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1 2013 Annua Report

2 We are buiding a word that's safer and more secure... more comfortabe and energy efficient... more innovative and productive. We are Honeywe.

3 Board of Directors Mr. Madhukar Bhagwat Mr. Norman Gisdorf Mr. Gerard Wiis Mr. Surendra Rao Mr. Anant Maheshwari Mr. Vikas Chadha Ms. Sneha Padve (Chairman & Independent Director) (Director) (Director) (Independent Director) (Director) (Managing Director) (Company Secretary) Contents Notice Directors' Report Management Discussion & Anaysis Report Auditors' Report Baance Sheet Profit & Loss Account Cashfow Statement Notes 1 to Corporate Governance Report Senior Management Team Mr. Ananthanarayanan K. V. Mr. Bagaitkar Ravi Mr. Bansa Rohit Mr. Bhagania Anurag Mr. Bhatia Vivek Mr. Kekar Anant Mr. Limaye Prasad Mr. Meacheruvu Praveen Mr. Mitter Kaushik Mr. Singh Priyanshu Mr. Tumkur Savyasachi Head - Lega Head - Honeywe Operating System Head - Sensing & Contros Chief Financia Officer Head - Goba Services Head - Integrated Suppy Chain Head - Audit & Interna Contros Head - Strategy & Marketing Head - Human Resources Head - Buiding Soutions Head - Process Soutions Registered Office Auditors Bankers 56 & 57, Hadapsar Price Waterhouse & Co., Bangaore Citibank N. A. Industria Estate, Chartered Accountants Roya Bank of Scotand Pune Registrar & Transfer Agent: TSR Darashaw Pvt. Ltd. 6-10, Haji Moosa Patrawaa Ind. Estate, 20, Dr. E. Moses Road, Mahaaxmi, Mumbai

4 Notice NOTICE is hereby given that the THIRTIETH ANNUAL GENERAL MEETING of HONEYWELL AUTOMATION INDIA LIMITED wi be hed at 4.00 p.m. on Apri 30, 2014 in Honeywe Automation India Limited, 56 & 57, Hadapsar Industria Estate, Pune to transact the foowing business: ORDINARY BUSINESS: 1. To receive and adopt the Directors' Report and Audited Statement of Profit and Loss for the year ended December 31, 2013 and Baance Sheet as at that date. 2. To decare dividend. 3. To appoint Director in pace of Mr. M.N. Bhagwat who retires by rotation and is eigibe for reappointment. 4. To appoint Director in pace of Mr. Norman Gisdorf who retires by rotation and is eigibe for reappointment. 5. To appoint Auditors and to fix their remuneration. SPECIAL BUSINESS: 6. To consider and if thought fit, to pass with or without modification, the foowing Resoution as an Ordinary Resoution: To appoint a Director in pace of Mr. Vikas Chadha, who was appointed as an Additiona Director of the Company by the Board of Directors with effect from November 11, 2013, under Section 161 of the Companies Act, 2013 and Artice 144 of the Artices of Association of the Company and who hods office upto the date of the forthcoming Annua Genera Meeting but who is eigibe for reappointment and in respect of whom the Company has received a notice in writing from a member proposing his candidature for the office of Director pursuant to the provisions of Section 257 of the Companies Act, To consider and if thought fit, to pass with or without modification, the foowing Resoution as an Ordinary Resoution: RESOLVED THAT pursuant to the provisions of Sections 269, 309 and other appicabe provisions of the Companies Act, 1956, the Company hereby approves of the appointment and remuneration of Mr. Vikas Chadha as Managing Director, with effect from January 1, 2014, upon terms and conditions set out in the draft Agreement submitted to this meeting and for identification signed by the Chairman, which is hereby specificay sanctioned with iberty to the Directors to ater and vary the terms and conditions of the said Agreement in such manner as may be agreed to between the Directors and Mr. Vikas Chadha. NOTES: a) The Company's share are under the compusory demat ist. Sharehoders are requested to utiize this faciity to their advantage. Sharehoders have been sent the ECS faciity forms. Sharehoders are requested to fi in the forms and take advantage of this faciity. b) The Register of Members and Share Transfer Books of the Company wi remain cosed from Tuesday, Apri 15, 2014 to Tuesday, Apri 22, 2014 (both days incusive). c) A member entited to attend and vote is entited to appoint a proxy to attend and vote instead of himsef and the proxy need not be a member of the Company. d) Members desiring any information about the Company's working are requested to write to the Company at an eary date so as to enabe the Management to repy at the Genera Meeting. e) Members are requested to prompty notify any change in their address to the Company's Registrars & Share Transfer Agents, namey, TSR DARASHAW PVT. LTD., 6-10 Haji Moosa Patrawaa Ind. Estate, 20, Dr. E. Moses Road, Mahaaxmi, Mumbai f) Pursuant to the provisions of Section 205 A of the Companies Act, 1956, as amended, dividend for the year ended December 31, 2006, paid on Apri 27, 2007 wi be transferred to the Investor Education and Protection Fund of the Centra Government this year. Sharehoders who have not encashed the dividend warrant(s) so far for the year ended December 31, 2006 or any subsequent years are requested to make their caim to the Office of the Registrar and 2

