Annual Report HMT MTL 2010-11

8/12/2019 Annual Report HMT MTL 2010-11

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Annual Report 2010-2011

HMT MACHINE TOOLS LIMITED

CONTENTS

Board of Directors ............................................................................................................................. 2

Peformance Highlights ........................................................................................................................ 3

Directors Report ............................................................................................................................. 4

Auditors Report ........................................................................................................................... 19

Comments of C & AG ........................................................................................................................ 24

Significant Accounting Policies .......................................................................................................... 25

Balance Sheet ...........................................................................................................................28

Profit & Loss Account ........................................................................................................................ 29

Schedules and Notes Forming Part of the Accounts ......................................................................... 30

Cash Flow Statement ........................................................................................................................ 50

Additional Information as required under

Part IV of Schedules VI to the Companies Act, 1956 ......................................................................... 51


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BOARD OF DIRECTORS

Shri G. K. Pillai Chairman, (w.e.f. 28-12-2010)Managing Director I/c (w.e.f. 01-01-2011)

Shri A. V. Kamat Chairman (upto 27/12/2010)

Shri Harbhajan Singh Director

Shri Ashok Gupta Special Director (BIFR) (w.e.f. 8-12-2010)

Shri P. Ganeshan Special Director (BIFR) (upto 15-9-2010)

Shri S. G. Sridhar Director (w.e.f. 05-5-2011)

Shri K. H. Suresh Director (Technology) (upto 12-8-2011)

AUDITORS

M/s. A. Raghavendra Rao & AssociatesChartered Accountants

Bangalore

BANKERS

UCO BankPunjab National BankAndhra BankState Bank of Travancore

REGISTERED OFFICE

HMT BHAVAN59, Bellary RoadBangalore 560 032


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PERFORMANCE HIGHLIGHTS

2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02

OPERATING STATISTICS

Sales 20902 20962 20060 26521 25661 24218 23343 19821 22998 26409

Other Income 1442 2346 3125 2012 6779 16253 5686 1477 2264 2892

Materials 7108 7602 8125 9001 9445 10488 10539 7600 7997 8962

Employee Costs 15248 12410 13754 15901 25793 17960 13627 12939 13208 13614

Other Costs 5506 4942 5435 6704 6428 7051 6957 6284 6677 6476

Depreciation 985 788 565 388 425 515 562 583 627 664

Earning Before Interest -8529 -3,841 -3907 -4380 -11491 5577 -1424 -6291 -5558 -3017

Interest 777 739 -250 -387 3434 6180 5956 5617 4647 4048

Earnings /(Loss) Before Tax -9306 -4580 -3657 -3993 -14925 -603 -7380 -11908 -10205 -7065

Taxation - - 60 57 53 53 - - - -

Net Earnings -9306 -4580 -3717 -4050 -14978 -656 -7380 -11908 -10205 -7065

FINANCIAL POSITION

Net Fixed Assets 9382 9432 7375 4132 3038 2842 3488 4005 4530 4900

Current Assets 21672 25521 31448 40179 41236 24614 24882 24233 26287 30271

Current Liabilities & Provisions 29570 26857 27059 27797 28771 30441 25479 27233 27524 22050Working Capital -7898 -1336 4389 12382 12465 -5827 -597 -3000 -1237 8221

Capital Employed 1484 8096 11764 16514 15503 -2985 2891 1005 3293 13121

Investments - - - - - - 1 1 1 -

Miscellaneous Expenditure 4 6 8 643 250 13747 16577 18834 21653 19832

Borrowings 12675 9983 9073 10740 7448 56024 64574 57565 50764 48552

Net Worth -11191 -1887 2691 5773 8056 -59008 -61682 -56559 -47470 -35432

OTHER STATISTICS

Capital Expenditure 988 2893 3809 710 625 25 46 72 316 226

Internal Resources Generated -8321 -3792 -3152 -3662 -14553 -141 -6818 -11325 -9578 -6401

Working Capital Turnover Ratio -3 -15.69 4.57 2.14 2.06 -4.16 -39.10 -6.61 -18.59 3.21

Current Ratio 1 0.95 1.16 1.45 1.43 0.81 0.98 0.89 0.96 1.37

Return on Capital (%) -1 -2.17 -3.80 -3.95 -0.42 0.07 -0.26 -0.18 -0.80 -1.76

Employees (Nos) 3652 3808 3826 4188 4236 4386 4531 4714 4604 5054

Per capita Sales 5.72 5.50 5.24 6.33 6.06 5.52 5.15 4.20 5.00 5.23

(` in Lakhs)


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DIRECTORS REPORT

Your Directors have pleasure in presenting the Twelfth

Annual Report of your Company for the financial year 2010-

11 containing Annual accounts together with the Auditors

report and the comments by the Comptroller and Auditor

General of India.

PERFORMANCE

Your Company achieved Sales turnover of`190.90 Cr.

during the year 2010-11 which is marginally lower as

compared to`193.86 Cr. achieved during the previous year.

The production performance was lower for the year under

review, at`177.43 Cr. as against `194.19 Cr. achieved

during the previous year. The Order Booking during 2010-

11 was significantly higher at`239.71 Cr. as against`177.80

Cr. in the previous year. The Directors of the Company

expressed its concern that the performance of the Company

requires to be accelerated so as to achieve the breakeven

levels in the Financial year 2011-12.

FINANCIAL HIGHLIGHTS

The operations of your Company resulted in a Net loss of`93.06 Cr. as compared to the Loss of`45.80 Cr. registered

in the previous year, the details of which are as follows:

(` in Lakhs )

Current Previous

Earnings Year Year

2010-2011 2009-2010

Production 17743 19419

Sales 19090 19386

Sale value of Production 17703 18677

Added Value 10595 11075

Gross Profit before

Interest & Taxes -8537 -3840

Interest 1104 1244

Net Profit/(Loss) before DRE -9306 -4580

Def. Revenue Expenditure/VRS - -

Income from NPA Sale - -

Net Profit/ (loss) after tax -9306 -4580

DIVIDEND

In view of the losses incurred during the year, your Directors

are unable to recommend any Dividend on the Paid up Equity

Share Capital and Preference Share Capital of the Company

for the Financial year under review.

SHARE CAPITAL

The Authorized capital of your Company stood at`800 Cr.

divided in to Equity Share Capital for`355 Cr. and Preference

Share Capital for`445 Cr. The Issued, Subscribed and

Paid up Share Capital of your Company stood at

`719,59,91,370/- consisting of 27,65,99,137 Equity Shares

of`10/ each and 4,43,00,000 Preference Shares of `100/

- each which is entirely held by HMT Limited, the Holding

Company. The Networth of the Company is negative at

`(-) 11191 Lakhs at the end of the year due to accumulated

losses.

Your Company was to repay`443 Cr. to the Government of

India through M/s HMT Limited against redemption of

Preference Share Capital by 31st March, 2011 out of sale

of identified surplus asset, in line with the revival plan

sanctioned by GOI and the rehabilitation scheme

sanctioned by the BIFR. The redemption of Preference

Share Capital could not take place as the Lands, though

vested with the Company vide the Scheme of Arrangement

of Government of India in the year 2001, the mutuation in

respect of the same has not been recorded in the name of

the Company in the revenue records and continue to be in

the name of HMT Limited, the Holding Company. The sale

of surplus lands of the Company for the purposes of

redemption of Preference Share capital is being included

in the revival plans of the Holding Company and would be

taken up after the approval and sanction of the same bythe GoI. The Honble Bench of the BIFR has also been

intimated about the status in this regard. Your Company

has also requested the Government for extension of period

of redemption of Preference Shares upto 31stDecember

2011.

IMPLEMENTATION OF BIFR ORDER

Your Company being a Sick Industrial Company registered

with Board for Industrial and Financial Reconstruction (BIFR)

is in the midst of implementation of the Rehabilitation

Scheme sanctioned by BIFR.


