Bhel Final

STRATEGIC MANAGEMENT PROJECT

BHARAT HEAVY ELECTRICALS LIMITED

Submitted by:

GROUP 1

Santiago

Appaiah

Desmond

Manasi

Supreet

Vignesh

ABOUT BHEL

Bharat Heavy Electricals Limited is the largest engineering and manufacturing enterprise in India in the energy-related/infrastructure sector today. BHEL was established more than 40 years ago, ushering in the indigenous Heavy Electrical Equipment industry in India - a dream that has been more than realized with a well-recognized track record of performance. BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Renewable Energy, etc. BHEL has acquired certifications to Quality Management Systems (ISO 9001), Environmental Management Systems (ISO 14001) and Occupational Health & Safety Management Systems (OHSAS 18001) and is also well on its journey towards Total Quality Management. BHEL represents the capital goods industry in India.

CORPORATE VISION, MISSION AND VALUES

VISION

A world class engineering enterprise committed to enhancing stakeholder 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.

Mission statement evaluation matrix

Firm Customer Products&Services

Markets Profit &Growth

Technology Self-concept

Public Image

Employees

BHEL

No Yes No No Yes No No No

VALUES

Zeal to excel and zest for change

Integrity and Fairness in all matters

Respect for dignity and potential of individuals

Strict adherence to commitments

Ensure speed of response

Foster learning and teamwork

Loyalty and pride in the company.

Industry Overview

The engineering sector is the largest segment of the overall Indian industrial sector. India has a strong industrial and capital goods base. The sector can be categorized into heavy engineering and light engineering segments. Heavy engineering segment forms the majority of the engineering sector in India. India has a well-developed and diversified industrial machinery/capital base capable of manufacturing the entire range of industrial machinery. The industry has also managed to successfully develop advanced manufacturing technology over the years. Among the developing countries, India is a major exporter of heavy and light engineering goods, producing a wide range. The engineering industry has shown capacity to manufacture large-size plants and equipment for various sectors like power, fertilizer and cement. Lately, air pollution control equipment is also being made in the country. The heavy electrical industry in India meets the entire domestic demand. Players in the engineering sector in India can be categorized as follows:

Equipment manufacturers such as Bharat Earth Movers Limited (BEML), Siemens, Cummins India, ABB, etc

Execution specialists such as Bharat Heavy Electricals Ltd.(BHEL), Larsen &Toubro (L&T), Engineers India

Niche players such as Thermax in environmental solutions, Voltas in electro-mechanical projects, ABB for automation technologies and so on.

Power sector: - India will continue to be a power deficient country for the next few years. Thus it makes it imperative for the country to add more capacity to suffice its ever growing demand. In order to meet the mission of “Power for all by 2012” the country plans to add ~160GW over the FY08-17. This translates into ~US$150bn opportunity for the power equipment players. BHEL being the largest player controlling 65% of the domestic market is a direct beneficiary of this opportunity. BHEL’s equipments form 64% of the country’s generating assets. BHEL will also benefit from R&M orders of ageing plants across the country. In addition, BHEL will also benefit as competition from Chinese and Korean players remains low. It recently outbid its international counterparts under the international competitive bidding to win an order for 2 sets of 600MW in Madhya Pradesh. This should enable BHEL to grow its order book going forward

and reap benefits of higher investment in the sector. We expect BHEL to continue to maintain its 64% market share going forward.

COMPETITIVE ISSUES IN THE INDUSTRY

PERTAINING TO GOVERNMENT:

High incidence of indirect taxation. Purchase preference in favor of public sector enterprises which results in

distortion of market mechanism. This prevents private sector enterprises from having a level playing field.

Export transaction costs for the Indian Capital Goods industry are the highest in the world.

Indian Capital Goods industry also lags in strong institutional mechanisms for export credit and promotion.

PERTAINING TO BUSINESS ENVIRONMENT:

Low labor factor proportion is low when compared to other countries Raw materials are mostly domestic in origin. Indian capital goods manufacturers have working capital requirements of 45% as

against global benchmark of 15% Technological competitiveness of Indian Capital goods sector are low. Negative perceptions about “Made in India” have damaged the ability of Indian

Capital Goods manufacturers to compete at optimal capacity in world markets. Quality of infrastructure is poor when compared to industrialized nations. Low degree of buyer sophistication.

PERTAINING TO FIRM LEVEL:

Ownership pattern in the Indian Capital Goods sector is marked by the dominance of public sector enterprises

Sub optimal market functioning Import weights and export weights are low which leads to low competitiveness Indian firms invest less in marketing activities and have low customer orientation Research spending is low as a percentage of sales Operational efficiencies are low.

Porter’s five forces Model - BHEL:

I. Bargaining power of suppliers:

Here the bargaining power of suppliers is not very high, since government controls the tariff structure; however this might change in future. Suppliers are well diversified in the globe and BHEL ensures prompt delivery by the suppliers.