5 Notice (contd.) Transfer Agents: TSR DARASHAW PVT. LTD., 6-10 Haji Moosa Patrawaa Ind. Estate, 20, Dr. E. Moses Road, Mahaaxmi, Mumbai It sha be noted that once the dividend is transferred to the Investor Education and Protection Fund as above, no caim sha ie with the Company in respect of such amount. g) As per the provisions of the amended Companies Act, 1956, faciity for making nomination is now avaiabe for sharehoders in respect of the shares hed by them. Nomination forms can be obtained from the Share Registrars of the Company. h) Sharehoders are requested to bring their copy of Annua report to the meeting. Gurgaon, February 5, 2014 Registered Office: 56 & 57, Hadapsar Industria Estate, Pune By order of the Board of Directors Sneha Padve Company Secretary EXPLANATORY STATEMENT PURSUANT TO SECTION 173 OF THE COMPANIES ACT, 1956 Item Nos. 3 and 4: Name of Director Mr. M.N. Bhagwat Mr. Norman Gisdorf Date of Birth Date of Appointment Expertise in specific functiona areas Engineering Engineering Quaifications 1. B.E. (Mechanica & Eectrica), University of Pune. 2. M.S. Mechanica Engineering, University of Iinois, USA. 3. Dipoma in Business Management, Bajaj Management Institute, Mumbai. 1. Chemica engineering degree from Purdue University. 2. MBA in Internationa Business and Finance from the Northwestern University. List of Pubic Companies in which outside Directorships hed as on December 31, 2013 Kennameta India Limited Wachand Peope First Limited Technopois Knowedge Park Ltd. - Chairman/ Member of the Committees of the Board of the Companies on which he is a Director as on December 31, 2013 Audit Committee: Kennameta India Limited: Chairman Wachand Peope First Limited: Chairman - 3

6 Notice (contd.) Item No. 6: Mr. Vikas Chadha has been appointed by the Board of Directors with effect from November 11, 2013, as an Additiona Director on the Board. He, therefore, hods office ony upto the date of the forthcoming Annua Genera Meeting and is eigibe for reappointment. The Company has received a notice in writing from a member as required by Section 257 of the Companies Act, 1956, proposing the appointment of Mr. Chadha as a Director. Mr. Vikas Chadha has been with the Honeywe Group based at Dehi since the ast 5 years and has hed various positions such as Director - South Asia Security System; Regiona Director - South Asia Honeywe Security Systems, Honeywe Internationa India; Regiona Genera Manager - Honeywe Buiding Soutions, Prior to joining Honeywe, he was with McKinsey & Company. Vikas has done his BE (Hons) Eectronics from Dehi Coege of Engineering; Post Graduate Program in Management from Indian Schoo of Business, Hyderabad. Mr. Vikas Chadha is concerned and interested in the matter. Item No. 7: Mr. Anant Maheshwari has accepted a position as President, Honeywe India and he remains on the Board of Honeywe Automation India Ltd. Consequent to this change, the Board has passed a resoution, subject to the approva of the sharehoders in the Annua Genera Meeting, appointing Mr. Vikas Chadha as Managing Director for a period of 5 years w.e.f. January 1, 2014, on the foowing terms and conditions: I) Mr. Vikas Chadha sha, as the Managing Director, be Head of the Management Team and sha, subject to the supervision and contro of the Board of Directors, be responsibe for the overa conduct and functioning of the Company. II) III) Remuneration: 1. Annua Gross Compensation (which incudes basic pay, HRA, other aowances and commission etc.) of Rs.1,00,00,000/- (Rupees One crore) to Rs.2,50,00,000/- (Rupees Two crores, fifty akhs ony) per annum, with such increases as may be determined by the Remuneration Committee of Directors from time to time and approved by the Board of Directors of the Company. The annua increment wi be merit based and take into account the Company's performance. 2. Commission: Such remuneration by way of commission (ICP), in addition to the Annua Gross Compensation payabe, cacuated with reference to the net profits of the Company in a particuar financia year, as may be determined by the Board of Directors of the Company at the end of each financia year subject to the overa ceiings stipuated in Sections 198 and 309 of the Act. The specific amount payabe to the Managing Director wi be based on certain performance criteria to be aid down by the Board and wi be payabe annuay after the annua accounts have been approved by the Board of Directors and adopted by the members. The Managing Director wi aso be eigibe to ong term incentives such as stock options, restricted units issued by Honeywe Internationa Inc., from time to time as per Honeywe poicy. 3. Retiras: Company's contribution to Provident Fund, to the extent it is not taxabe under the Income Tax Act; Gratuity payabe as per the rues of the Company and encashment of eave at the end of tenure sha not be incuded in the computation. 4. Minimum remuneration: Notwithstanding anything to the contrary herein contained wherein any financia year during the currency of the tenure of the Managing Director, the Company has no profits or inadequate profits, the Company wi pay remuneration by way of saary and perquisites as specified above. The terms and conditions of the said appointment and agreement may be atered and varied from time to time by the Board, as it may, in its discretion, deem fit within the maximum amount payabe to Managing Director, subject to the provisions of Section 198, 309 and 310 and Schedue XIII of the Companies Act, 1956, or any other amendments made hereafter in this regard. IV) There are other usua provisions in the agreement reating to termination of contract, observing strict secrecy in respect of business matters, etc. Mr. Vikas Chadha is concerned and interested in the matter. 4

