BHEL

BHEL is the largest engineering and manufacturing enterprise in India in the energy-related /infrastructure

sector. BHEL manufactures over 180 products under 30 major product groups and caters to some of the core

sectors of the Indian Economy viz., Power Generation &Transmission, Industry, Transportation, Renewable

Energy, etc. It has a wide network of 14 manufacturing divisions, 4 Power Sector regional centres, with 100

project sites, 8 service centres and 18 regional offices.

Vision:

A world class engineering enterprise committed to enhancing the stakeholders value.

Mission:

To be an Indian Multinational Engineering Enterprise providing Total Business Solutions through quality

products, systems and services in the fields of energy, industry, transportation, infrastructure and other

potential areas.

Philosophy:

The BHEL philosophy of professional excellence through continuous striving for state-of-the-art technology

is embodied by a strong team of 62,500 employees, including over 11,000 highly qualified engineers.

Continuous training and retraining, a positive work culture and participative style of management have

resulted in the development of a committed and motivated work force, ready to meet the challenges of

tomorrow.

Workers' participation at all levels (even at the Board);

Encouragement to all employees to participate in cultural, sports, educational and other activities and

dedication to excel, coupled with safety habits.

The BHEL units are decentralized, independent and bureaucratic structure of work organization is almost

non-existent. Flexibility, rather than red-tapism is the norm in day-to-day working.

Shareholding Pattern:

Major Products And Services:

BHEL have diversified their business in Power, Transportation, Industry, Renewable Energy. Oil

and Gas and International Business sectors. It manufactures over 180 products under 30 major product groups

Power Sector: BHEL is the largest manufacturer in India supplying wide range products and systems

for thermal, nuclear, gas utility and hydro-based captive power plants. It supplies steam turbines, turbines,

generators, boilers and matching auxiliaries. It is the only Indian company capable of manufacturing large-size

gas-based power plant equipment. It also supplies circulating fluidized bed combustion (CFBC) boilers for

thermal power plants. The co. Has proven expertise in plant performance improvement through renovation,

modernization and up gradation of variety of power plant equipments.

Industries: BHEL is the leading manufacturer of variety of electrical, electronic and mechanical

equipments for no. of industries like metallurgical, mining, cement, paper, fertilizers etc. It supplies systems

and individual products as:

-Centrifugal Compressors

-Drive Turbines

-Electrostatic Precipitators

-Waste heat recovery boilers

67.72%

15.21%

6.84%

4.21%6.02% President of India

Foreign Institutional Investors

Mutual Funds and UTI

Banks,Financial Institutions,insurace co.

Others

-ID/FD fan sets.

BHEL is leading company in the world having mastered the art of

burning Naphtha in Gas Turbines.

Transportation: The Indian Railways is equipped with traction equipment built by BHEL. Range of

products supplied by BHEL includes:

-Traction motors

-Traction generators

-Vacuum circuit breakers

-Locomotive bogies

It also has started the supply of equipment for Dual Voltage EMUs with 3phase

technology. BHEL has developed and established energy efficient technology for IGBT based propulsion

system for AC Drives, a landmark achievement in transportation sector.

Renewable Energy:BHEL has commissioned solar photo-voltaic grid interactive as well as standalone plants

at 12locations contributing to preservation of natural habitat of Lakshadweep Islands. Its products include:

-Solar water heating systems

-solar PV modules (for both domestic and industrial applications)

-space-grade solar panels(for ISROs)

-space-quality batteries

Oil and Gas: BHEL possesses expertise to design, manufacture and service various types of

equipment like:

-On-shore deep drilling rigs

-mobile rigs

-desert rigs

The company is in the process of manufacturing environment friendly AC-technology

based oil rings for on-shore application. It also supplies Casting Support System, Mud line Suspension System

to ONGC and GAIL(India) Ltd.

Transmission: The products manufactured by BHEL include:

-Power Transformers

-Instrument Transformers

-Shunt reactors

-SF6 switchgears

-Ceramic Insulators

-Circuit breakers

High voltage direct current (HVDC)systems have supplied for economic transmission

of bulk power over long distances. BHEL has into MoU with Toshiba Co., Japan to take projects in Extra high

voltage alternating current(EHVAC) and ultra high voltage alternating current(UHVAC).