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The Company has approached the Institutions / Companies

and Banks from whom the reliefs and concessions, as

sanctioned by BIFR, are to be claimed. While the reliefs

are under consideration by some of the Parties, the

consortium of Banks have appealed to AAIFR against the

BIFR Order which is being contested by the Company.

However, the appeal of Central Organization for

Modernization of Workshop (COFMOW) and the State Govt.

of Haryana had been dismissed by AAIFR. Thereafter

COFMOW has approached Committee of Disputes and

State Government of Haryana has filed a Writ Petition in

the High Court of Punjab and Haryana, which is being

contested by the Company.

All post merger activities related to Praga Tools Limitedmerger with your Company has been completed

substantially.

MARKET SCENARIO AND FUTURE OUTLOOK

Indias industrial output grew at its fastest pace year-on-

year during 2010-11 signaling a strong recovery in

manufacturing sector. The manufacturing sector which

constitutes around 80% of industrial output expanded by

18.5% to set the pace of growth. The Index for Industrial

Production (IIP) during the year 2010-11 has grown by 7.8%

over previous year. Manufacturing Sector, Capital Goodssector and Consumer Durables sector were the major

contributors for the growth in IIP during the period. The

manufacturing sector grew by 8.1 % during the year 2010-

11, the Capital Goods sector has grown by 9.3% and

Consumer Durables grew by 20.9% over previous year. This

growth has helped the Machine Tool industry to improve its

performance during 2010-11.

The Auto & Auto parts industry which is the major consumer

of machine tools has recorded a growth rate of 26% over

2009-10. Other user segments of Machine tool industry

have also done well during 2010-11. This has triggered gooddemand for Machine tools.

The consumption of machine tools for the year 2010-11 is

`9029 Cr., a growth of 41% over previous year. Countrys

production for the year 2010-11 is`2416 Cr., a jump of 46%

over previous year. The orders booked for machine tools in

the country as per IMTMA for the year 2010-11 has

witnessed a growth of 57% over corresponding period 2009-

10 to`3064 Cr.,

The consumption of machine tools is estimated to be around

`11000 Cr during the year 2011-12 considering cumulative

annual growth rate (CAGR) of 20%. About 30% of countrys

machine tool consumption is addressed by domestic

machine tool manufacturers and the rest is catered by

imports. The countrys production is expected to be around

`3000 Cr. during 2011-12.

There is a huge business of approx.`9000 Cr available for

the domestic machine tool manufacturers for increasing

their production capacities to address the demand for

machine tools in the country. Major manufacturers

especially in sectors such as auto & auto ancillary, defence,

power, industrial machinery and industrial intermediates

have already indicated their investment plans for the year

2011-12. The Company is looking forward to achieve the

performance level of`340 Cr.

AUDITORS

M/s A. Raghavendra Rao & Associates, Chartered

Accountants, were appointed as Statutory Auditors of the

Company for the year 2010-11 by the Comptroller & Auditor

General of India and separate Branch Auditors were also

appointed for each of the Unit/Divisions of the Company.

Replies to the observations/qualifications made by the

Statutory Auditors on the Accounts and on the Comments

by the Comptroller and Auditor General of India on the

Accounts are given separately.

INFORMATION REGARDING CONSERVATION OF

ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN

EXCHANGE EARNINGS AND OUTGO

Particulars with respect to conservation of energy,

technology absorption and foreign exchange earnings and

outgo, as required under the Companys (Disclosure of

particulars in the Report of Board of Directors) Rules, 1998

are annexed to this Report.

PERSONNEL

The total employee strength of the Company as on31.3.2011 was 3652. During the Financial Year 2010-11,

373 employees have separated and 217 joined the services

of the Company.

The details of different categories of personnel in position

as on 31.3.2011 are given hereunder:

Scheduled Castes 690

Schedule Tribes 187

Other Backward Class 929

Ex-service men 26

Person with Disabilities (PWD) 55


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PARTICULARS OF EMPLOYEES

Information in accordance with Section 217(2A) of the

Companies Act, 1956 read with the Companies (Particularsof Employees) Rules,1975, as amended is NIL for the

year 2010-11.

EMPLOYEE RELATIONS

Harmonious and cordial Industrial relations prevailed during

the year.

VIGILANCE ACTIVITIES

The Vigilance Cell is functioning and keeping watch on the

overall vigilance activities of the Company. The Vigilance

Officers of each of the Units are carrying out surprise checks

and inspections in various Departments. Transparency in

various areas of Company operations helps to achieve

vigilance objectives.

IMPLEMENTATION OF OFFICIAL LANGUAGE

The Company continued its thrust for implementation of

Official Language in the Company as per the directions

and guidelines of the Government. The Official Language

Implementation Committee has been constituted in all the

Units of the Company as well as Corporate Office,

Bangalore for monitoring the Implementation of Official

Language Act, Rules, Policy etc., which meets at regular

intervals at every quarter. Various Hindi programmes like

Hindi workshop and pakwada were conducted at the

Corporate and the Unit level in order to increase the usages

of Hindi as Official Language.

CORPORATE GOVERNANCE

Your Company is committed to maintaining the highest

standards of Corporate Governance. As your Company is

a Government Company, appointment of Directors as well

as fixing of remuneration for Directors are decided by Govt.

of India. With a view to strengthening the Corporate

Governance framework, the Department of Public

Enterprises, GOI has made the Guidelines on Corporate

Governance for Central Public Sector Enterprises mandatory

from the year 2010-11. Your Company has initia ted

appropriate action for compliance of the same.

A report on the Corporate Governance is annexed as part

of this report along with the Compliance Certificate from

the Auditors. A Report on Management Discussion &

Analysis and a declaration by the Chairman for having

obtained affirmation of compliance of the Code of Conduct

by the Board Members and Senior Management for the

year ended March 31, 2011 is also appended to this Report.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Sub-Section (2AA) of Section 217 of the

Companies Act, 1956, the Board of Directors of the Company

hereby state and confirm that:

I. In the preparation of the Annual Accounts, the

applicable accounting standards have been followed

and there has been no material departures from

accounting standards;

II. The Directors have selected such accounting policies

and applied them consistently and made judgements

and estimates that are reasonable and prudent 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/(loss) of the Company for that period;

III 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;

IV The Directors have prepared the annual accounts on a

going concern basis.

DIRECTORS

The Board for Industrial and Financial Reconstruction (BIFR)

vide Order F.No.16(4)/G-72/2009/BIFR/SD DT.15.09.2010

has withdrawn the nomination of Shri P. Ganesan, Special

Director (BIFR) from the Board of the Company with

immediate effect and further vide Order F.No. 16(4)/G-73/

2010/BIFR/SD dated 8thDecember 2010, nominated Shri

Ashok Gupta as Special Director (BIFR) on the Board of

the Company with immediate effect under Section 16(4) of

the Sick Industrial Companies ( Special Provisions) Act,

1985.

The Ministry of Heavy Industries and Public Enterprises,

Department of Heavy Industry, New Delhi vide Presidential

Order No.F.No.5-1(3)/2009- P.E. X dt. 28thDecember 2010

has appointed Shri G.K. Pillai, Chairman and Managing

Director of Heavy Engineering Corporation of India Limited,

Ranchi as Part-Time Chairman of the Company with

immediate effect till the date of his retirement ( i.e. 31.12.

2011) or until further orders vice Shri A.V. Kamat. In


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accordance with section 260 of the Companies Act, 1956

and Article 77 & 83 of the Articles of Association of the

Company, Shri G.K. Pillai shall hold directorship upto the

12thAnnual General Meeting of the Company and is eligible

for appointment as Director at the meeting.