7 Directors' Report Dear Members, The Directors present the THIRTIETH ANNUAL REPORT with the audited statements of accounts of the Company for the year ended December 31, FINANCIAL RESULTS: Particuars Year ended Year ended December 31, 2013 December 31, 2012 (Rs. in acs) (Rs. in acs) Saes & Other Income Operating Profit Less: Interest Depreciation Profit for the year Provision for tax Deferred Tax Adjustment (1728) (195) PROFIT AFTER TAX Profit brought forward from the previous year Profit avaiabe for appropriations APPROPRIATIONS Genera Reserve Proposed Dividend Tax on proposed dividend DIVIDEND: BALANCE CARRIED FORWARD Fina per share of Rs.10/- each was recommended by the Board in their meeting hed on February 5, OPERATIONS: The Management Discussion & Anaysis Report annexed herewith provides fu detais of operationa performance and business anaysis of these business units. Honeywe Process Soutions (HPS) serves core industria sectors of Refining, Oi & Gas, Pup & Paper, Meta and Cement etc. Honeywe Buiding Soutions (HBS) provides soutions and services for faciities such as Commercia & Industria Buidings, IT & ITES industry, Hospitas, Hotes, Airports etc. Environment and Combustion Contro (ECC) serves mutipe brands through channes and offers environmenta and combustion products and soutions to commercia, hospitaity and industria segments. Sensing & Contro (S&C) business provides various sensors and switches to manufacturing and automobie industry. This business serves primariy OEMs in various manufacturing industries such as auto, medica instrumentation, IT, etc. Exports Business Group (EBG) addresses manufacturing and engineering services needs of Honeywe aong with some other non Honeywe customers across the gobe, everaging the cost, skis and knowedge arbitrage. 5

8 Directors' Report 4. COMMUNITY DEVELOPMENT WORK: HAIL remains committed to making the word a better pace and expanding community outreach through wide-ranging CSR activities with focus on Education, Community Heath and Environment. Some of the initiatives under CSR were as foows: Education: Heath: Sponsored 5 femae students studying in Coege of Engineering, Pune who are economicay under privieged, through the Catayst Project in order to promote diversity in the engineering taent poo. Supported teaching ski deveopment programs for teachers at 13 rura schoos in and around Pune, benefitting over 50 teachers and 2500 students during the past year. The computer training program for disabed chidren conducted by empoyee vounteers is in its 5 consecutive year. Schoo kits and merit schoarships have been awarded to over 106 chidren of contract workforce associated with the Company. Over 300 schoo kits were distributed among underprivieged chidren in Pune. The Company supported vocationa ski deveopment programs on pumbing technoogy conducted by the IIEDR, Waghoi. The Company has aso supported and enabed 125 schoo dropouts to appear for the SSC Board exam. A basic heath and hygiene awareness camp was conducted in association with students from BJ Medica Coege for over 200 students from rura areas. Bood donation camp for empoyees at Pune ocation ed to 500 bags of bood being donated. The Company continues to support the AABHA initiative reated to pubic heath awareness in triba areas of Kovan vaey. 22 oca girs from 12 viages in the vaey were trained to be Heath Messengers for their viages. The Company sponsored heath insurance for 50 schoo going chidren and their parents. Environment: Tree pantation and conservation activities have been taken up in association with rura schoos eading to the pantation of over 200 trees during the ast year. The Company has aso provided financia and vounteer support to Project Green Thumb focused on the desiting of the Khadakvasaa dam. 5. HONEYWELL OPERATING SYSTEM (HOS): Your Company has been driving operationa exceence initiative of Honeywe Operating System (HOS). Integrated Suppy Chain function (ISC) and Goba Services (GS) back office supporting the business of Honeywe Process Soutions (HPS) worked further towards sustenance of HOS maturity during 2013, after achieving Siver eve accreditation in Siver is the highest eve that an individua HOS site can achieve. Focus in 2014 at these HOS sites wi be on Siver Exceence through adopting more advanced version of HOS strongy impacting Safety, Quaity, Deivery, Cost and Inventory metrics. Additiona drive in 2014 wi be on (1) HOS from day one at new manufacturing faciity of Environmenta and Combustion Contros business being set up at Vadodara (Gujarat) (2) Enabing operationa exceence for India business and goba back office for Honeywe Buiding Soutions to improve Quaity, Deivery and Productivity performance. 6. DIRECTORS: As per the provisions of the Companies Act, 1956 and Artices of Association of the Company, Mr. M.N. Bhagwat and Mr. Norman Gisdorf, retire by rotation and are eigibe for reappointment. 6