International Business:BHEL provides services, covering thermal, hydro and gas based trunkey power

projects related products in more than 70countries in the world besides a variety of products like transformers,

valves, oil field equipments, insulators, heat exchangers etc. BHEL is taking a no. of projects overseas

like largest ever order for a hydro project has been created by securing order of puntasangchu-I hydro power

plant from Bhutan.

Areas of Operations:

Heavy Electrical Plant, Bhopal.

Centre for Electric Transportation, Bhopal

EMRP, Mumbai

Heavy Electrical Equipment Plant, Haridwar

Pollution Control Research Institute, Haridwar

Central Foundry Forge Plant, Haridwar

Heavy Power Equipment Plant, Haridwar

Industrial Valves Plant, Goindawal

High Pressure Boiler Plant, Tiruchirappali

Seamless Steel Tube Plant, Tiruchirappali

Welding Research Institute, Tiruchirappali

Piping Centre, Chennai

Boiler Auxilliaries Plant, Ranipet

Electronics Division, Bangalore

Electronic Systems Division, Bangalore

Global/Indian Economy and Major Economic Indicators:

The global recovery rate from the last years down has slowed down during the end of this financial year. The

highest growth rate is of China, around 10% followed by India with a growth rate of 8.5%. The Indian

economy, which had exhibited a sharp recovery in the second half of 2009-10, witnessed further

consolidation of growth in the first quarter of 2010-11. With a normal monsoon, lead data on the kharif

sowing and production estimates suggest an above trend rate of growth in the agriculture sector in

2010-11. Industrial growth remains robust, although, with greater volatility. Going forward, while the

growth rates in the services sector and agriculture are likely to remain elevated, sustainability of the

recent buoyancy in the industrial sector would require alleviation of supply constraints, particularly in

the infrastructure sector and sustained momentum in private demand.

Details of important economic indicators are as under:

GDP Growth Rate: Real GDP growth was placed at 8.8 per cent during the first quarter of 2010-11,

which is the highest quarterly growth recorded so far since the third quarter of 2007-08. The estimated

growth rate the current FY is 8.5% while for the next FY is 9%.

Growth rate of Agriculture: Agriculture and allied activities witnessed a strong pick-up over the

previous four quarters, led by higher growth in allied activities. The estimated growth rate in agriculture

during the current FY is 4.6% while for the next FY is 3.2%.

Growth Rate of Service Sector: The services sector growth recorded further acceleration in Q1

2010-11 relative to both the previous quarter and the corresponding quarter of last year. Growth in the

„trade, hotels, restaurants, transport, storage and communication‟ segment has been robust in recent

quarters. The estimated growth rate in services during the current FY is 9.2% while for the next FY is

9.5%.

Index of Industrial Production: Growth in industrial output has exhibited volatility in the recent

period, notwithstanding double-digit growth during October 2009 to July 2010 (except June 2010). IIP

recorded a lower growth of 5.6 per cent in August 2010 compared with 10.6 per cent in August 2009,

mainly on account of negative growth in capital goods and consumer nondurables. The estimated growth

rate in IIP during the current FY is 9% while for the next FY is 9.1%.

Infrastructure: The infrastructure sector comprising six core industries (accounting for 26.6 per cent of

the total weight in IIP) recorded a growth of 4.0 per cent during April- September 2010-11, which

represents some moderation as compared to the corresponding period of the preceding year (4.5 per

cent). The growth in the infrastructure sector during the period was led by crude oil, petroleum refinery

and finished steel, while there was lower growth in cement, electricity and coal production as compared

to April-September 2009-10.

Growth rate of Imports and Exports:

Exports: India‟s exports, which exhibited a robust recovery in the last quarter of 2009-10, continued to

record high growth during the current financial year.

Imports: Reflecting the demand associated with robust domestic growth, imports increased at a higher

pace, though with some volatility during the year so far. Oil imports registered a growth of 54.8 per cent

during the first quarter of 2010-11.