II. Bargaining power of Buyers:

Bargaining power of the retail customers is low, as power is in short supply. However government is a big buyer and payment by government is more erratic. Wide customer base in India and in all the parts of the world

III. Barriers to entry:

Barriers to entry are high, as entering this business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments, retail distribution licensed etc. Competitive price and orders are captured by most of the dominant players, like ABB, L&T, GE etc.

IV. Rivalry among existing players:

Alstom, Mitsubishi, general electric.

The intensity of competition is basically high, since each one is striving to gain their own competitive advantage to gain bigger market share. This is basically achieved by:

Acquisitions & mergers and joint ventures in other countries and technological improvements

V. Threat of Substitutes:

It has many substitutes that might pose a threat

Has less diversification with the sectors, so that concentrated focusing on the respective sector avoids chance of getting substituted.

Ex: Power sector equipments, industry equipments

MACRO ENVIRONMENTAL FACTORS - BHEL:

Political Factors:

BHEL being a public sector undertaking is greatly influenced by the political forces. There is a change in policies every time the government changes. The business decisions are steered to a great extent based on the individual preferences of the new leadership. The company does big business overseas and these projects are directly dependent on the incumbent ruler’s international trade policies. The government policies and regulations relating the company’s client industries can largely affect the future of its business with these customers. For example, power sector has seen a massive growth in the last few years and has been at the top of the political agenda. Now power companies are the major clients of BHEL.

Economic Factors:

The economic boom in India particularly in the last one decade has played a significant role in charting the success of the company. Power Generation is one of the primary indices of a country’s economic development. Turn key projects are the need of the hour and BHEL has proven turnkey capabilities for executing power projects from Concept-to Commissioning.

Social Factors:

Companies are taking more interest in corporate social responsibility these days and steps have been taken by BHEL too to further the same. Its contributions towards CSR till date include adoption of villages, free medical camps/charitable dispensaries, schools for the underprivileged and handicapped children, ban on child labor, disaster/natural calamity aid, Employment for handicapped, Widow resettlement, Employment for Ex-serviceman, irrigation using treated sewage, pollution checking camps, plantation of millions of trees, energy saving and conservation of natural resources through environmental management. Companies that are sensitive to the needs and development of the society normally draw people’s attention and respect faster and can create a superior moral image in the minds of their partners and clients, the same showing more interest in working with an ethical and socially conscious group.

Technological Factors:

BHEL being an engineering and manufacturing giant is to a great degree driven by technological developments and innovations and has its earnest efforts directed towards improving its technological prowess to meet the changing requirements of a growing economy. At the same time the company has to keep pace with the developments happening in its business areas, else it will be knocked out by the competitors. BHEL has been a leader always and the fact that India’s first underground metro at Kolkata runs on drives and controls supplied by BHEL is a testimony to this. The Company has proven expertise in Plant Performance Improvement through renovation and up-rating of a variety of power plant equipments to improve the performance of

existing plants. It has also emerged as a major supplier of controls and instrumentation systems for various power plants and industries.

Environmental Factors:

BHEL is an environment friendly company in all its activities, products and services besides providing safe and healthy working environment to all its stakeholders. The depleting water and energy resources are a cause of concern for all. BHEL has taken certain measures to conserve these precious resources. It has set up rainwater Harvesting Plants and Energy Conservation Projects utilizing efficient technologies.

Proper disposal of Chemical and other wastes is also a major concern for which the company has put up Chemical storage and disposal plants. The company has made the principles of the Global Compact program of the United Nations a part of its strategy, culture and day-to-day operations.

BHEL and its famous SBU

The Ceramic Business Unit (CBU) of BHEL is a Strategic Business Unit for Ceramics and Systems. This business unit deals with High Tension Insulators, Ceramic Wear Resistant liners, Industrial Ceramic Products and associated Systems. CBU is headquartered at Bangalore.

BHEL’s initiatives for 2009-10

The initiatives taken by BHEL are in the form of Joint ventures:

JV Company Venture details NTPC Power equipments Toshiba Transmission equipments NPCIL Nuclear power equipments

Initiatives by Competitors

ABB has set up a global corporate R&D center in Bangalore which focuses on industrial IT development and deployment. Its Indian subsidiary is a global factory for high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers and magnetic actuators.

Cummins, taking advantage of India’s technical know-how has opened a new R&D centre in Pune, Cummins Research & Technology India Pvt Ltd, which would offer engineering design and analysis capabilities for the company’s technical centers worldwide.

External Factor Evaluation Matrix ― BHEL

EFE –BHEL(2010)

Key External Factors Weight Rating Wtd

Score

Opportunities

1. Capital Goods market segment to grow @40% 0.15 4 0.60

2. The power sector reforms are expected to pick up in the near future in India, which would directly benefit BHEL

0.10 2 0.20

3. The disinvestment plans of the government would bring in new resources and experience into the company

0.15 3 0.45

4. Formation of business groups and tie ups for joint bidding 0.20 3 0.60

5. NTPC is planning additional capacities to the tune of 2,800 MW, at a cost of Rs 52 billion. Significant portion of the project of NTPC is handled by BHEL. (85% of the NTPC projects were assigned to BHEL only)

0.20 4 0.80

6. Increase in defence budget will increase the business prospects for the company

0.20 1 0.20

Total 1 2.85

EFE – BHEL (2010)

Key External Factors Weight Rating Wtd

score

Threats

1. The company is dependent on NTPC to a great extent. 0.20 3 0.60

2. The government has permitted the import of second hand capital goods that are 10 years old without the need for a license.