9 Directors' Report (contd.) 7. HUMAN RESOURCES: Honeywe's Positive Empoyee Reationships (PER) strategy aims at engaged and motivated workforce and to create a positive and productive work environment. Honeywe's Goba PER Assessment Process outines the Communication, Action Panning, Surveys (Empoyee and Manager Survey) and Focus Groups to make it more effective. Honeywe has aso made great strides to get the Empoyee Vaue Proposition (EVP) in pace. It focuses on 5 key themes i.e. 1. Chaenging work that matters 2. Right Peope 3. Taent and Leader Deveopment 4. Differentiated Rewards and 5. Community Engagement. As on December 31, 2013, the Company's empoyee strength was 2713 as compared to 2735 as on December 31, MANAGEMENT DISCUSSION & ANALYSIS/CORPORATE GOVERNANCE REPORT: As per Cause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Anaysis Report and Corporate Governance report are annexed and form part of the Directors Report. 9. CODE OF CONDUCT COMPLIANCE: As per Cause 49 of the Listing Agreement with the Stock Exchanges, the decaration signed by the Managing Director affirming compiance with the Code of Conduct by Directors and Senior Management, for the Financia Year 2013 is annexed and forms part of the Directors Report. 10. DIRECTORS' RESPONSIBILITY STATEMENT: Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the Operating Management, confirm that - a) In the preparation of the annua accounts, the appicabe accounting standards have been foowed and that there are no materia departures; b) They have, in the seection of the accounting poicies, consuted the Statutory Auditors and have appied them consistenty and made judgements and estimates that are reasonabe and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financia year and of the profit of the Company for that period; c) They have taken proper and sufficient care, to the best of their knowedge and abiity, 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 irreguarities; d) They have prepared the annua accounts on a going concern basis. 11. AUDITORS: M/s. Price Waterhouse & Co., Bangaore the Statutory Auditors retire at the forthcoming Annua Genera Meeting and are eigibe for reappointment. The Company has received the certificate from the retiring auditors to the effect that the appointment, if made, wi be in accordance with the imits specified in Section 224(1-B) of the Companies Act, OTHER INFORMATION: Information as per Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particuars of Empoyees) Rues, 1975 pertaining to absorption of technoogy, foreign exchange earnings, is given as an Annexure to this Report and forms part of it. As per provisions of Section 219(1)(b)(iv) of the Act, the Directors' Report and Accounts are being sent to the sharehoders excuding the statement giving particuars of empoyees under Section 217(2A) of the Act. Any Sharehoder interested in obtaining a copy of the statement may write to the Company Secretary at the Registered Office of the Company. 7

10 Directors' Report (contd.) 13. ACKNOWLEDGMENT: The Board woud ike to pace on record its appreciation and thanks to a its empoyees for their contribution. The Board aso wishes to acknowedge the support it has received from its investors, customers, vendors, reguatory authorities and bankers. For and on behaf of the Board Gurgaon, February 5, 2014 M.N. Bhagwat Chairman Registered Office: 56 & 57, Hadapsar Industria Estate, Pune Annexure to Directors' Report A) CONSERVATION OF ENERGY: Your Company continues to make every effort to conserve energy required for a its operations. Some of the key initiatives undertaken in 2013 for the same are as under: Impementation of eectrica oad monitoring supervision with hep of existing staff. Reduced number of hours of operation of AC and ighting oads. Changing and adding ony energy efficient LED ighting in the office areas. Making changes to the Air conditioning to make it more energy efficient. B) TECHNOLOGY ABSORPTION: HAIL is an affiiate Company of Honeywe Internationa Inc., and on merits it continues to have access to some of the atest products and technoogy of the parent Company. We continue to ro out new products and technoogy in the Indian markets. C) FOREIGN EXCHANGE EARNINGS AND OUTGO: (Rs. in akhs) (i) Foreign exchange earned 63,955 (ii) Foreign exchange used 60,993 8

11 Management Discussion & Anaysis Report PERFORMANCE OF KEY FINANCIAL INDICATORS AND HIGHLIGHTS OF (Rs. Cr.) 2012 (Rs. Cr.) Externa orders Externa orders up 28% Net revenue from operations Net revenue up 3% Net income Net income at 5% of net saes Cash fow from operations Positive cash generated from operations INDUSTRY OUTLOOK AND OPPORTUNITIES Your Company's operating resuts are significanty infuenced by macro-economic trends such as industria production, capita spending on process and buiding automation, commercia and infrastructure construction, commodity prices and foreign exchange variations. In 2012, a these macro trends started sowing down, impacting growth. During 2013 (the year under review), the Indian economy continued to sow down. Capita expenditure across various sectors continued to remain stagnant with continued uncertainty in the economy. Infation continued to remain high eading to interest rate hikes by the Reserve Bank of India, further chaenging access to funds for your Company's customers. Significant adverse movement in the USD-INR exchange rate during the third quarter of 2013 has had a arge impact on your Company's operating resuts driving costs of imported items higher. Sowdown in the industria and infrastructure sectors has now spread to the residentia construction sector as we. Economic and industry conditions impacting industries invoved in environment, security and safety aso have an impact on your Company's operations. Some of the important market conditions were: Deays in incrementa investments in sectors critica for the Process Soutions business, incuding refining, terminas and pipeines, power generation, transmission and distribution, and oi exporation projects continued. Overa investment trends remained uncertain. Trends in the construction sector for both commercia and residentia verticas continued to remain muted due to suggish demand for rea estate. These trends have impacted your Company's ECC business. For the S&C business, sowdown in manufacturing of machinery, capita goods and auto sectors meant significant shrinkage in avaiabe opportunities. However, the increasing eve of automation in industria and off-road automotive products is a positive trend for the business. The changing geographic mix of goba business from the deveoped regions (North America and Western Europe) to other geographies (e.g., the Midde East, Eastern Europe) has sustained. This affects your Company's abiity to derive competitive advantages from the cost benefit of sourcing services from India by Honeywe entities. Honeywe Process Soutions (HPS): HPS' offerings incude distributed contro systems, fied instruments, programmabe ogic controers, emergency shutdown systems (ESD), quaity contros systems (QCS), process and business performance improvement soutions and various vaue added services. HPS business has won severa prestigious projects as we as continuing its strong position in the key vertica of oi and natura gas is ikey to be a chaenging year for HPS due to the prevaiing economic and poitica environment, which may cause deays in poicy reguation, ower growth of industria production and continued competitive pressures in the market. Opportunities in the green fied refining sector are decining and your Company wi have fewer opportunities due to imited investments in petrochemicas/fertiizers and upgrade/expansion of oi terminas/storage projects in India. Your Company has a strong position in each of these areas. With a suite of products and soutions that cater to these sectors, we expect that from among avaiabe opportunities, we wi win a fair share of the demand. 9