Order No.F.No.5-1(4)/2009- P.E. X (Pt.) dt. 29thDecember

2010 and Order No. F.No.5-1(4)/2009-P.E.X (Pt.) dt. 28 th

July 2011 has also assigned Additional Charge of the post

of Managing Director of the Company to Shri G.K. Pillai,

Part Time Chairman of the Company w.e.f 01.01.2011 for a

period of three months and w.e.f. 01.04.2011 for a period of

six months respectively or till a regular incumbent joins thePost or until further orders, whichever is earliest,

consequent upon superannuation of Shri V. Hemachandra

Babu, Managing Director of the Company.



Order No.F.No.5(10)/2011- P.E. X dt. 5thMay 2011 has

appointed Shri S.G. Sridhar, Director (Operations), HMT

Limited as Part-Time Director of the Company with

immediate effect until further orders. In accordance with

section 260 of the Companies Act, 1956 and Article 77 &83 of the Articles of Association of the Company, Shri S.G.

Sridhar shall hold directorship upto the 12thAnnual General

Meeting of the Company and is eligible for appointment as

Director at the meeting.

Shri K. H. Suresh, Director (Technology) ceased to be

Director of the Company w.e.f.. 12-08-2011 consequent upon

his resignation. The Board of Directors recorded appreciation

of the valuable contributions made by Shri A.V. Kamat,

Shri V. Hemachandra Babu, Shri K. H. Suresh and Shri P.

Ganesan during their respective tenure on the Board of the

Company.

In terms of provisions of Section 256 of the Companies act,

1956 and article 85 of the Articles of Association of the

Company, Shri Harbhajan Singh, Director, retires by

rotation at the ensuing Annual General Meeting and is

eligible for reappointment.

ACKNOWLEDGEMENTS

The Directors are thankful to HMT Limited, the Holding

Company, its Subsidiaries, various Departments and

Ministries in the Government of India, particularly the

Department of Heavy Industry, Ministry of Heavy Industriesand Public Enterprises, Ministry of Corporate Affairs,

Comptroller & Auditor General of India, Principal Director-

Commercial Audit, Statutory and Branch Auditors, Director

General Supplies & Disposals, Director General, Ordnance

Factories, various State Governments, Suppliers and

Dealers, the Consortium of Banks lead by UCO Bank and

valued customers of the Company both in India and abroad

for their continued co-operation and patronage.

The Directors also wish to sincerely appreciate the

contributions made by the employees at all levels in the

operations during the year, despite the difficult situationfaced by the Company.

For and on behalf of the Board of Directors

( G.K. PILLAI )

Chairman

Place: Bangalore,

Date : 25th August, 2011


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ADDENDUM TO DIRECTORS REPORT FOR THE YEAR 2010-11 IN RESPECT OFOBSERVATIONS MADE BY THE STATUTORY AUDITORS ON THE ACCOUNTS OF HMT

MACHINE TOOLS LIMITED FOR THE YEAR ENDED 31ST MARCH 2011Sl. No. Statutory Auditors Observation Companys Reply

4. Accounting Standard-9 (Revenue Recognition),where the company is, in case of FORDestination Contracts, recognizing its revenueon sales when "LR/GR obtained and endorsedin favour of customer" though the significantrisk and rewards is not transferred to buyer.Consequently, the Sales which are in Transitas on March 31, 2011 and whose ownership isstill lying with the Company are recognized as

sales for the financial year 2010-11. This hasresulted in overstatement of sales by`376.24lakhs and understatement of loss by `27.41lakhs.

6. a) Non-confirmation of debtors, creditors andadvances, the consequential effect on thefinancial statements is not ascertainable.

6. b) We draw attention to note no 9 of schedule 10"Sanctioned Rehabilitation Scheme from BIFR"regarding non recognizing of various sanctions,waivers and exemptions from variousgovernment agencies and banks as thestakeholders filed an appeal before AppellateAuthority for Industrial and FinancialReconstruction against the order of Board forIndustrial & Financial Reconstruction.

6. c) We draw attention to Schedule 3 "FixedAssets", Note 2, 4.1 and 4.3 where the titles orlease deed of land is not in the name of theCompany and Note no. 4.4 where a portion ofland admeasuring approximately 39 acres isnot in possession of the company, the value ofsuch land included in Fixed Assets is not

The Company Accounting Policy is in line with AS-9 andhas been followed consistently in the past. There is nodeviation in the accountal of sales as far as the significantrisks and ownership of goods stands transferred to thebuyer based on the physical despatch and GC note hasbeen made in the name of customer. Moreover, asper the terms and conditions of contract, the machineshould not be despatched/delivered without getting thesame inspected and issue of inspection notes by the

Quality Assurance Officer nominated in the contract.Accordingly the customer has inspected and acceptedthe machine and given clearance for despatch of machinesbefore 31st March 2011.

In view of the above, this has not resulted in overstatementof sale by`376.24 lakhs and understatement of loss by

`27.41lakhs.

Proper disclosure has been made vide point No. 14 underschedule No.10 forming part of Annual Accounts for theyear 2010-11. Efforts are being made to get theconfirmations from the concerned parties.

The BIFR has sanctioned Rehabilitation Package for thecompany envisaging various sanctions, waivers andexemptions from Central/State Government agencies andBanks. However, an appeal by certain stakeholders againstthe BIFR, pending confirmation from the respectivestakeholders and the statutory formalities which are tobe complied with, no recognition has been given for thereliefs, concessions and exemptions in the accounts forthe period ended 31.03.2011. Therefore necessarydisclosure has been made to this effect under notes tothe accounts.

The fact that Fixed Assets include immovable properties,vested under the Scheme of arrangement approved bythe Govt. of India for which mutation of title deed is yetto be done in the revenue record, fresh Lease Deed inrespect of Lease Hold Lands pending and conversion ofRevenue land for industrial use at Machine Tools UnitAjmer, pending finalization of rates by the Govt. ofRajasthan have been disclosed vide point no. 2, 4.1 &4.3 in the Fixed Asset Schedule forming part of accounts.

The fact of non-possession of 39 acres of land by theCompany in respect of Praga Tools Division, Hyderabadhave been adequately disclosed in the fixed assets


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Sl. No. Statutory Auditors Observation Companys Reply

schedule forming part of accounts vide Point No. 4.4.The matter is being pursued with the concerned authorityfor settlement.

The company has submitted proposal to the Govt. ofIndia, Department of Heavy Industries for waiver ofGuarantee fee amounting to`98.41 lakhs in respect ofPraga Tools Division, and accordingly the same has notbeen provided in the books.

Further, as per BIFR order vide case No.504/98 dated3rd May, 2007 in respect of Praga Tools Division, thepenal damages of`349.58 lakhs towards Family Pension

contribution is to be waived off by the PF Authorities andaccordingly the same has not been provided in the Books.

However, the necessary disclosure has been made to theabove effect in the notes forming part of annual accountsof the company vide point No.13.2 &13.3.

As such there is no understatement of loss of `447.99lakhs.

To the extent of information available with the Company,provision has been made towards the interest payableunder Micro, Small and Medium Enterprises DevelopmentAct, 2006. However, necessary disclosure has been madevide point No.13.1 a) (i) ,(ii) & b) under notes formingpart of Annual Accounts of the company for the year2010-11.

The non-provisioning of LD's outstanding less than 3 yearsand debtors less than 5 is in line with the uniformaccounting practice consistently being followed in theCompany, in compliance to internal accounting guidelinesof the Company vide letter No. GGM (F) dated 07.06.2004.

As such, there is no overstatement of Sundry Debtorsand understatement of loss to the extent of`621.27 lakhs.

The Provident Fund Trust has been formed and governedby Board of Trustees of the Unit/Company under theprovisions of Employees Provident Fund and Misc. Act,1952. As the Unit/Company is facing acute financialcrunch due to lower level of turnover, there is an outstanding

payment of PF dues. However, the loss suffered by the

ascertained. Loss, on account of these lands.Could not be ascertained.

