestock.

Women empowerment:

• Formed 7,064 Self Help Groups. These groups have 1,06,720 women as members.

• Of the 1,06,720 members, 99,170 members are in income generation activities. They earn a minimum income of Rs. 2,500/- per month.

Health care:

• 60,512 children in the age group below 5 are not malnourished.

• 2,75,970 women are freed from anemia.

• 2,32,436 households made access to toilet facilities.

• The morbidity percentage reduced from 9% to 5%.

• Enrolment in anganwadis increased from 86% to 100% and attendance is 99%.

• 1,073 anganwadis have met all the Integrated Child Development Services Scheme (ICDS) standards.

• 88% involvement of mother volunteers in the functioning of anganwadis. They volunteer their time to ensure proper functioning.

Quality education:

• 100% enrolment of children in schools. There are no drop outs in the schools.

• Number of percentage of slow learners reduced in schools from 27% to 14%.

• Out of 1,204 schools, 807 schools are now model schools.

• 73,345 illiterate women out of 1,18,872 have been made literates.

Environment and Infrastructure:

• 2,14,120 households dispose solid waste through individual and common compost pits. 82 tons of vermi compost generated per month from wastes.

• Sewage water from 2,18,234 households disposed through soak pits, kitchen gardens and drain.

• Safe drinking water is available to 2,137 villages.

Community takes care of their development needs. 5,302 social leaders are active in this effort.

As required under Section 135 of the Act, 2013 read with Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, the annual report on CSR containing the particulars of the projects / programmes approved and recommended by CSR Committee and approved by the board for the financial year 2015-16 are given by way of Annexure IV attached to this Report.

7. FINANCIAL PERFORMANCE & POSITION OF SUBSIDIARIES & ASSOCIATE COMPANIES

The following are the subsidiaries and associates of the Company:

Name of the Company	Status
TVS Motor Company Limited	Subsidiaries of
Sundaram-Clayton (USA) Limited	Sundaram-Clayton Limited
Sundaram Auto Components Limited
TVS Housing Limited
TVS Motor Company (Europe) B.V.
TVS Motor (Singapore) Pte. Limited	Subsidiaries of
PT. TVS Motor Company Indonesia	TVS Motor Company Limited
Sundaram Business Development
Consulting (Shanghai) Company
Limited
Sundaram Holding USA Inc.	Subsidiary of Sundaram Auto
	Components Limited
TVS Training and Services Limited
Sundram Non-Conventional Energy	Associates of
Systems Limited	Sundaram-Clayton Limited
Emerald Haven Realty Limited

SUBSIDIARIES

TVS Motor Company Limited (TVSM)

TVS Motor Company Limited is engaged in the business of manufacture of two and three wheelers. During the year 2015-16, TVSM achieved a turnover of Rs. 11,295 Cr and earned a profit after tax of Rs. 432 Cr during the year 2015-16.

TVSM declared a first interim dividend of Re.1/- per share (100%) for the year 2015-16 absorbing a sum of Rs. 55.65 Cr including dividend distribution tax. It also declared a second interim dividend of Rs. 1.50 per share (150%) for the year 2015-16 absorbing a sum of Rs. 85.07 Cr including dividend distribution tax.

Hence, the total amount of both dividends for the year ended 31st March 2016 aggregated to Rs.2.50 per share (250%) on 47,50,87,114 equity shares of Re.1/- each.

Sundaram-Clayton (USA) Limited

Sundaram-Clayton (USA) Limited, a wholly owned subsidiary of the Company is engaged in the business of providing Professional Employer Organisation ("PEO") services to the employees of the Company. The Company earned revenue of USD 10,137 and net income after adjustment of expenses amounted to USD 319 for the year ended 31st March 2016.

Sundaram Auto Components Limited (SACL)

During the year, SACL, a wholly owned subsidiary of TVSM, achieved a turnover of Rs.2737 Cr including Rs.491 Cr in Plastics Component business. SACL earned a profit after tax of Rs.28.64 Cr during the year 2015-16.