12 Management Discussion & Anaysis Report (contd.) Honeywe Buiding Soutions (HBS): HBS provides buiding soutions that are operationay inteigent and energy efficient. As part of its inteigent buidings suite, HBS provides buiding management systems (HVAC, ighting and utiities monitoring and contro), fire detection and aarm systems, access contro systems, video surveiance systems, integrated security systems and integrated buiding management systems everaging Honeywe's Enterprise Buidings Integrator, i.e., EBI. As part of its operationa efficiency promise, HBS provides after market services for a contro systems as we as comprehensive utiities operations and maintenance services for a mechanica and eectrica systems in buidings. As part of its energy efficiency promise, HBS provides energy management services, energy retrofits and energy performance contracts. The strong resuts in this business continued during the year. Its track record in infrastructure, IT, datacenters and office space verticas has acceerated its presence in teecom, heathcare and pharmaceutica verticas in The highights of the year were major order wins from many arge customers from teecommunications and IT. Environment and Combustion Contro (ECC): With softening of investments in the hospitaity and commercia rea estate sectors, the ECC business had a tough year to sustain revenue growth, which was margina as compared to ast year. Channe voumes, expansion of distribution footprint to tier-2 and tier-3 cities and key project wins in the buiding management system (BMS) business were the highights of the year. The industria combustion contro business continued to see positive trends with reviva of industria demand in the ast year. Soar water heaters aunched in 2009 continued to report strong saes. Government poicies for encouraging renewabe energy soutions are heping in everaging arge commercia opportunities in this space. The investment made in the new soar water factory in Vadodara (Gujarat) in 2013 is ikey to come on stream in the first haf of 2014 this wi continue to hep in growing this business. In 2012, this business aso identified synergistic opportunities for a shared management and go-to-market approach with another Honeywe India entity: Honeywe Eectrica Devices & Systems (ED&S). Both these businesses target simiar end markets in the commercia and residentia construction vertica and, therefore, can benefit by sharing their channes and support infrastructure. We beieve this wi continue to provide your Company an opportunity to expand its reach to tier-3 and tier-4 cities. Consoidation of the commercia construction and rea estate segments, aong with urbanization in tier-2 and tier-3 cities, wi continue to drive growth of the diversified product portfoio for the business. We remain cautious about the overa iquidity situation and interest rates scenario for 2014, which may affect credit avaiabiity in the commercia construction segment, thereby affecting the voume of ECC's business. Sensing and Contro (S&C): With a sowdown in core industria sectors, especiay automotive, construction equipment and off highway equipment, S&C revenue growth rates were ower as compared to historica trends. However, on the back of strong product offering, technoogy and superior services, S&C growth remained fat in these difficut market conditions for the year across a ines of business, viz. eectromechanica, eectro sensing, and test and measurement. During the year under review, S&C secured arge program orders from key customers, which are expected to support revenue growth in 2014 and beyond. Your Company wi continue to remain focused on verticas such as industria, transportation, miitary, aerospace and heathcare. Another important initiative is to expand the distribution network, especiay for greater coverage of industria customers. For this, the channe management team has been expanded through re-organization, which wi hep the business to focus on the distribution network. During the year there have been significant new business opportunities which resuted in major wins from customers in medica and transportation industries. These new business opportunities are expected to support growth in the coming years. Exports: Goba Services (GS) is engaged with Honeywe entities gobay in providing project engineering services, product design soutions, software engineering services, systems manufacturing and staging services. GS is in a unique position to add vaue in terms of driving overa productivity and cost competitiveness in the current economic conditions. Strong and highy mature depoyment of the Honeywe Operating System (HOS), a system designed to drive operationa and business 10

