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:
4.21% 6.02%
President of India
6.84%
Foreign Institutional Investors Mutual Funds and UTI
15.21%
67.72%
Banks,Financial Institutions,insurace co. Others
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
-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 for eign 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 cu stomer, 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. 0.6 0.5 0.4 Operating Margin
0.3
Profit Margin 0.2
Contribution Margin
0.1 0 2010
2009
2008
2007
2006
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.
140 120 100 80 Earnings per share 60
Cash Flow Pay out
40 20 0 2010
2009
2008
2007
2006
Div pay out 0.3 0.25 0.2 0.15 Div pay out 0.1 0.05 0 2010
2009
2008
2007
2006
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.
1.8 1.6 1.4 1.2
Current ratio
1 Quick ratio
0.8 0.6
Cash Flow from operations ratio
0.4 0.2 0 2010
2009
2008
2007
2006
200 180 160 140 120
Avg. No. of days receivables outstanding
100 80
Avg no of days payables outstanding
60 40 20 0 2010
2009
2008
2007
2006
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.
debt to equity 0.09 0.08 0.07 0.06 0.05 debt to equity
0.04 0.03 0.02 0.01 0 2010
2009
2008
2007
2006
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. dur ing 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
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 Re sponsibility”.
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.