6. d) We draw attention to Schedule 10, Note no.13.2"No provision towards Government CounterGuarantee Fee" of`98.41 lakhs on the guaranteeextended by the Govt. of India to State Bank ofHyderabad on behalf of company and Note no.13.3 "No provision towards penal interest on unpaid contributions under Employees FamilyPension Scheme" of`349.58 lakhs in respectof Praga Tools Division. Consequently loss has

been understated by`447.99 lakhs during theyear.

6. e) "No provision is made by Bangalore Branch(MBX), Ajmeer Branch and Hyderabad Branch(MTH) for the liability, if any, towards the interestpayable under Micro, Small and MediumEnterprise Development Act, 2006 in theabsence of confirmation from the vendor. Theimpact on non-provision of such interest on thefinancial result cannot be quantified.

6. f) We draw attention to Schedule 10, Note no11.2 "Amount withheld towards liquidateddamages and interest on advances claimed/ifclaimed on delayed supplies". As per theinformation and explanation provided, these arewith held by buyers due to delay in supply inaccordance with agreement with the parties.

This resulted in overstatement of sundry debtorsand understatement of loss by `516.6 lakhsand an amount of`104.67 lakhs being intereston advances with held by a customer has notbeen included, which resulted in overstatementof Sundry Debtors and understatement of lossby `104.67 lakhs.

6. g) In respect of Pinjore Branch, provident fund duesaggregating`605.84 lakhs, not having remittedto the authorities and the consequent non-compliance with the provisions of sub section(4) of Section 418 of the Companies Act, 1956

and provision not having been ascertained and


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Sl. No. Statutory Auditors Observation Companys Reply

made in respect of penalty and damages arisingout of non-remittance of Provident Fund dues tothe authorities and the consequent effect onthe account not being ascertainable.

6. h) During the year 2002-03 and 2003-04, videMemorandum of Understanding between theCompany and HMT Limited, the holdingcompany, the land admeasuring 26.952 acresbelonging to the company was sold by HMTLimited and profit on sale amounting to`36.55Crores has not been accounted by the companyresulting in understatement of prior periodincome by`36.55 Crores and overstatement ofcumulative loss by`36.55 Crores.

6. i) After considering understatement of Loss,as referred in Paragraph4, paragraph 6(d) and6(f), the aggregate loss for the year has beenunderstated by `1096.67 lakhs. Prior Periodincome, as referred in para 6(h), has beenunderstated by`3655 lakhs and Accumulatedlosses has been overstated by`2558 lakhs.

PF Trust consequent to delay in remittance of PF dueshas been made good by the Unit/Company by providing12.5% interest on such belated payments.

As per the MOU with the Holding company, equivalentland value will be transferred to HMT Machine ToolsLimited. As such there is no understatement of priorperiod income and overstatement of cumulative loss by

`36.55 Crores.

Necessary provisions have been made wherever requiredand as such, there is no understatement of loss for theyear.

As per the MOU with the Holding company, equivalentland value will be transferred to HMT Machine ToolsLimited. As such there is no understatement of priorperiod income and overstatement of cumulative loss by

`36.55 Crores.

For and on behalf of the Board of Directors

(G. K. Pillai)

Chairman

Place : Bangalore

Date : 25.08.2011


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11


MANAGEMENT DISCUSSION & ANALYSIS

A Industry Structure and Development

The Indian machine tool industry consists of about 750

manufacturing units of which approximately 400 units

fall under the organised category. Further, ten major

Indian companies constitute almost 70 per cent of the

total production. While the large organised players cater

to Indias heavy and medium industries, the small scale

sector meets the demand of ancillary and other units.

The machine tools industry can be broadly classified

into metal-cutting and metal-forming tools, based on

the type of operation. Metal cutting accounts for 87

per cent of the total output of machine tools in India.Key metal cutting tools include turning centres,

machining centres and grinding centres, which account

for nearly two-thirds of the total metal-cutting production.

Metal forming is dominated by presses, which account

for 51 per cent share. Based on technology, machine

tools can be classified into CNC (Computerised

Numerically Controlled) and conventional tools. CNC

machine tools, which are highly productive and cost

effective, comprise nearly 70 per cent of machine tools.

Of these, CNC turning centres, machining centres and

grinding centres are the biggest segments, accountingfor nearly 81 per cent of the total machine tools

production in India. During 2010-11, countrys

consumption of machine tools was`9029 Cr. out of

which contribution from domestic production is around

`2416 Cr., the gap of`6613 Cr. is addressed by imports

which is around 73% of total consumption. The

increasing domestic demand which is not currently met

by domestic production indicates the vast business

potential available within the country for machine tools.

B Strength and Weakness

Strengths:

Strong brand image.

Large basket of products conventional, CNC and

special purpose machines.

Huge infrastructure for in house manufacturing of

critical components.

Proven experience in offering component-oriented

Special Purpose Machines built to international

standards

Highly qualified, experienced engineers andtechnicians to meet the high technology needs of

users.

Wide range of quality machine tools established

indigenously through renowned collaborations and

CNC machine tools established through in-house

R&D.

Focus group for strategic segments

Well equipped sales and service network spread

throughout length and breadth of the country.

Weakness:

Inadequate number of engineers in key

departments like Design & developments , Project

Engineering, Application Engineering, Sales

Engineering etc.,

Time taken to commercialize new products is high.

Too wide product range, limited CNC products,

low market potential of conventional machines.

High overheads and manpower costs.

Low employee morale due to very low salary

structure not in line with industry norms.

Old plant and machinery resulting in low productivity

levels with quality problems.

Ageing employee profile not in keeping with

industry standards.

C Opportunities and Threats

Opportunities:

Huge investment envisaged in strategic sectors

will fuel demand for Machine Tools.

Market potential available for state-oftheart

Machines presently being met by imports.

Growth in power, nuclear power, Aerospace and

Wind Energy sectors will fuel huge demand for

Machine Tools.

High potential available for Exports


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The Gap between domestic consumption and

production provides potential for increasing

domestic production.

Over`3500 Cr. investment intentions in various

user sectors will enhance demand for Machine

tools.

Impetus being given for growth in manufacturing

sector.

Global hub for manufacturing components

Threats:

Inland competitors strengthening their capabilities

through technical tie-up with overseas majors

Severe competition from reputed overseas players

Low duty structures have made imported machines

extremely competitive for domestic buyers.

Influx of second hand / reconditioned imported

machines at cheaper prices.

Decline in demand for conventional machines due

to technology shift and obsolescence. Trend in

shift from stand alone machines to manufacturing

systems.

Increased competition even from small/ medium

scale manufacturers

Customers choice of technology. User preference

for supply from source as per collaborators

recommendation.

Increased input costs, increase in exchange parity,

power shortage resulting in erosion of profitability.

Import of machines tools from China/ Taiwan/Korea

D Segment wise or Product wise Performance

Segment wise Performance: Segment wise sales

for the year 2010-11 of the Company is as under-

Sector Val.`Lakhs

Auto & Auto Ancillary 3465

Railways 583

Defence 2970

Agricultural Machinery 939

Mining & Metals 1047

Industrial Machinery 300

Industrial Intermediates 2154

Power 2554

Consumer Durables 134

Others 4944

Total 19090

E Outlook

Demand for machine tools accrues from themanufacturers of primary goods and intermediate

goods. The primary user industries includes the

automotive sector, capital goods sector and

consumer durables sector. Prominent users of

machine tools in the intermediate goods sector

includes the auto components, the ball and roller

bearings and electronic components. Most

segments of the Indian automotive, capital goods,

consumer durable, as well as intermediate goods

sectors recorded a good growth in turnover during

2010-2011. This growth in various sectors presentsa positive outlook for improving the companys

business during 2011-12.

F Risks and Concerns

Shortage of working capital

Attrition of experienced professionals and

skilled manpower in key areas

Low order flow from private sector (less

advances) and no advances for orders received

from government and defence sectors

Salaries not in line with the industry standards

Unable to induct professionals and skilled

manpower due to low pay scales

Low morale among employees due to low pay

scales

Imports of machine tools both new and second

hand machines especially from countries like

China, Korea, Taiwan etc


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15


period for the Bank as it was recovering from its criticalfinancial crisis.