SACL increased its customer base by addition of new customers for manufacture of cluster components and heating, ventilating and air-conditioning parts.

SACL productionized 314 new parts for various customers. SACL received the following awards:

• "Outstanding Supplier for achieving Delivery Target" from TOYODA GOSEI

• "Q1" certification from FORD India

• "SQ mark" certification from Hyundai Motors India Ltd.

• "Best Supplier Kaizen award" from India Japan Lighting Pvt. Ltd.

SACL on 24th December, 2015, declared a first interim dividend of Rs.4.00 per share (40%) for the year 2015-16 absorbing a sum of Rs.5.56 Cr including dividend distribution tax.

SACL again on 7th March, 2016 declared a second interim dividend of Rs.3.00 per share (30%) for the year 2015-16 absorbing a sum of Rs.4.18 Cr including dividend distribution tax.

Hence, the total amount of both dividends paid for the year ended 31st March, 2016 aggregates to Rs.7.00 per share (70%) thereby absorbing a sum of Rs.9.74 Cr, including dividend distribution tax.

TVS Housing Limited (TVSH) - Subsidiary / Emerald Haven Realty Limited (EHRL) - Associate

EHRL is the developer of the Nedungundram, Chennai project of TVSH. Phase 1 was developed as apartments and Phase 2 was launched as villas and row houses. As of 31st March 2016, all the 448 apartments have been sold and customers have taken possession of the apartment. Despite the tough real estate market condition in Chennai, the response for the villa and row house have been quite good. As the phase 2 is nearing completion, the Company has already sold about 90% of the units. The Company is confident that the remaining units would be sold during 2016-17.

PT. TVS Motor Company Indonesia (PT. TVSM)

During 2015-16, motorcycle industry in Indonesia declined by 12% (from 7.6 million units in 2014-15 to 6.6 million units in 2015-16). The decline was mainly due to lower economic growth and weak consumer sentiments due to subdued commodity prices and further tightening of credit. While the bebek segment declined by 33%, sports motorcycle segment went down by 23%. The scooter category marginally declined by 5%. Within 2 wheelers, the scooter segment continued to dominate with a category share of 75%.

During the year, PT. TVSM launched the 110 cc Dazz scooter with Fuel Injection System in Indonesian market. It also launched the new

Apache 200 cc sports motorcycle. PT. TVSM continued its focus on exports to ASEAN and African countries. PT. TVSM commenced its exports to Latin American market by entering Colombia.

The decline in two wheeler industry resulted in lower domestic sales during 2015-16. PT. TVSM sold total of 17,100 vehicles as against 23,300 vehicles sold in the previous year. However, the focus on ASEAN and African markets helped PT. TVSM to export 15,000 no's, registering an increase of 4% over the previous year. The EBITDA loss for the year of 6.8 Mn USD is marginally lower than EBITDA loss of 7.7 Mn USD OF 2014-15. Focus during 2016-17 will be to build on the portfolio and substantially reduce the EBITDA loss.

TVS Motor Company (Europe) B.V & TVS Motor (Singapore) Pte. Limited

TVSM had earlier incorporated both these entities with a view to serve as special purpose vehicles for making and protecting the investments made in overseas operations of PT. TVSM.

Sundaram Business Development Consulting (Shanghai) Company Limited (SBDC)

SBDC was initially established to explore options of sourcing auto components and local assembly of two wheelers etc., in China. After a complete review, board felt that it may not be viable to carry out manufacturing activities in China and therefore steps were taken for closure of operations of SBDC. All required formalities were completed in April 2016. Hence in the books a provision of Rs.1.07 Cr has been made for diminution in the value of investments.

Sundaram Holding USA Inc.,

The Company made an investment of USD 250 consisting of 250 shares with face value of USD 1 each in Sundaram Holding USA Inc., (SHUI) constituting 25% of its paid up share capital. SHUI was incorporated under the applicable provisions of laws of United States of America for carrying out the business of the Company in USA.

SACL, another subsidiary of the Company has also invested USD 750 consisting of 750 shares with face value of USD 1 each in SHUI constituting 75% of its paid up share capital.