13 Management Discussion & Anaysis Report (contd.) exceence, has heped GS to over deiver on cost contro and productivity metrics, whie mitigating risks and chaenges of a goba economic downturn. Goba Manufacturing (GM) was accredited with HOS Siver certification in August 2012 and sustained this eve in Compared to the previous year, GM's revenue grew marginay in spite of the goba sowdown, and margins improved significanty, party due to favorabe exchange rates. Goba Manufacturing's working capita improved significanty due to better inventory panning during With Honeywe's support and sponsorship, Pune became one of the four regiona factories for Honeywe Process Soutions. This regiona factory enabes Pune to suppy to the Midde East and Europe. LEADERSHIP AND TALENT Your Company continues to invest in Human Capita as a key enaber of business growth. Taent Management and Leadership Deveopment is an integrated set of processes aigned with business strategy to ensure the Company has the right peope, organized in right way and motivated to do the best job every day for its customers. It has mature processes ike Goa Management, Performance Management and structured Feedback and Deveopment processes. Deveoping eadership capabiity in empoyees is a key expectation from every business eader and the Company aggressivey promotes interna movements as path to career growth. This is institutionaized through a number of processes that run consistenty across the organization. One such process, the Honeywe Management Resource Review (MRR) process continuay reviews eadership taent within the organization and proactivey pans for succession by assessing the avaiabe taent pipeine within the Company as aso within the arger Honeywe organization gobay. This process runs twice a year across businesses and functions. Deveopment pans ensure necessary focus on capabiity buiding and skis deveopment for enabing eaders to take up arger roes. Your Company has adopted a muti tiered framework to buid Leadership Capabiity and deveop the Leadership Bench. This incudes among others the India Leadership Connect (ILC) focused on deveopment of 30 top taent for senior eadership roes, the LEAD programme to buid frontine management capabiity and the SDP to deveop supervisory capabiity. The Management Trainee Program and the Graduate Engineer Trainee Programme creates the eadership pipeine at the entry eve. FINANCIALS Overa net revenue from operations at Rs. 1,707 crores, is up 3% compared to the previous year. The domestic segment of the business registered a growth of 9%. This growth was achieved amidst competitive chaenges on pricing and adverse order backog affecting saes voumes. The exports segment revenue is ower by 9%, driven primariy by one time arge export orders in the previous year. Overa net income was Rs. 86 crores. Your Company deivered a return of 5% on saes for the year. Sowdown in the Indian economy and higher costs driven by infation ed to margina growth in revenue. Strengthening of the US doar ed to increase in cost structure, eading to an increase in the cost of production during the year. Tight money market conditions, as witnessed in some deayed payments from customers, caused your Company to take higher charge on account of provision for doubtfu debts and bad debts. Your Company continued to focus on productivity of its workforce. Average headcount for the year stood ower by 8% over the previous year. Corporate aocation was ower by Rs. 9.8 crores, driven by ower biing, which was partiay offset by a significanty weaker rupee as invoicing of aocation is in US doars. Cash fow from operations at Rs. 192 crores, (previous year negative Rs. 17 crores) refected the initiatives taken by your Company to recover its cash position despite adverse iquidity and tight money market conditions. Your Company wi continue to strive for better working capita performance by generating positive operating cash fows in proportion to its net income. 11

14 Management Discussion & Anaysis Report (contd.) RISKS AND CONCERNS Your Company generates a arge percentage of its saes and profits from its business with Honeywe Internationa Inc. and its Affiiates, its major sharehoder. Saes to Honeywe accounted for approximatey 30% and 35% of tota net saes in fisca years 2013 and 2012, respectivey. Your Company's abiity to maintain or grow its business with Honeywe depends upon a number of performance factors, incuding our abiity to (i) identify emerging trends and customer requirements and deveop product and service offerings superior to those of our competitors, (ii) meet or surpass the price, quaity and deivery requirements of Honeywe and its end-customers in a cost-effective and competitive manner, and (iii) deveop and retain empoyees and eaders with the necessary expertise. However, your Company cannot be assured that its eve of saes and profits associated with its reationship with Honeywe wi continue. Honeywe-specific business considerations (independent of its sharehodings in the Company), incuding changes in Honeywe's strategies regarding utiization of aternative opportunities avaiabe to it, to source products and services currenty provided by your Company (incuding from aternative sources which Honeywe may acquire or deveop within its own group), may aso reduce the eve and/or mix of Honeywe's business with the Company. Pricing pressures on saes of goods and services to Honeywe or a reduction in the voume or change in the mix of orders or saes to Honeywe can be expected to have a materia adverse impact on the revenues and profits of the Company. Whie your Company is diversified in various products, industries and geographies, major macroeconomic indicators are generay soft around investments in the process and construction industries. Whie your Company is expecting to achieve a fair share, the diversification is heping it to manage these recessionary trends in focusing on right business. Whie we continue to beieve that the fundamentas appear to be strong and domestic infrastructure investments continue to be resiient, the overa competitive andscape is becoming more aggressive due to ower goba voumes for most peer companies having internationa presence. Voatiity of foreign exchange rates continues to be a concern due to arge exposure to foreign currencies that the Company has on account of imports as we as exports. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Interna Contro Framework Your Company conducts its business with integrity and high standards of ethica behavior and in compiance with the aws and reguations that govern it and its business. Your Company has a we estabished framework of interna contros in pace, supported by poicies, guideines and procedures, incuding suitabe monitoring procedures. In addition to externa audit, the financia and operating contros of your Company at various ocations are reviewed reguary by the Interna Audit team as per pan approved by the Audit Committee, annuay by Honeywe Asia Pacific Interna Contro team for Sarbanes Oxey testing and periodicay by Honeywe Corporate Audit team. The Audit Committee reviews interna audit pan, significant audit findings aong with corrective actions taken by Management, adequacy of interna contros and compiance with accounting poicies and accounting standards. Your Company's Code of Conduct sets out the fundamenta standards to be foowed by empoyees in their everyday actions. Your Company aso has an eaborate Integrity and Compiance program where a empoyees undergo trainings on Code of Conduct to become famiiar with ega requirements, avoid conficts of interest, get sensitized to acceptabe work pace behaviors and are tasked with upward reporting of a unethica or iega conduct. A empoyees are committed to the principe of performance with integrity and ensuring that activities compy with a appicabe aws. Additionay, a officers of the Company are required to certify on an annua basis that there are no transactions which are frauduent, iega or in vioation to the Code of Conduct. Strong oversight and sef monitoring poicies and procedures demonstrate your Company's commitment to the highest standards of integrity. Budget Contro At the beginning of the financia year, the Annua Operating Pans are deveoped by the business units/departments which get approved by the Board and are roed out in the organization. The monthy Management Information System report provides actua performance versus budgets. The Company has a strong operations review mechanism in pace. The Management Committee, the business unit/department head review the performance of the business and the expenses on a monthy basis and corrective actions are discussed and impemented. 12