He has contributed articles in the journal of the ICAI TheChartered Accountant. He is a Faculty for the workshopsorganized by the Indian Audit & Accounts Department ofthe Principal Director of Commercial Audit & Ex-OfficeMember, Audit Board, Govt. of India, New Delhi. Herepresented ICAI in IDW Congress in Berlin (Germany) in1991. He contributed an Essay Views of Directors IndianBank The Magic of Turnaround in the book entitled ANew Beginning The Turnaround story of Indian Bank whichwas authored by Smt. Ranjana Kumar, Former VigilanceCommissioner, Central Vigilance Commission, Govt. ofIndia, New Delhi.

He is also associated with Delhi District CricketAssociation, Rajasthan Ratnakar, Bhagwati Devi SarupSingh Charitable Trust (NGO whose primary domain isEducation).

Committees of the Board

The Audit Committee of the Company has to bereconstituted and the Remuneration Committee of theCompany to be constituted after the induction of theIndependent Directors on the Board of the Company by theGovernment. The Company has requested to theAdministrative Ministry for the same.

Remuneration of Directors

The details of remuneration of whole time Directors are givenbelow:

Name of Director Salary Other Total(`````) Benefits (`````)

(`````)

V.Hemachandra BabuCeased w.e.f 31.12.10 280479 97644 378123

K.H. Suresh 349638 108498 458136An amount of `1,500/- is payable only to Independent /BIFR Nominee Directors for attending each meetings ofthe Board and Committees.

The salary of whole time Directors does not includeperformance - linked incentive except amount payable asper the productivity linked incentive scheme of theCompany.

General Body Meetings

The last three Annual General Meetings of the Company

were held as under:

Financial Date Time VenueYear

2007-08 26.09.2008 4.00 P.M. Registered Officeat No.59, BellaryRoad, Bangalore-560 032

2008-09 25.09.2009 11.30 A.M. As above

2009-10 07.09.2010 11.00 A.M. As above

One special resolution for increase in the Authorized ShareCapital of the Company was passed in the General meetingheld on 26.09.2008.

Annual General Meeting for the current year is scheduled

to be held in the month of September 2011 at the RegisteredOffice of the Company.

Disclosures

There were no transactions of material nature with itsPromoters, the Directors or the Management or theirrelatives which may have the potential conflict with theinterest of the Company at large.

The Company has not filed the statutory returns for theyear 2009-10 with the Ministry of Corporate Affairs/ ROC,Bangalore due to non updation of the increased AuthorizedShare Capital in the records of MCA pending 100 %exemption from the payment of Stamp Duty on increased

Authorized Share capital from the Government of Karnatakain terms of the BIFR sanctioned Rehabilitation Scheme ofthe Company. Government of Karnataka had exempted 50%Stamp Duty against 100% and the Company has re-approached them for 100% exemption . Company has alsoinformed ROC Bangalore about non filing of StatutoryReturns due to technical problem being faced by theCompany.

There are outstanding Statutory Dues payable by some ofthe units of the Company which have approached/ areapproaching the Provident Fund Authorities for settlementin monthly installments.

There were no other instances of non-compliance by theCompany, penalties, strictures imposed on the Companyby any statutory authority, or any matter related to anyguidelines issued by Government, during the last threeyears.

The Company has not established a Whistle Blower Policyfor the employees. However, none of the employee has beendenied the access up to the senior level management.

Means of Communication

Being a wholly owned subsidiary, Company submitsfinancial results periodically to M/s HMT Limited, theHolding Company. Annual results are also updated on the

Companys website www.hmtmachinetools.com.


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Annexure to the Directors report

Section 217(1) (e) of the Companies Act, 1956

Companys (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988

A. CONSERVATION OF ENERGY, TECHNOLOGY

ABSORPTION AND FOREIGN EXCHANGE

EARNINGS AND OUTGO

a) Energy Conservation measures taken:

The Company has given major emphasis for

Conservation of Energy. The energy utilization

in our manufacturing Units are being monitored

constantly in order to achieve effective

conservation of energy. The energy conservationmeasures taken during the year 2010-2011

include:

Switching off Machines/equipment when

not in use and switching off lights in areas

not having adequate activity.

Use of Energy Efficient Lighting systems

like mercury vapour lamps, high power

sodium vapour lamps and fluorescent tube

lamps

Centralised Control of coolers and shop

lighting

Use of transparent roof sheets wherever

possible and cleaning of glass in sheds

periodically to make an effective use of

natural lighting.

Switching off main Air Compressor during

lunch breaks and running portable Air

Compressor during C Shift instead of Main

Compressor

Monitoring of utilization of energy in lighting

and other auxillary equipments

Use of power capacitors to improve the

power factor

Creating awareness among employees

about the necessity of energy conservation

by observing energy conservation week.

Power savings by using AC Motor with Low

power in place of DC Motors in High Power

Machine, while refurbishing.

Utilization of Foundry Furnace during

night and holidays to save power tariff.

Water is heated for cooking purpose through

solar water heating panels.

Water leakage plugged and defective taps

replaced to reduce water wastage and

consumption which conserves power.

Continuous running of Furnace ensured by

checking the holding time betweenconsecutive charges i.e. by ensuring

furnace friendly compatible load for optimal

utilization.

b) Additional investments and proposals, if any

being implemented for reduction of energy

consumption:

Providing energy saving lighting equipments

in place of florescent lights and bulbs

Usage of sodium vapour lamps for yard

lighting

Installation of timer switches for yard light

control

Providing of graphite layer on salt bath

furnace to reduce heat dissipation.

Replacement of existing electric geysers

with solar.

Replacement of motor generator sets with

new AC drives in conventional machines.

Replacement of old system and drives with

new energy efficient systems in CNCmachines.

c) Impact on cost of production of goods:

The above mentioned measures have

resulted in reduced consumption of

electrical energy at various load centers and

helped in curtailing the energy costs.

d) Total energy consumption and energy

consumption per unit of production

Not applicable, as the Company is not

covered in the list of specified industries.


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17


B. TECHNOLOGY ABSORPTION

FORM B

Research and Development ( R & D )

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

the Company:

The Company has its own R&D facilities at its

manufacturing units to meet its needs. The focus

of R&D is to progressively achieve self-reliance

in product technology, upgrading the existing

products with additional features. This approach

has resulted in development of the following

products during 2010-11:

-CNC Precision Turning Centre PTC 200

- Drill Machine Centre DMC 400

- Centreless Grinding Machine CLG 310

- Three Station Bridge Type Tappet Machine

with Picoco

2. Benefits derived as a result of the above R&D

The development of the new products will enable

the Company to meet the emerging competition

(both indigenous and foreign) and also meet the

market demand for technologically competitive

products and automation requirements of the usersectors for improved productivity.

3. Future Plans of action:

R&D is a continuous process and is closely

linked with the various operations of the

Company.

4. Expenditure on R & D Particulars

(`````in Lakhs)

a) Capital -

b) Recurring `209.94 LakhsTotal `209.94 Lakhs

Total R & D Expenditure 0.01

As % of Turnover

5. Technology absorption, adaptation and

innovation:

(i) Ef for ts in br ief towards technology

absorption and innovation and

(ii) Benefit derived as a result of the above

efforts

There has been a consistent effort todesign, develop and manufacture new

products of technologies in vogue and

Special Purpose Machines which are

state-of-the-art and technology centric. The

Technology Development Plans facilitate

reducing the cost of production by value

engineering (redesigning / up gradation of

products) and thereby helps reduction in

import substitution.

Enterprise Resource Planning (ERP)package is in the process of commissioning

at Machine Tools Bangalore Unit on trial

basis. Training for the Head of Departments

is completed. Blue print is being drawn to

suit the requirement of Company. After

successful implementation in Bangalore

Unit, ERP will be implemented in rest of

the Units as well as the Regional/ Zonal

Marketing Offices and the Head Office of

the Company.