Exchange Rates against currencies of major trading partners: The real effective exchange rate

(REER) index for 6-currency had exhibited significant appreciation in 2009-10. During 2010-11 so far

(April-October 22, 2010), the 6-currency REER has recorded higher appreciation as compared with

36-currency REER. The 36-currency REER covers around 90 per cent of India‟s foreign trade.

Inflation Indices:

Wholesale Price Inflation: WPI inflation increased at a faster pace since November 2009 to reach 11.0

per cent (year-on-year) by April 2010 and remained elevated in the first quarter of 2010-11. Consumer

Price Inflation: Inflation, as measured by various consumer price indices, continued to moderate in

2010-11 so far. Available measures of inflation, as measured by various CPIs indicate that it remained in

the range of 9.1-9.8 per cent in September 2010. The divergence between WPI and CPI inflation also

reduced in recent months.

Future Outlook:

Power Sector: Power Sector is witnessing a lot of vibrancy and action on all fronts providing offering growth

opportunities for all stakeholders.An accelerated growth of power sector is imperative for overall growth and

development of Indian economy

SWOT Analysis:

Strengths:

➢ Good corporate image

➢ Complete range of products for transmission and distribution

➢ Established Brand Name.

Considered to be having design ability.

Weakness

➢ The procurement process in the company is cumbersome and subject to auditing

➢ Low exposure to the needs and dynamics of distribution business

➢ Role clarity on the requirement of being an equipment supplier or a solution provider

➢ Acceptance of customers to execute low value high volumes jobs

Opportunities

➢ Huge investment leading to greater demand of goods and services

➢ Demand leading to industry operating at full and over capacity

➢ Better price realizations

➢ Early birds to learn faster and achieve repeat orders

➢ Formation of business groups and tie ups for joint bidding

➢ Healthier working environment and increased private sector participation in operation of

distribution circles also.

Threats:

➢ Purchased preference maybe extended to distribution sector

➢ Increased in number of small contractors leading to price wars

➢ Emergence of new players in the market.

➢ Political pulls and pressures may jeopardize the hole process, raising alarm about the

privatization and being anti-people.

Looking Beyond the Numbers:

When we are scrutinizing the Auditor‟s report, Notes to account, significant accounting policies and

various schedules and annexures to look beyond the numbers, we need to analyze that to what extent the

company‟s revenues are tied to one product and one customer, what percentage of company‟s business is

generated from overseas, its competition, future prospects and legal and regulatory environment.

From company‟s primary business segments, we can find that the major part of the total revenue is

obtained by the power sector of the company. Around 78.54%of the total revenue is generated from the

power sector. As it can be seen that the major portion of the revenues is generated from power sector, the

major customers for the company is basically the power generating companies. They manufacture

products and systems for thermal, nuclear, gas and hydro-based utility and captive power plants.

Now, if we look at the revenues generated by the industry sector, we will find a part of the total revenue

generated by the industry sector is through inter segment. It means that the variety of electrical,

electronic and mechanical equipments manufactured by the industry segment is also utilized by the

various other segments of the company. But of course, the percent of this inter segment revenue is very

small as compared to the total revenue generated by the company.

From company‟s secondary geographical segments, we can see that a portion of the total revenue

generated is generated overseas. Around 4.92% of total revenue is generated overseas. Although the

revenues within India has increased by 23.77%, the revenues from outside India decreased by 7.48%

from last year.

In India, although the energy demand is growing at a rate more than 7%, there is a vast demand supply

gap. This gap provides not only market for future but also great competitive environment. Company is

also taking all necessary initiatives to quickly capture emerging growth opportunities in nuclear power,

transmission, transportation and renewable energy as these are expected to be the growth engines in the

future.

To expand international footprint, BHEL would be consolidating its presence in existing international

markets and also tapping opportunities in new markets. Focus would be on EPC opportunities,

augmentation of EPC capabilities and gearing-up the organization accordingly.

It is also planning to further increase investments in R&D efforts and strengthen engineering and

technology character of the organization.

