20th Annual Report 2013-14 BUSINESS TRANSFORMATION THROUGH BETTER NAVIGATION The Compass Whether traversing land or sea, for centuries the compass professional is aligned in harmony. Neither the severity of has helped explorers arrive safely at their destinations. the terrain nor the victories and failures along the journey will sway our vision, shake our determination. Archaeology dates the first compass back to 150 B.C. Long before it was used to indicate due north, the compass was Because like ancient explorers, we know that with regarded as a force of nature with the power to illuminate compass in hand, our goal is not only attainable, a path to enlightenment. Much like modern-day achieving it is our destiny. explorers, ancient people believed each step in life's journey, no matter how small, could bring one closer to his destiny or dangerously veer him off course. Our One To Win goal is ambitious: generate $1 billion in revenue and lead the industry in engineering and design services for the manufacturing sector. With the needle of our compass fixed exclusively on this goal, each of our territories, divisions, and every Tata Technologies VISION We are determined to be the world’s number one partner to the manufacturing industry. MISSION Better products benefit people - that is our business. VALUES Better & Better Customer Delight One Team Honest & Straightforward Commitment to Community Contents Letter to Shareholders II Letter from the Global COO VII Senior Management IX Highlights & Milestones of 20 Years XI Navigating Toward a Better Future Today XIII Corporate Sustainability XXII Board of Directors XXIX Notice 1 Directors’ Report 7 Management Discussion & Analysis (MD&A) 16 Corporate Governance Report 50 Auditors’ Report 64 Balance Sheet 67 Profit and Loss Account 68 Cash Flow Statement 69 Notes forming part of financial statements 70 Consolidated Accounts Auditors’ Report 97 Balance Sheet 98 Profit & Loss Account 99 Cash Flow Statement 100 Notes forming part of financial statements 101 Statements on Subsidiary Companies 130 Frequently Asked Questions 132 Attendance Slip / Proxy This report and financial statements contained herein have been prepared in compliance with the requirements of the Companies Act, 1956 and Indian Generally Accepted Accounting Principles (GAAP). The preparation of financial statements requires management to make estimates and assumptions which affect the reported amounts of income and expenses of the period, assets and liabilities, as of the date of the financial statements. The estimates and judgements relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner, the form and substance of transactions. Historical Performance Revenue Profit After Tax 2,500 2,395 350 2,250 2,045 301 2,000 300 273 1,750 1,667 250 1,500 208 1,268 200 1,250 1,098 150 139 1000 Revenue (INR Crore) Revenue 750 100 91 500 Profit After Tax (INR Crore) Tax After Profit 50 250 0 0 2009-102010-11 2011-12 2012-13 2013-14 2009-102010-11 2011-12 2012-13 2013-14 Offshore Revenue FreeDiluted Cashflow Earnings Per Share 450 414 400 80.00 69.88 350 70.00 321 63.48 300 60.00 257 250 50.00 49.20 200 40.00 37.15 155 150 EPS (INR) 30.00 24.33 103 100 20.00 Offshore Revenue (INR Crore) Revenue Offshore 50 10.00 0 0 2009-102010-11 2011-12 2012-13 2013-14 2009-102010-11 2011-12 2012-13 2013-14 ** Revenue generated by Offshore Delivery Centers Cash & Cash Equivalents Free Cash Flow 450 20% 416 400 18% 18% 16% 1,000 968 350 16% 319 14% 800 775 300 12% 11% 12% 609 250 600 9% 10% 200 195 8% 400 150 142 6% 284 98 Free Cash Flow (INR Crore) Cash Flow Free 100 200 193 4% 50 2% Cash & Cash Equivalents (INR Crore) Equivalents & Cash Cash 0 0 0% 2009-102010-11 2011-12 2012-13 2013-14 2009-102010-11 2011-12 2012-13 2013-14 **Cash and Cash equivalent includes investments in MFs, NCDs,CCPS,Bills of Exchange, ICDs placed and Free Cash Flow Free Cash Flow as % of Revenue Deposit with FIs, Margin of Safety Dividend Per Share 100% 40% 90% 34 33 35 82 35 80% 78 81 30% 30 70% 26 30 61 26 25 60% 56 25 50% 20% 20 16 40% 15 12 30% 10% 10 20% 7 5 10% Dividend Per share (INR) share Dividend Per 0% 0% 0 2009-102010-11 2011-12 2012-13 2013-14 2009-102010-11 2011-12 2012-13 2013-14 Cash as % of Net worth ROE ** Numbers are in percentage I Letter to Shareholders “Your Company posted record revenue and free cash flow while reengineering its sales process.” Dear Fellow Investors, I am pleased to report to you that your Company posted record revenue, offshore revenue