C. FOREIGN EXCHANGE EARNING AND OUTGO

Activities relating to exports, initiatives taken to

increase export markets for products and services and

plans:

Exports of the Companys products are managed by

HMT (International) Limited, the wholly-owned

subsidiary of HMT Limited, the Holding Company.

Total Foreign Exchange used and earned:

PARTICULARS (`````in Lakhs)

1. Foreign Exchange earned -

2. Outgo of Foreign Exchange -

3. Expenditure in Foreign

Currencies on account ` 4.82 Lakhs

of Royalty, Know-how/Professional

Consultation Fees, Interest

and other matters.


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CERTIFICATE ON CORPORATE GOVERNANCE

To

The Members of HMT Machine Tools Limited,

We have examined the compliance of conditions of Corporate Governance by HMT Machine Tools Limited (the

Company), for the year ended on 31stMarch 2011, as stipulated in Guidelines on Corporate Governance for Central

Public Sector Enterprises.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination

was limited to procedures and implementation thereof, adopted by the company for ensuring the compliance of the

conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements

of the company.

The full complements of Independent Directors as required under Corporate Governance Guidelines have not been

fulfilled.

Subject to the above, in our opinion and to the best of our information and according to the explanations given to

us, we certify that the Company has complied in all material respects with the conditions of Corporate Governance

as stipulated in the above mentioned Guidelines.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the

efficiency or effectiveness with which the management has conducted the affairs of the Company.

For A. Raghavendra Rao & Associates

Chartered Accountants

FR No. 003324S

Sd/-

Latha S Koppal

Date: June 28th, 2011 Partner

Place: Bangalore Membership No. 214976

DECLARATION BY THE CHAIRMAN

Sub: Code of Conduct - Declaration under Clause 3.4.2

This is to certify that:

In pursuance of the provisions of Clause 3.4.2 of Corporate Governance Guidelines of DPE, a Code of Conduct for the

Board Members and Senior Management Personnel is in place.

The said Code of Conduct has been uploaded on the website of the Company and has also been circulated to the Board

Members and the Senior Management Personnel of the Company; and,

All Board Members, and the Senior Management Personnel have affirmed compliance of the said Code of Conduct, for

the year ended March 31, 2011.

(G. K. Pillai)

Chairman

Place: Bangalore

Date: 13thJune, 2011


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AUDITORS REPORT

To

the members of

HMT MACHINE TOOLS LIMITED

We have audited the attached Balance Sheet of HMTMachines Tools Limited as at March 31st, 2011, the Profitand Loss account of the company and the Cash Flowstatement of the Company for the year ended on that date,annexed thereto. These financial statements are theresponsibility of the company's management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

In preparation of this report, we have considered the BranchAuditor's Report of Bangalore Complex (MBX) Branch,Ajmeer Branch, Kalamassery Branch, Praga ToolsHyderabad Branch, Pinjore Branch, Hyderabad Branch,which are audited by Branch auditors appointed undersection 619(2) of the companies Act, 1956 and Marketingdivision audited by us for the year ending March 31st, 2011.

In the light of C&AG's observations under section 619(4) ofthe companies Act, this report is in substitution of our earlierreport dated June 28th, 2011 with respect to para 6 (e), 6(f), 6 (h) and 6 (i) of the report and with respect para 4, 6, 9and 10 of the Annexure.

We conducted our audit in accordance with the auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by the Management,as well as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

As required by the Companies (Auditor's Report) Order,2003 ('the Order'), as amended, issued by the CentralGovernment of India in terms of sub-section (4A) of Section227 of the Companies Act, 1956 ('the Act'), we enclose inthe Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above,we report that:

1. We have obtained all the information and explanations

which to the best of our knowledge and belief were

necessary for the purposes of our audit;

2. In our opinion, proper books of account as required by

law have been kept by the company so far as appears

from our examination of those books;

3. The Balance Sheet, the Profit and Loss account and

the Cash Flow statement dealt with by this report are

in agreement with the books of account;

4. In our opinion, the Balance Sheet, the Profit and Loss

account and the Cash Flow statement dealt with bythis report comply with the Accounting Standards

referred to in sub-section (3C) of Section 211 of the

Act, except deviation with respect to :

Accounting Standard-9 (Revenue Recognition),

where the company is, in Case of FOR Destination

Contracts, recognizing its revenue on sales when

"LR/GR obtained and endorsed in favour of

customer" though the significant risk and rewards

is not transferred to buyer. Consequently, the

Sales which are in Transit as on March 31, 2011

and whose ownership is still lying with thecompany are recognized as sales for the financial

year 2010-11. This resulted in overstatement of

sales by`````376.24 Lakhs and understatement of loss

by`````27.41 Lakhs.

5. The provisions of Section 274 (1) (g) of the Companies

Act, 1956 is not applicable to Government companies

vide Notification GSR No. 829 (E) issued by Department

of companies affairs in exercise of powers conferred

by Section 620(1)(a) of Companies Act.

6. In our opinion and to the best of our information and

according to the explanations given to us, the saidaccounts give the information required by the Act, in

the manner so required and give a true and fair view in

conformity with the accounting principles generally

accepted in India, subject to:

a) Non-confirmation of Debtors, Creditors and

Advances, where the consequential effect on

the financial statement is not ascertainable.

b) We draw attention to Note No. 9 of Schedule

10 "Sanctioned Rehabilitation Scheme from

BIFR" regarding non recognizing of various


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sanctions, waivers and exemptions fromvarious government agencies and banks asthe stake holders filed an appeal before

Appellate Authority for Industrial and FinancialReconstruction against the order of Board forIndustrial & Financial Reconstruction.

c) We draw attention to Schedule 3 "FixedAssets", Note 2, 4.1 and 4.3 where the titles orlease deed of land is not in the name of thecompany and Note no. 4.4 where a portion ofland admeasuring approximately 39 acres isnot in possession of the company, the value ofsuch land included in Fixed Assets is notascertained. Loss, on account of these lands,could not be ascertained.

d) We draw attention to Schedule 10, Note no.13.2 "No provision towards GovernmentCounter Guarantee fee" of`````98.41 Lakhs on theguarantee extended by the Government ofIndia to State Bank of Hyderabad on behalf ofcompany and Note no. 13.3 "No provisiontowards penal interest on un paid contributionsunder Employees Family Pension Scheme" of

`````349.58 Lakhs in respect of Praga ToolsDivision. Consequently loss has beenunderstated by`````447.99 Lakhs during the year.

e) No provision is made by BangaloreBranch(MBX), Ajmeer Branch and HyderabadBranch(MTH) for the liability, if any, towardsthe interest payable under Micro, Small andMedium Enterprise Development Act, 2006 inthe absence of confirmation from the vendor.The impact on non provision of such intereston the financial result cannot be quantified.

f) We draw attention to Schedule 10, note no.11.2 "Amount withheld towards liquidateddamages and interest on advances claimed/ifclaimed on delayed supplies". As per the

information and explanation provided, theseare with held by buyers due to delay in supplyin accordance with agreement with the parties.This resulted in overstatement of Sundry

Debtors and understatement of loss by`````516.6

Lakhs and an amount of`````104.67 Lakhs being

interest on advances with held by a customer

has not been included, which resulted in

overstatement of Sundry Debtors andunderstatement of loss by 104.67 Lakhs.

g) In respect of Pinjore Branch, provident fund

dues aggregating `````605.84 lakhs, not having

remitted to the authorities and the consequent

non compliance with the provisions of section

418(4) of Companies Act, 1956 and provision

not having been ascertained and made in

respect of penalty and damages arising out of

non-remittance of Provident Fund dues to the

authorities and the consequent effect on the

account not being ascertainable.h) During the year 2002-03 and 2003-04, vide

Memorandum of Understanding between the

Company and HMT Limited, the holding

company, the land admeasuring 26.952 acres

belonging to the company was sold by HMT

Limited and Profit on sale amounting to

`````36.55 Crores has not been accounted by the

Company. resulting in understatement of prior

period income by `````36.55 Crores and

overstatement of Cumulative loss by `````36.55

Crores.

i) After considering understatement of loss as

referred in paragraph 4, paragraph 6 (d) and 6

(f), the aggregate loss for the year has been

understated by`````1096.67 Lakhs. Prior Period

income, as referred in para 6(h), has been

understated by`````3655 Lakhs and Accumulated

Losses has been overstated by`````2558 Lakhs.

i. In the case of the Balance Sheet, of the state

of affairs of the Company as at 31 March, 2011;

ii. In the case of the Profit and Loss account, of

the loss of the Company for the year ended

on that date; and

iii. In the case of the Cash Flow statement, of

the cash flows of the Company for the year

ended on that date.