9. From the point of view of investor:

Profitability ratios:

With profit margin remaining fairly stable over the last years varying between 11 to 13%, along with operating

margin at 19-21%, contribution margin at 48-50%, predictability is attractive to the investors.

Market ratios:

With EPS increasing from Rs. 68 to Rs. 88 in 5 years with a dip in 2008 (because of an increase in common

shares outstanding) because of the rise in net income and marginal increase in dividend payout is attractive to

investors. However, decrease in cash flow per share is a deterrent with an uneven cash flow over the 5 years.

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2010 2009 2008 2007 2006

Operating Margin

Profit Margin

Contribution Margin

From the point of view of short trem lenders:

Liquidity ratios:

Almost 44% of the assets are tied up in debtors. Also, deposits from contractors and advances from customers

amount to almost 44% of the liabilities of the firm. Though the firm has a 33% of reserves and surplus, its

liquidity is tight which is evident from its quick ratio (0.62) and cash flow from operations ratio (0.05%). Its

large debtors is also evident from its average no of days recievables outstanding standing at 186.85 in 2010.

Also, because of the large amounts from contractors and customers in the form of advances, its payment period

is 145 days. Both of these figures have increased over the last years. This is severe deterant to short term

lenders. To add to it, its cash flow from operations ratio stands at 0.05% which has also dipped since 2006.

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2010 2009 2008 2007 2006

Earnings per share

Cash Flow Pay out

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2010 2009 2008 2007 2006

Div pay out

Div pay out

Long term lenders:

The company‟s debt makes only 0.14% of the asset structure, hence its solvency ratios indicate less financial

risks. Its debt to equity being 0.01 and robust interest coverage ratio at 197.74. This is more attractive to long

term lenders than the short term ones.

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2010 2009 2008 2007 2006

Current ratio

Quick ratio

Cash Flow from operations ratio

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2010 2009 2008 2007 2006

Avg. No. of days receivables outstanding

Avg no of days payables outstanding

Financial Health, Operational Efficiency and Management Effictiveness of the Company:

During the year, the company witnessed a healthy growth in gross turnover by 21.83% to Rs.34154 Cr.

over previous year. The turnover (net of excise duty) increased by 25.37% to Rs.232862 Cr. over last

year. Net profit for the year is placed at Rs. 4311 Cr. as against Rs. 3138 Cr. during the last year, a growth

of 37.38% over previous year.

Increased in turnover coupled with savings in material cost over previous year have contributed to the

better financial performance during the year.

Net worth of the company has gone up from Rs.12939 Cr. to Rs.15917 Cr. registering an increase if

23.02%. Net asset value per share has increased from Rs.264.32 during the last year to Rs.325.16 for the

financial year 2009-10.

Although the holding period for raw material increases and for work in progress remains almost

constant, the holding period for the finished goods decreases. But the company‟s payables and

receivables duration also increases. Although company has almost negligible debt, the most the working

capital is tied up in the payables and the receivables.

The company is witnessing a time of immense opportunities but also of great challenges. Today, the

energy demand is growing at a rate of more than 7% but still Indian power sector is plagued with peak

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2010 2009 2008 2007 2006

debt to equity

debt to equity

deficit of around 16%. It is essential to reduce this huge power demand-supply gap to enable to maintain

its high growth trajectory of more than 8%. As BHEL is concerned, it is fully equipped to capitalise on

these opportunities. It has also taken steps to increase its productivity which will ultimately manifolds its

turnover.

BHEL has also increased its investments in R&D and uses upto 20% of the retained earnings for the

same.

Looking to the future, the company has drawn strategic plan to ensure sustainable profitable growth for

the year with the objective of achieving a turnover of Rs. 450000mn by the end of Mar‟12.

For shareholders, excellent business opportunities are emerging for the company which will help it to

maintain its strength, stability and focus to grow its business and remain a well managed company.