and free cash flow during the year 2013-14. Our consolidated revenue grew by 17% to Rs. 2395 crores, and offshore revenue by 29% to 414 crores. We registered a record cash balance of Rs. 968 crores, a growth of 25%. CONSOLIDATED REVENUE 17% Rs. 2395 GROWTH CRORES RECORD CASH BALANCE 25% Rs. 968 GROWTH CRORES 20th ANNUAL REPORT 2013 -14 II In my letter last year, I wrote given that we have increasing the overall dividend pay-out to a record 300%, demonstrated an ability to scale delivery, our strategy is i.e., 250% + 50%, a dividend of Rs. 30 per share (Rs. 12 to accelerate revenue growth. This is an 18-24 month interim + Rs. 18 final). journey involving external consultants and everyone in your Company. During this period we may need to accept some reduction in profits. Ultimately, we will accelerate Increasing the revenue growth while keeping our hard-earned overall dividend th pay-out to a record profitability and cash creation. AGM the board proposes We have defined, articulated and started 300% executing our strategy. As such, we increased our investment in SG&A from 12.1% of sales to In this letter, I will cover: some key achievements and 13.6% of sales, an increase of Rs. 78 crores. offerings in the marketplace, Cambric one year on, our entry into China, our commitment to institutionalizing We also spent over Rs. 11 crores on external innovation, the launch of Tata Technologies Motor consultants. This investment is starting to bear Sports, corporate sustainability and challenges for 2014- fruit. 15. In my earlier letters I wrote, to the degree I was allowed by client confidentiality, about the wonderful work your Company does. In 2011, I wrote about the creation of Our sales pipeline grew from $177 mn at the beginning of the Vehicle Programs & Development (VPD) group. In the year to $424 mn at the close. In the last quarter of 2012, I wrote about a prototype vehicle we designed FY14, we recorded the highest ever quarterly revenue of and built called the eMO for Electric MObility that Rs. 668 crores, leading to sequential quarterly growth of debuted at the Detroit North American International 10% and year-on-year growth of 22%. Automotive Show. In the 2013 report, we highlighted our work on a version for commercial use called eMO-c. Given our investment to accelerate revenue growth, your What I have not been able to tell you is that since 2011, Company posted a reduction in consolidated EBITDA your Company has been engineering a new premium and PAT by 9% to Rs. 393 crores and Rs. 273 crores, vehicle and this significant project is coming close to respectively. In spite of that, your Company grew its free the finish line. I can’t disclose the client or the details cashflow by 31% to Rs. 416 crores. Our free cashflow to until the vehicle is unveiled later in 2014, but I think you gross capital employed margin stood at a very healthy will find it represents a crowning achievement of our 20%. Our return on equity is a decent 26%. All of this entire value proposition. I saw the vehicle earlier in the resulted in a consolidated diluted earnings per share of year. It is one I think you would love to own, drive and Rs. 63 vs Rs. 70 a year ago. On a standalone basis, PAT and experience. earnings per share increased slightly over last year. I wrote last year about our Global Engineering Center (GEC) that distributes responsibility for engineering and product innovation across global teams without the FREE CASHFLOW segregation of low to high complexity work regionally. I’m pleased to share that your Company has proved this strategy to be successful and matured the GEC during the 31% to Rs. 416 three year development of the soon to be launched GROWTH CRORES vehicle. To date, and to the best of our knowledge, no other engineering services company in the world has achieved this. free cashflow to gross capital return I believe you will continue to see the success of our GEC employed margin on equity model going forward. Your Company is well established in emerging markets as well as developed markets in 20% 26% North America and Europe. We deliver quality services appropriate to the various market demands, from luxury western brands to frugally engineered cars in India. A Given our performance during this transition year, the McKinsey report suggests that by 2015, 85% of ER&D will board increased quarterly dividends to a total of Rs. 12 be done at sites outside of the home country. One can for Q1 through Q3, from Rs. 9 the previous year.