For A.Raghavendra Rao & AssociatesChartered Accountants

FR No: 003324S

Latha S KoppalDate: August 24th, 2011 Partner

Place: Bangalore Membership No.: 214976


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ANNEXURE TO AUDITORS REPORT

The Annexure referred to in our report to the members of M/s. HMT MACHINE TOOLS LIMITED forthe year ended March 31st, 2011. We report that :

1. a) The Company has maintained proper records

showing full particulars, including quantitative

details and situation of fixed assets.

b) As informed to us, physical verification of fixed

assets was conducted by the management once

in three years, which, in our opinion, is

reasonable having regard to the size of the

Company and nature of its assets. During theyear physical verification has been conducted

for Hyderabad Branch, Pinjore Branch, Praga

Tools Hyderabad Branch, Kalamassery Branch,

Ajmeer Branch and for Bangalore Branch

physical verification carried during the year 2008-

09, no material discrepancies were noticed on

such verification as compared with the book

records.

c) Based on audit procedures and information &

explanations given to us there has not been

substantial disposal of fixed assets and hencethere is no effect on the going concern status of

the Company.

2. a) As informed to us, the Inventory has been

physically verified during the year by the

management. In our opinion, the frequency of

verification is reasonable.

b) In our opinion and according to the information

and explanations given to us, the procedures of

physical verification of inventories followed by the

management are reasonable and adequate inrelation to the size of the Company and the nature

of its business.

c) In our opinion and according to the information

and explanations given to us, the Company is

maintaining proper records of inventory. The

discrepancies noticed on verification between the

physical stocks and the book records were not

material.

3. The company has neither granted nor taken any loans,

secured or unsecured to/from companies, firms or other

parties covered in the register maintained under

section 301 of the Act. Hence, clauses (a) to (g) of

the said order are not applicable.

4. In our opinion and according to the information and

explanations given to us, there are adequate internal

control procedures commensurate with the size and

the nature of the business of the Company with regards

to the purchase of fixed assets, inventory and the saleof goods & Services. During the course of our audit,

no major weakness has been noticed in the internal

controls.

5. Based on the audit procedures applied by us and

according to the information and explanations provided

by the management, we are of the opinion that there

are no transactions that need to be entered in the

register maintained under Section 301 of the

Companies act 1956.

6. In our opinion and according to the information andexplanation given to us, the Company has complied

with the directives issued by Reserve Bank of India

and the provisions of Section 58A and 58AA of the Act

and the companies (Acceptance of Deposits) Rules,

1975 with regard to unsecured loans, falling within the

definition of deposits accepted from the public, except

in the case of M/s Nainital Bank, a Bond Holder, who

has gone on litigation and the case is pending before

Debt Recovery Appellate Tribunal.

7. In our opinion and as per the information given, the

Company has an internal audit system commensurate

with the size and the nature of the business.

8. Based on the information, explanation provided by the

management and considering the Branch auditor

report, we are of the opinion that, the books of account

maintained by the company in respect of materials,

labour and other items of cost maintained by the

company pursuant to the rules made by the central

government of India for the maintenance of cost

records under Section 209 (1) (d) of the companies

act and we are of the opinion that prima facie, the


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prescribed accounts and records have been made and

maintained. However, we have not made detailed

examination of the records with a view to determine

whether they are accurate or complete.

9. Based on the audit procedures performed and

information and explanations given to us, the company

is generally regular in depositing the undisputed

statutory dues including provident fund, income tax,

sales tax, custom duty, excise duty, cess and other

material statutory dues, however with respect to

Bangalore Branch, Praga Tools Branch and

Pinjore Branch, provident fund has not been

regularly deposited with the appropriate

authorities within the due date and with respectto Hyderabad Brach not regular in depositing

undisputed dues in respect to Provident fund and

Employees State Insurance.

According to the information and explanations given

to us, no undisputed amounts payable in respect of

income tax, wealth tax, sales tax, custom duty, excise

duty, cess, were in arrears, as at March 31st, 2011

for a period of more than six months from the date of

they became payable except the followings:

Nature of Dues Amount `````(in lakhs)

Provident Fund 1,405.81

Sales Tax 221.17

Pension Contribution 75.40

CST 2.09

Service Tax 0.70

Total 1,705.15

According to the information and explanation provided

to us and based on the records of the Company, there

are dues of income tax, sales tax, customs duty,

excise duty, cess which have not been deposited on

account of any dispute, are as follows :

Amount in `(lakhs)

Particulars Nature Amount Forum whereof dues (````` in dispute

Lakhs) is pending

Central Cenvat 221.17 CESATExcise CreditAct, 1944,Cenvat Rules

The employees ESI Dues 1.16 ESIC Court,state insurance employees HyderabadAct, 1948

The employees ESI Dues 1.42 ESIC Court,state insurance employees HyderabadAct, 1948

Central Modvat 0.13 Asst Comm. ofExcise Credit Central Excise,Act, 1944 (Appeals)

Hyderabad

Central Modvat 1.48 CESTATExcise CreditAct, 1944

Central Modvat 160.03 Availment of ExciseExcise Credit Duty ExemptionAct, 1944 under 10/97

Quathbullapur Property 412.01 Commissionermuncipality tax GHMC, Hyderabad

Raj, Land Land Conv. 2.39 Collector, AjmerConv. act Charges

Land & Building Land & 40.51 Collector & DistrictAct, Raj Building tax magistrate, Ajmer.

Including Interest

Urban Land Tax

(06-07) 3.39 DIG office Ajmer(07-08) 6.79(08-09) 6.79

BBMP, Bangalore Property Tax 1052.26 BBMP, Bangalore

10. The accumulated losses of the company have

exceeded its net worth. Consequently the

company has filed application with BIFR during

November 2005 as per the provision of Sick

Industrial companies (Special Provisions) Act, 1985

and the sanction is received on June 13th, 2008.

Also during the year 2007-08, Government of Indiahas sanctioned a revival plan envisaging infusion

of funds by way of preferential and equity capital,

conversion of long term loan into equity capital

and waiver of interest to address the negative net

worth of the Company. Though the appeals before

AAFIR against BIFR sanctions pending disposal,

considering the revival plan of the company and

the BIFR sanctioned rehabilitation Scheme, the

accounting continues to be prepared on Going

concern basis. The company has incurred cash

losses of `8320.91 lakhs during the year. and

`3792.31 Lakhs for the previous year.


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For A.Raghavendra Rao & Associates

Chartered Accountants

FR No: 003324S

Latha S Koppal

Date: August 24th, 2011 Partner

Place: Bangalore Membership No.: 214976

11. According to the information and explanation

provided to us and based on our verification of

records provided to us, we are of the opinion that,

the company has not defaulted in repayment ofdues to any financial institution or bank or

debenture holders as at the balance sheet date.

12. Based on the information, explanation provided to us,

the company has not granted any loans and advances

on the basis of security by way of pledge of shares,

debentures and other securities.