15 Management Discussion & Anaysis Report (contd.) The Board of Directors reviews the business performance every quarter and suggests corrective actions to ensure that performance is in ine with budgets. The Company has aso initiated various processes to ensure fixed cost is controed, enabing margin improvement on voume everage. Your Company continues to take conscious efforts to reduce cost to serve and eiminate cost of poor quaity, whie addressing price and voume pressures in tough economic environment. Summary Revenue mix for the year refects improvement in India domestic revenue. However, the overa revenue was essentiay fat compared to Your Company experienced moderatey higher net income for Increased competitive environment in both domestic and exports continue to be a concern which is being addressed through concentrated efforts on operationa exceence, driving productivity and aggressive cost rationaization, thus making it a much eaner Company to address the chaenging times ahead. Your Company is continuousy driving new productivity initiatives to remain committed to the journey of profitabe growth. Tota Saes (Rs. Crores) 1,800 1,612 1,661 1, ,600 1, ,400 1, ,200 1, Export Saes (Rs. Crores) Tota saes grew by 3% year on year. Exports saes decined by 9% over prior year due to ower hardware exports orders during Goba services revenue remained fat due to competitive pricing pressures, which were party offset by productivity Net Income (Rs. Crores) % 20% 15% 10% 5% 0% Net Working Capita as % of Saes 20% 16% 14% 13% 12% Favorabe mix couped with productivity gains and ower corporate aocation were offset by competitive pricing pressures, weaker rupee driving increase in import cost and increase in provision for doubtfu debts. Focus on iquidation of working capita has heped address the adverse trend observed in earier year due to infationary pressure on interest rates, iquidity crunch and extended biing miestones. 13

16 Independent Auditors' Report To The Members of Honeywe Automation India Limited Report on the Financia Statements 1. We have audited the accompanying financia statements of Honeywe Automation India Limited (the Company ), which comprise the Baance Sheet as at December 31, 2013 and the Statement of Profit and Loss and Cash Fow Statement for the year then ended, and a summary of significant accounting poicies and other expanatory information, which we have signed under reference to this report. Management's Responsibiity for the Financia Statements 2. The Company's Management is responsibe for the preparation of these financia statements that give a true and fair view of the financia position, financia performance and cash fows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of 'the Companies Act, 1956' of India (the Act ). This responsibiity incudes the design, impementation and maintenance of interna contro reevant to the preparation and presentation of the financia statements that give a true and fair view and are free from materia misstatement, whether due to fraud or error. Auditors' Responsibiity 3. Our responsibiity is to express an opinion on these financia statements based on our audit. We conducted our audit in accordance with the Standards on Auditing and other appicabe authoritative pronouncements issued by the Institute of Chartered Accountants of India. Those Standards require that we compy with ethica requirements and pan and perform the audit to obtain reasonabe assurance about whether the financia statements are free from materia misstatement. 4. An audit invoves performing procedures to obtain audit evidence, about the amounts and discosures in the financia statements. The procedures seected depend on the auditors' judgment, incuding the assessment of the risks of materia misstatement of the financia statements, whether due to fraud or error. In making those risk assessments, the auditors consider interna contro reevant to the Company's preparation and fair presentation of the financia statements in order to design audit procedures that are appropriate in the circumstances. An audit aso incudes evauating the appropriateness of accounting poicies used and the reasonabeness of the accounting estimates made by Management, as we as evauating the overa presentation of the financia statements. 5. We beieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion, and to the best of our information and according to the expanations given to us, the accompanying financia statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principes generay accepted in India: (a) in the case of the Baance Sheet, of the state of affairs of the Company as at December 31, 2013; (b) in the case of the Statement of Profit and Loss, of the profit for the year ended on that date; and (c) in the case of the Cash Fow Statement, of the cash fows for the year ended on that date. Report on Other Lega and Reguatory Requirements 7. As required by 'the Companies (Auditor's Report) Order, 2003', as amended by 'the Companies (Auditor's Report) (Amendment) Order, 2004', issued by the Centra Government of India in terms of sub-section (4A) of section 227 of the Act (hereinafter referred to as the Order ), and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and expanations given to us, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order. 8. As required by section 227(3) of the Act, we report that: (a) We have obtained a the information and expanations which, to the best of our knowedge and beief, were necessary for the purpose of our audit; (b) In our opinion, proper books of account as required by aw have been kept by the Company so far as appears from our examination of those books; (c) The Baance Sheet, Statement of Profit and Loss, and Cash Fow Statement deat with by this Report are in agreement with the books of account; 14