Hence, SHUI became the subsidiary of SACL effective 9th September 2015, and thereby the subsidiary of the Company by virtue of the provisions of Section 2(87) of the Act, 2013.

ASSOCIATES

TVS Training and Services Limited (TVS TSL)

TVS TSL is engaged in the business of establishing and providing vocational training services to various industries and is participating in the National Skill Development Projects. During the year the Company earned an income of Rs. 12.65 Cr and profit after tax for the year ended 31st March 2016 was Rs.0.36 Cr.

Sundram Non-Conventional Energy Systems Limited (SNCES)

SNCES is engaged in the business of generation of power. During the year the Company earned revenue of Rs. 2.71 Cr and profit after tax was Rs.1.41 Cr.

Financial position of all subsidiaries and associate companies are provided as part of consolidated financial statements in Form AOC-1 in the manner required under Section 129 read with the Companies (Accounts) Rules, 2014 of the Act, 2013.

8. CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of the Company are prepared in accordance with the provisions of Section 129 of the Act, 2013 read with the Companies (Accounts) Rules, 2014 and Regulation 33 of SEBI (LODR) Regulations, 2015 along with a separate statement containing the salient features of the financial performance of subsidiaries / associates, in the prescribed form. The audited consolidated financial statements together with auditor's report forms part of the Annual Report. The audited financial statements in respect of each of its subsidiary companies will be made available to the shareholders, on receipt of a request from any shareholder of the Company and it has also been placed on the website of the Company. This will also be available for inspection by the shareholders at the registered office during the business hours.

The consolidated profit after tax of the Company and its subsidiaries & associates amounted to Rs. 408.24 Cr for the financial year 2015-16 as compared to Rs. 345.19 Cr in the previous year.

9. DIRECTORS & KEY MANAGERIAL PERSONNEL

Independent Directors (IDs)

At the annual general meeting held on 21st August 2014, M/s. Vice Admiral P J Jacob (Retd.), V Subramanian, S Santhanakrishnan, R Vijayaraghavan and Kamlesh Gandhi, were appointed as IDs for the first term of five consecutive years from the conclusion of the fifty second AGM , not liable to retire by rotation, and to receive remuneration by way of fees, reimbursement of expenses for participation in the meetings of the board and / or committees and profit related commission in terms of applicable provisions of the Act 2013, within the overall limit, as determined by the board from time to time.

On appointment, each ID has acknowledged the terms of appointment as set out in their letters of appointment. The appointment letter covers, interalia, the terms of appointment, duties, remuneration and expenses, rights of access to information, other directorships, dealing in Company's shares, disclosure of Director's interests, insurance and indemnity. The IDs are provided with copies of the Company's policies and charters of various committees of the board.

Mr Suresh Kumar Sharma, an independent director of the Company, ceased to be a director of the Company with effect from 23rd March 2016, due to his sad and untimely demise. The board placed on record its appreciation for the outstanding contribution made by

Mr Suresh Kumar Sharma during his tenure as director of the Company.

As required under the provisions of Companies Act, 2013, the board proposed the appointment of Mr R Gopalan as Non-executive Independent director for approval of shareholders through process of postal ballot.

In accordance with Section 149(7) of the Act, 2013, all IDs have declared that they met the criteria of independence as provided under Section 149(6) of the Act, 2013.

The detailed terms of appointment of IDs is disclosed on the Company's website in the following link http://www.sundaram-clayton.com/ Web%20files/Terms%20of%20IDs.pdf.

Separate meeting of Independent Directors (IDs)

The IDs were fully kept informed of the Company's activities in all its spheres. During the year under review, a separate meeting of IDs was held on 14th March, 2016 and the IDs reviewed the performance of: (i) non-IDs viz., M/s Venu Srinivasan, Chairman and Managing Director, Dr. Lakshmi Venu and Sudarshan Venu, Joint Managing Directors, K Mahesh, T K Balaji and Gopal Srinivasan, Directors; and (ii) the board as a whole.

They also reviewed the performance of Chairman after taking into account the views of Executive and Non-Executive Directors.