13. The provisions of any special statute applicable to chit

fund/Nidhi/Mutual fund/societies are not applicable to

the company.

14. In our opinion, based on the information, explanation

provided, the company is not a dealer or trader in

shares, securities, debentures and other investments.

15. In our opinion, according to information, explanation

provided to us, company has not given any guarantees

for loans taken by others from banks or financial

institutions during the year.

16. According to information, explanations provided, we

are of the opinion that, the company has not availed

any term loan during the year.

17. On the basis of information and explanation provided,

we are of the opinion that, there are no funds raised

on a short term basis, which have been used for long

term investment.

18. The company has not made any preferential allotment

of shares to parties and companies covered in the

register maintained under section 301 of the act during

the year.

19. The company has not debenture outstanding at the

year end. Hence creation of securities for the samedoes not arise.

20. The company has not raised any money by way of

public issue during the year.

21. Based on the audit procedures performed and

information and explanation given to us by the

management, we are of the opinion that, no fraud on

or by the company has been noticed or reported during

the course of our audit.


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COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER

SECTION 619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF M/S. HMT

MACHINE TOOLS LTD FOR THE YEAR ENDED 31stMARCH 2011.

The preparation of financial statements of M/s. HMT MACHINE TOOLS LIMITED for the year ended 31stMarch

2011 in accordance with the financial reporting framework prescribed under the Companies Act, 1956 is the responsibility

of the management of the Company. The statutory auditor appointed by the Comptroller and Auditor General of India

under Section 619(2) of the Companies Act, 1956 is responsible for expressing opinion on these financial statements

under Section 227 of the Companies Act, 1956 based on independent audit in accordance with the auditing and

assurance standards prescribed by their professional body the Institute of Chartered Accountants of India. This is

stated to have been done by them vide their Audit Report dated 28.6.2011 and their revised report dated 24.08.2011.

I on behalf of the Comptroller and Auditor General of India have conducted a supplementary audit under Section619(3)(b) of the Companies Act, 1956 of the financial statements of M/s HMT MACHINE TOOLS LIMITED for the

year ended 31st March 2011. This supplementary audit has been carried out independently without access to the

working papers of the statutory auditors and is limited primarily to inquiries of the Statutory Auditors and Company

personnel and a selective examination of some of the accounting records. In view of the revision made in Auditors

Report vide Para 6(e), 6(f), 6(h) and 6(i) and modification in paras 4,6,9 and 10 thereof as a result of my audit

observations highlighted during supplementary audit, I have no further comments to offer upon or supplement to the

Statutory Auditors Report, under Section 619(4) of the Companies Act, 1956.

For and on the behalf of the

Comptroller & Auditor General of India

(C. H. Kharshiing, I.A.A.S)

Pr. Director of Commercial Audit

& Ex-officio Member, Audit Board, Bangalore.

BangaloreDated : 25 August, 2011


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Inventories

Inventories are valued at the lower of cost and net

realizable value. The cost of materials is ascertained byadopting Weighted Average Cost Method.

Development & Commissioning

In respect of new projects, the pre-production revenue

expenditure (including depreciation) is collated under the

head Development and Commissioning Expenditure and

charged to revenue over four financial years as follows:

(a) In the year of commencement of commercial

production, one-fourth of the development and

commissioning expenditure on a pro-rata basis forthe period of production in that year: and

(b) The balance equally over the next three financial

years immediately following.

Deferred Revenue Expenditure

Technical Assistance fees (including fees for technical

documentation and exchange fluctuation difference) paid/

payable under foreign collaboration agreements are

amortized equally over the duration/balance duration of

the relevant agreement.

Gratuity, Earned Leave encashment, Settlement

Allowance and Lump sum Compensation paid to

employees under Voluntary Retirement Scheme shall be

fully written off in the year of disbursement.

Revenue recognition

Sales are set up based on:

Physical delivery of goods to the customer /

customers carrier /common carrier, duly supported

by invoice, excise duty paid challan, gate pass,

delivery voucher and LR / GR, in case of ex-works

contracts.

LR/GR obtained and endorsed in favour of customer

(consignee self), in case of FOR destination

contracts.

Sales include Excise Duty but are net of trade

discount and exclude sales tax.

Foreign currency transactions

Transactions in foreign currency are recorded at the

exchange rate(s) prevailing on the date of transaction or

at the forward contract rate(s) wherever applicable.

Current assets and liabilities are restated at the rates

prevailing at the yearend or at the forward contract rate(s)

wherever applicable, and the difference is recognized as

income or expenditure in the profit and loss account.

Exchange difference arising on restatement of liabilities in

foreign currency relating to fixed assets is recognized as

Income or Expenditure in the statement of Profit & Loss

account.

Borrowing costs

Borrowing costs are charged to revenue except those

which are incurred on acquisition or construction of aqualifying asset that necessarily takes substantial time to

be ready and until intended use of the said asset, such

costs are capitalized.

Retirement Benefits

Provident Fund is provided for, under a defined benefit

scheme. The contributions are made to the Trust

administered by the company.

Leave encashment is provided for under a defined benefit

scheme based on actuarial valuation.

Gratuity is provided for, under a defined benefit scheme,

to cover the eligible employees, liability being determined

on actuarial valuation. Annual contributions are made, to

the extent required, to a trust constituted and

administered by the Life Insurance Corporation of India

under which the coverage is limited to `50,000/- per

eligible employee. The balance provision is being retained

in the books to meet any additional liability accruing

thereon for payment of Gratuity.

Settlement allowance is provided for, under a definedbenefit scheme, to cover the eligible employees, liability

being determined on actuarial valuation.

Pension is provided for under a defined benefit scheme,

contributions are made to the Pension Fund administered

by the Government.

Warranty

Warranty provision for contractual obligations in respect

of machines sold is set up based on the past experience

and is provided in the year of sale.


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Special Tools

Expenditure on manufactured and bought out special

tools are amortized equally over a five year period orearlier, if scrapped. Individual items costing less than

`750/- are written off fully in the initial year of acquisition

/ manufacture.

Research and Development Costs

Revenue expenditure is charged to profit and loss

account under natural heads. Capital expenditure is

recorded as addition to fixed assets and depreciated over

the estimated life of the related assets.

Prototypes developed are carried as items of inventory atthe lower of cost or net realizable value until sale/transfer/

scrapping. Prototypes remaining undisposed for a period

of five financial years are provisioned for obsolescence in

the sixth year.

Contribution to sponsored Research and Development are

amortised equally over the duration/balance duration of

the programme.

Income Tax

Taxes are determined following the tax effect accounting

method and a provision thereof is recognized. A deferred

tax asset or deferred tax liability is recorded to recognize

the tax effect on timing differences arising on

reconciliation of profit/loss as per financial statements

and profit/loss as per taxation

Earnings per share

Basic earnings per share is determined by considering

the net profit after tax, inclusive of the post tax effect on

extraordinary items, if any, and the number of shares

outstanding on a weighted average basis.

Others

The amount of `50000/- per head received/receivable

from LIC on account of gratuity claims in respect ofemployees separated under Voluntary Retirement

Scheme during the year is accounted as Other Income.

In respect of employees who are separated other than

under Voluntary Retirement Scheme, the Gratuity paid in

excess of`50000/-, Earned Leave Encashment (ELE),

Settlement Allowance (SA) is debited to the respective

provision accounts. The provision at the yearend for ELE

and SA is restated as per the actuarial valuation done at

the year-end. In case of ELE and SA, any short or

excess provision is charged as expenditure or treated as

provision no longer required.


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BALANCE SHEET AS AT 31ST MARCH 2011

Sch. As at As at31.03.2011 31.03.2010

SOURCES OF FUNDS

SHAREHOLDERS FUNDS

Share Capital 1.1 719,59,91 719,59,91

Re

Annual Report HMT MTL 2010-11

Documents

Transcript of Annual Report HMT MTL 2010-11