Corporate Governance Practices:

BHEL has established a sound framework of Corporate Governance which underlines commitment to

quality of governance, transparency disclosures, consistent stakeholders‟ value enhancement and

corporate social responsibilities. BHEL endeavors to transcend much beyond the regulatory framework

and basic requirements of Corporate Governance focusing consistently towards building confidence of

its various stakeholders including shareholders, customers, employees, suppliers and the society at large.

The company has developed a framework for ensuring transparency, disclosure and fairness to all,

especially minority shareholders.

The corporate governance policy of BHEL rests upon the four pillars of transparency, full disclosure,

independent monitoring and fairness to all. To strengthen this, BHEL has signed a MoU with

transparency international to adopt „integrity pact‟. Our corporate structure, business procedures and

disclosure practices have attained a sound equilibrium with our corporate governance policy resulting in

achievement of goals ad well as high level of business ethics. BHEL‟s corporate governance policy is

based on the following principles:

Independence and versatility of the Board

Integrity and ethical behavior of all personnel

Recognition of obligations towards all stakeholders- shareholders, customers, employees, suppliers

and the society

High degree of disclosure and transparency levels

Total compliance with laws in all areas in which the company operates

Achievement of above goals with compassion for people and environment

The Board of Directors has an appropriate mix of Executive Directors represented by Functional

Directors including CMD and Non-Executive Directors represented by Government Nominees &

independent Directors, to maintain the independence of the Board and to separate the Board functions of

management and control. The Board‟s mandate is to oversee the Company‟s strategic direction, review

and monitor corporate performance, ensure regulatory compliance and safeguard the interests of the

shareholders.

The terms of reference of the audit committee specified by the board are:

Oversight of the company‟s financial reporting process and the disclosure of its financial information

to ensure its correctness, sufficiency and credibility.

Recommending to the Board, the appointment, re-appointment and replacement or removal of the

statutory auditor and fixation of audit fees.

Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

Reviewing, with the management, the annual financial statements before submission to the Board for

approval.

Discussion with internal auditors any significant findings and follow up there on.

To look into the reasons for substantial defaults in the payment to the depositors, debenture holders,

shareholders and creditors.

Apart from audit committee, company also has many other committees like Remuneration committee,

Shareholders‟/Investors‟ Grievance Committee, HR Committee, Committee on Merger & Acquisitions,

Project Review Committee etc.

As the company is dedicated towards its stated objective of value creation for all its stakeholders while

preserving the high standards of ethics and governance, it is rated CGR1.

Corporate Social Responsibility:

BHEL has developed a CSR scheme and its Mission statement on CSR is “Be a Committed Corporate

Citizen, alive towards its Corporate Social Responsibility”.

Socio-economic development: As a part of its CSR, it undertakes socio-economic and community

development programmes to promote education, improvement of living conditions and hygiene in

villages and communities located in the vicinity of its manufacturing plants and project sites spread

across the country. Thrust is being given to in eight areas– Self Employment Generation; Environment

Protection; Community Development; Education; Health Management & Medical Aids; Orphanages &

Old-age Homes; Infrastructural Development; and Disaster/ Calamity Management.

Health, Safety and Environment: BHEL‟s commitment towards environment is reflected in all its

activities, products and services, providing safe and healthy working environment to all stakeholders. In

conformity with its concern for environment, the company is committed to sustainable development with

Environment improvement projects (EIP) forming part of the MoU with the Administrative ministry.

UN‟s Global Compact Programme: BHEL reiterated its commitment to the United Nations‟ Global

Compact Programme and continued to play a lead role in promoting the set of core values enshrined in its

ten principles on human rights, labour standards, environment and anti-corruption and intends to

advance these principles forming part of its strategy & culture within its sphere of influence.

As a socially conscious corporate citizen, the company is making efforts to contribute to the society in

the areas of community development and environment protection. Blood donation camps were

conducted, concessional education in English medium is provided.

BHEL scheme on Corporate Social Responsibility has evolved over the years and has been endorsed by

the top management as a policy statements, on the underlying principal that BHEL is a Committed

Corporate Citizen and its Corporate Social Responsibility is not only to build synergy between business

and Corporate Social Responsibility but is an integral part of business strategy. So it is rated CSR 1.