They also assessed the quality, quantity and timeliness of flow of information between the Company's Management and the Board that are necessary for the Board to effectively and reasonably perform their duties. All the IDs were present at the meeting.

Woman director

In terms of Section 149 of the Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014 and Regulation 17 of SEBI (LODR) Regulations, 2015, the Company is required to have a woman director on its board.

Dr Lakshmi Venu, joint managing director, is already on the board of the Company as a director from 22nd March, 2010 and hence, the Company fulfills the requirement of the Act, 2013 and SEBI (LODR) Regulations, 2015 regarding the appointment of woman director on the board of the Company.

Non-executive and non-independent directors (NE-NIDs)

In terms of the provisions of sub-section (6) read with explanation to Section 152 of the Act 2013, two thirds of the total number of directors i.e., excluding IDs, are liable to retire by rotation and out of which, one third are liable to retire by rotation at every AGM.

Mr Gopal Srinivasan and Mr T K Balaji, directors are liable to retire by rotation, at the AGM, and being eligible, offer themselves for re-appointment.

The directors, therefore, recommend their re-appointment as directors of the Company.

Key Managerial Personnel (KMP)

In terms of Section 2(51) and Section 203 of the Act, 2013, Mr Venu Srinivasan, Chairman and Managing Director, Dr. Lakshmi Venu, Joint Managing Director, Mr C N Prasad, President & Chief Executive Officer, Mr V N Venkatanathan, Chief Financial Officer and Mr R Raja Prakash, Company Secretary are KMP of the Company.

Nomination and Remuneration Policy

The Nomination and Remuneration Committee of Directors (NRC) reviews the composition of the board, to ensure that there is an appropriate mix of abilities, experience and diversity to serve the interests of all shareholders and the Company.

In accordance with the requirements under Section 178 of the Act, 2013, Nomination and Remuneration Policy was formulated to govern the terms of nomination / appointment and remuneration of (i) Directors, (ii) KMP and (iii) Senior Management Personnel (SMP) of the Company. The same was approved by the board at its meeting held on 24th September 2014. There is no change in the policy during the year under review.

The NRC also reviews succession planning of both SMP and board. The Company's approach in recent years is to have a greater component of performance linked remuneration for SMP.

The process of appointing a director / KMP / SMP is, that when a vacancy arises, or is expected, the NRC will identify, ascertain the integrity, qualification, appropriate expertise and experience, having regard to the skills that the candidate will bring to the Board / Company, and the balance of skills added to that of which the existing members hold. The NRC will review the profile of persons and the most suitable person is either recommended for appointment by the board or is recommended to shareholders for their election. The NRC has discretion to decide whether qualification, expertise and experience possessed by a person are sufficient / satisfactory for the concerned position.

The NRC will ensure that any person(s) who is / are appointed or continues in the employment of the Company as its executive chairman, managing director, whole-time director shall comply with the conditions as laid out under Part I of Schedule V to the Act 2013. The NRC will ensure that any appointment of a person as an independent Director of the Company will be made in accordance with the provisions of Section 149 read with Schedule IV to the Act, 2013 alongwith any other applicable provisions and SEBI (LODR) Regulations, 2015.

Criteria for performance evaluation, disclosures on the remuneration of directors, criteria of making payments to non-executive directors have been disclosed as part of Corporate Governance Report attached herewith.

Evaluation of the board, committees and directors

In terms of Section 134 of the Act 2013 and the Corporate Governance requirements as prescribed under SEBI (LODR) Regulations, 2015, the board reviewed and evaluated its own performance from the perspectives of Company’s performance, strategy and implementation, risk management and corporate ethics, based on the evaluation criteria laid down by the NRC.

Board

The board discussed and assessed its own composition, size, mix of skills and experience, its meeting sequence, effectiveness of discussion, decision making, follow up action, quality of information and the performance and reporting by the Committees viz., Audit Committee, NRC, Stakeholders Relationship Committee (SRC) and Corporate Social Responsibility Committee (CSR).