17 Independent Auditors' Report (contd.) (d) In our opinion, the Baance Sheet, Statement of Profit and Loss, and Cash Fow Statement deat with by this report compy with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act; (e) On the basis of written representations received from the directors as on December 31, 2013 and taken on record by the Board of Directors, none of the directors is disquaified as on December 31, 2013, from being appointed as a director in terms of cause (g) of sub-section (1) of section 274 of the Act. For Price Waterhouse & Co., Bangaore Firm Registration Number: FRN S Chartered Accountants Jeetendra Mirchandani Pace : Gurgaon Partner Date : February 5, 2014 Membership Number: Annexure to Independent Auditors' Report Referred to in paragraph 7 of the Independent Auditors' Report of even date to the members of Honeywe Automation India Limited on the financia statements as of and for the year ended December 31, i. (a) The Company is maintaining proper records showing fu particuars, incuding quantitative detais and situation, of fixed assets. ii. iii. (b) The fixed assets are physicay verified by the Management according to a phased programme designed to cover a the items over a period of five years which, in our opinion, is reasonabe having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physicay verified by the Management during the year and no materia discrepancies have been noticed on such verification. (c) In our opinion, and according to the information and expanations given to us, a substantia part of fixed assets has not been disposed of by the Company during the year. (a) The inventory (excuding stocks with third parties) has been physicay verified by the Management during the year. In respect of inventory ying with third parties, these have substantiay been confirmed by them. In our opinion, the frequency of verification is reasonabe. (b) In our opinion, the procedures of physica verification of inventory foowed by the Management are reasonabe and adequate in reation to the size of the Company and the nature of its business. (c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physica verification of inventory as compared to book records were not materia. (a) The Company has not granted/taken any oans, secured or unsecured, to/ from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Therefore, the provisions of Cause 4(iii)[(b),(c) and (d) /(f) and (g)] of the said Order are not appicabe to the Company. iv. In our opinion and according to the information and expanations given to us, having regard to the expanation that, except for certain items of inventory which are of specia nature for which suitabe aternative sources do not exist, there is an adequate interna contro system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sae of goods and services. Further, on the basis of our examination of the books and records of the Company, and according to the information and expanations given to us, we have neither come across nor have been informed of any continuing faiure to correct major weaknesses in the aforesaid interna contro system. v. (a) According to the information and expanations given to us, we are of the opinion that the particuars of a contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. (b) In our opinion, and according to the information and expanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the vaue of Rupees Five Lakhs in respect of any party during the year have been made at prices which are reasonabe having regard to the prevaiing market prices at the reevant time. 15

18 Annexure to Independent Auditors' Report Referred to in paragraph 7 of the Independent Auditors' Report of even date to the members of Honeywe Automation India Limited on the financia statements as of and for the year ended December 31, vi. vii. The Company has not accepted any deposits from the pubic within the meaning of Sections 58A and 58AA of the Act and the rues framed there under. In our opinion, the Company has an interna audit system commensurate with its size and the nature of its business. viii. We have broady reviewed the books of account maintained by the Company in respect of products where, pursuant to the rues made by the Centra Government of India, the maintenance of cost records has been prescribed under cause (d) of sub-section (1) of Section 209 of the Act, and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detaied examination of the records with a view to determine whether they are accurate or compete. ix. (a) According to the information and expanations given to us and the records of the Company examined by us, in our opinion, the Company is generay reguar in depositing undisputed statutory dues in respect of saes tax, Income tax, professiona tax and empoyees' state insurance, though there has been a sight deay in a few cases, and is reguar in depositing undisputed statutory dues, incuding provident fund, investor education and protection fund, weath tax, service tax, customs duty, excise duty and other materia dues, as appicabe, with the appropriate authorities. (b) According to the information and expanations given to us and the records of the Company examined by us, there are no dues of weath-tax, service-tax, which have not been deposited on account of any dispute. The particuars of dues of income tax, saes tax, customs duty and excise duty as at December 31, 2013 which have not been deposited on account of a dispute, are as foows Name of the statute Nature of dues Amount* (Rs. Lakhs) Period to which the amount reates Income Tax Act, 1961 Income Tax ITAT Income Tax Act, 1961 Income Tax 2, ITAT Forum where the dispute is pending Maharashtra Saes Maharashtra Saes Tax CST Tax Act, 1960 Appeate Tribuna. Maharashtra Saes Joint Commissioner of Saes CST Tax Act, 1960 Tax (Appeas) Maharashtra Saes Joint Commissioner of Saes CST Tax Act, 1960 Tax (Appeas) Maharashtra Saes Joint Commissioner of Saes CST Tax Act, 1960 Tax (Appeas) Maharashtra Vaue Deputy Commissioner of Saes MVAT Added Tax, 2002 Tax (Appeas) Gujarat Saes Tax Act, 1969 CST Deputy Commissioner of Commercia Tax (Appea IV) Keraa VAT act 2003 VAT Deputy Commissioner of Saes Tax (Appeas) Rajasthan Saes Tax Act, 1994 VAT & CST to 2011 Deputy Commissioner of Saes Tax (Appeas) West Benga Vaue Added Tax Act, 2003 VAT to Joint Commissioner of Saes Tax (Appeas) Uttar Pradesh VAT Joint Commissioner of Saes Tax (Appeas) Uttar Pradesh VAT Joint Commissioner of Saes Tax (Appeas) The Centra Excise Act, 1944 Excise duty, incuding appicabe penaty Customs, Excise and Service Tax Appeate Tribuna The Customs Act, 1962 Penaty Customs, Excise and Service Tax Appeate Tribuna * Net of amount paid under protest or otherwise 16