The board upon evaluation concluded that it is well balanced in terms of diversity of experience encompassing all the activities of the Company. The Company endeavours to have a diverse board representing a range of experience at policy-making levels in business and technology, and in areas that are relevant to the Company's global activities.

The board also noted that corporate responsibility, ethics and compliance are taken seriously, and there is a good balance between the core values of the Company and the interests of stakeholders. The board satisfied with the Company's performance in all fronts viz., new product development, operations, sales and marketing, finance management, international business, employee relations and compliance with statutory / regulatory requirements and finally concluded that the board operates effectively and is closely aligned to the culture of the business.

Directors

The performance of individual directors including all Independent Directors are assessed against a range of criteria such as contribution to the development of business strategy and performance of the Company, understanding the major risks affecting the Company, clear direction to the management and contribution to the board cohesion. The performance evaluation has been done by the entire board of directors, except the director concerned being evaluated.

The board noted that all directors have understood the opportunities and risks to the Company's strategy and are supportive of the direction articulated by the management team towards consistent improvement.

Committees

The performance of each committee was evaluated by the board after seeking inputs from its members on the basis of the criteria such as matters assessed against terms of reference, time spent by the committees in considering matters, quality of information received, work of each committee, overall effectiveness and decision making and compliance with the corporate governance requirements and concluded that all the committees continued to function effectively, with full participation by all its members and the members of executive management of the Company.

The board reviewed each committee's terms of reference to ensure that the Company's existing practices remain appropriate. Recommendations from each committee are considered and approved by the board prior to implementation.

Number of board meetings held

The number of board meetings held during the financial year 2015-16 are provided as part of Corporate Governance Report prepared in terms of the SEBI (LODR) Regulations 2015.

10. AUDITORS

Statutory Auditors

The Company at its AGM held on 21st August 2014 appointed M/s Sundaram & Srinivasan, Chartered Accountants, Chennai, having Firm Registration No. 004207S allotted by The Institute of Chartered Accountants of India, as statutory auditors of the Company to hold office, for the transitional period of three consecutive years from the conclusion of the said AGM, subject to ratification at every AGM, at such remuneration in addition to all applicable taxes, out of pocket expenses, travelling and other expenses as may be mutually agreed between the Board and the Auditors.

The Auditors' Reports for the financial year 2015-16 does not contain any qualification, reservation or adverse remark and the same is attached with the annual report.

It is therefore proposed to re-appoint them as statutory auditors for the last year in the transitional period of three consecutive years, from the conclusion of this AGM, subject to ratification by the members at the AGM.

The Company has obtained necessary certificate under Section 141 of the Act 2013 conveying their eligibility for being statutory auditors of the Company for the year 2016-17.

Cost Auditor

As per Section 148 of the Act, 2013, read with the Companies (Cost Records and Audit) Rules 2014, as amended, the cost audit records maintained by the Company in respect of its engine parts, manufactured by the Company specified under Central Excise Tariff Act heading in Table B to Rule 3 of the above rules, are required to be audited by a Cost Auditor.

In terms of the Companies (Cost Records and Audit) Amendment Rules, 2014, the board, subject to the approval of the Central Government, has re-appointed Mr A N Raman, Cost Accountant holding Certificate of practice No. 5359 allotted by The Institute of Cost Accountants of India, as a Cost Auditor for conducting Cost Audit for the financial year 2016-17.

The Company has also received necessary certificate under Section 141 of the Act 2013 from him conveying his eligibility. A sum of Rs 3.00 lakhs has been fixed by the board as remuneration in addition to reimbursement of all applicable taxes, travelling and out-of-pocket expenses payable to him for the financial year 2016 -17 and is also required to be ratified by the members at the ensuing general meeting as per Section 148(3) of the Act 2013.

Secretarial Auditor

As per Section 204 of the Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Company is required to appoint a Secretarial Auditor for auditing secretarial and related records of the Company.

The Secretarial Audit Report for the year 2015-16, given by Ms B Chandra, Practising Company Secretary, Chennai for auditing the secretarial and related records is attached to this report. The Secretarial Audit Report does not contain any qualification, reservation or other remarks.

Ms B Chandra, Practising Company Secretary, Chennai, was reappointed as Secretarial Auditors for carrying out the secretarial audit for the financial year 2016-17.

11. CORPORATE GOVERNANCE

The Company has been practicing the principles of good governance over the years and lays strong emphasis on transparency, accountability and integrity.

A separate section on Corporate Governance and a certificate from the statutory auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under SEBI (LODR) Regulations, 2015, forms part of this Annual Report.

The chairman and managing director and the chief financial officer of the Company have certified to the board on financial statements and other matters in accordance with Regulation 17 (8) of the SEBI (LODR) Regulations 2015 pertaining to CEO/CFO certification for the financial year ended 31st March 2016.

12. POLICY ON VIGIL MECHANISM

The Company has adopted a Policy on Vigil Mechanism in accordance with the provisions of Companies Act, 2013 and Regulation 22 of SEBI (LODR) Regulations 2015, which provides a formal mechanism for all directors, employees and other stakeholders of the Company to report to the management, their genuine concerns or grievances about unethical behaviour, actual or suspected fraud and any violation of the Company's Code of conduct or ethics policy.

The policy also provides a direct access to the Chairperson of the Audit Committee to make protective disclosures to the management about grievances or violation of the Company's Code of Conduct.

The policy is disclosed on the Company's website in the following link http://www.sundaram-clayton.com/Web%20files/Investors/Whistle% 20Blower%20Policy.pdf.

13. PUBLIC DEPOSITS

The Company has not accepted any deposit from the public within the meaning of Section 76 of the Act, 2013, for the year ended 31st March 2016.

14. STATUTORY STATEMENTS

Information on conservation of energy, technology absorption, foreign exchange, etc.,

Information on conservation of energy, technology absorption and foreign exchange earnings and outgo are given in Annexure I to this report, in terms of the requirements of Section 134(3)(m) of the Act, 2013, read with the Companies (Accounts) Rules 2014.

Material changes and commitments

There have been no material changes and commitments affecting the financial position of the Company, which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report.

Significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of the Company

There are no significant and material orders passed by the regulators or courts or tribunals, which would impact the going concern status of the Company and its future operations.

Annual Return

Extract of Annual Return in the prescribed form is given as Annexure II to this report, in terms of the requirement of Section 134(3)(a) of Act, 2013, read with the Companies (Accounts) Rules, 2014.

Employee's remuneration

Details of employees receiving the remuneration in excess of the limits prescribed under Section 197 of the Act, 2013, read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure III. In terms of first proviso to Section 136(1) of the Act, 2013, the Annual Report, excluding the aforesaid annexure is being sent to the shareholders of the Company. The annexure is available for inspection at the Registered Office of the Company during business hours and any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Company.

Comparative analysis of remuneration paid

A comparative analysis of remuneration paid to Directors and employees with the Company's performance is given as Annexure V to this report.

Details of related party transactions

There were no material related party transactions under Section 188 of the Act 2013 read with Companies (Meetings of Board and its Powers) Rules, 2014.

Details of loans / guarantees / investments made

During the year under review, the Company had not granted any loans or guarantees covered under Section 186 of the Act 2013.

Please refer note Number IX to Notes on accounts for the financial year 2015-16, for details of investments made by the Company.

Other laws

During the year under review, the Company has not received any complaints of sexual harassment from any of the women employees of the Company in terms of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

15. ACKNOWLEDGEMENT

The directors gratefully acknowledge the continued support and co-operation received from the promoters of the Company, viz., T V Sundram Iyengar & Sons Private Limited, Southern Roadways Limited, Sundaram Industries Private Limited and Sundaram Finance Limited. The directors thank the vehicle manufacturers, vendors and bankers for their continued support and assistance.

The directors wish to place on record their appreciation of the continued excellent work done by all the employees of the Company during the year.

The directors specially thank the shareholders for their continued faith in the Company.

	For and on behalf of the board
Chennai	VENU	SRINIVASAN
12th May 2016		Chairman