0.05 1 0.05

3. Emergence of new players in the market like Schneider etc.

0.20 2 0.40

4. Political pulls & pressures may jeopardize growth of the company

0.10 2 0.20

5. Labour in the Indian Capital Goods sector is highly cost competitive. The labour cost efficiency (which captures the cost and productivity aspects of labour) for Indian Capital Goods sector is 1.32 times that of China’s and 1.38 times that of Taiwan’s.

0.05 2 0.10

6. Raw material price indices have risen faster than the machinery price index. With the dismantling of various price controls, Indian Capital Goods manufacturers now procure raw materials at market prices, which move in line with international prices.

0.15 3 0.45

7. India has a number of high quality R&D institutions, but the BHEL–institute interactions are low and brain drain from India, reduce the chances of creation of commercially technologies.

0.25 3 0.75

Total 1 2.65

KSFs - for Future Competitive Success

1) Power projects are typically awarded through the International Competitive Bidding (ICB) route, where pricing is an important criterion in awarding the contract. Cost competitiveness is

dependent on factors such as access to technology at low costs, local manufacturing facilities resulting in lower freight costs, low manpower costs and efficient procurement and processing practices.

2) As the share of Independent Power Producers in new capacity additions increases over the long term, the ability to provide finance and take up equity stakes in these projects will influence the competitive position of Power plant equipment manufactures.

3) Power projects are long gestation projects involving significant risks relating to project completion and implementation. The past track record of the PPE manufacturer in the country and in international markets also plays an important role in winning project bids.

4) The Power, Plant and Electric industry is technology intensive, with significant investments required in R&D to improve efficiency and performance, and keep pace with technological developments in the sector. The ability and resources to invest in research is a significant competitive advantage for BHEL in the PPE industry.

BHEL AND THE GLOBAL MARKET - OPPORTUNITY FOR BHEL

Bharat Heavy Electricals Ltd is planning to triple export orders to Rs10300 crore by 2012. BHEL currently has orders worth Rs1.10 trillion. Its international projects contributed Rs 3,200 crore till date to Rs 24,000 crore worth of orders generated in the fiscal year that began in April. While organic growth is expected to contribute Rs 6200 crore to its order book by 2012, the remaining Rs 4,100 crore will come from acquisitions and joint ventures. This is expected to go up to Rs 8,000 crore each (through organic and inorganic growth) by 2017.

2006 2007 2008 20120

1000200030004000500060007000

704 1071 1020

6200

Overseas Business

Overseas Business

Chart showing BHEL’s overseas business

FUTURE OUTLOOK OF THE INDUSTRY:

Indian engineering industry

*India’s comparatively cheaper and *A larger number of domesticskilled workforce can be effectively as well as international playersutilized to set up large low cost production *Highly competetive industrybases for domestic and export markets

*Huge investments from the companies for R&D etc Firm strategy,structure&

rivalry

Factor Conditions Demand Condtions

Government Related & Supporting industries

*Liberalized overall policy regime *Consumers include power utilites,Industrial majors(refining,auto,textile)

*Import duties on a range of equipment government &retail consumershave been reduced

*Highy demanding consumers*Heavy electrical industry has been de-licensed with 100% FDI allowed

*Demand linked to the industry growth*The focus to develop road,ports,improvepower generation etc.

*India has well developed teritary and technical institutions

*Well developed vendor base

BHEL

Analysis of competitive advantage of the firm:-

1) BHEL is a single source for multiple solutions of Infrastructure & Industrial sectors of the economy. It provides solutions in the field of power,transmission,transportation,Oil&Gas to name a few

2) A major manufacturer of power plant equipment for various fuels.

3) Fully indigenized technology up to 600 MW from world leaders.

4) Continuously enhancing manufacturing capacity Upto 15GW by 2010.

5) BHEL is bridging the skill deficit and training high pressure welders of contractors

6) BHEL is technological ahead of other companies in the sector like

IGBT technology being pursued in transportation and is the sole supplier in world for 420 kN/320 kN porcelain insulators for 800 kV HVDC lines and has TCA with Sheffield Forgemasters UK for Forgings

7) BHEL has applied innovation in marketing and supply chain with partnerships forged with NTPC, KEL & HEC and enhancing vendor base & balance of plant. Its applying IT to manage supply chain management through SAP/ERP, e-procurement and reverse auctioning.

8) MoU with GE-Hitachi for cooperation in nuclear island equipment for Power plants to be set up by NPCIL.

9) MoU with BEL for formation of a JV to address Solar Photovoltaic business. MoU with Toshiba Japan covering Transformer GIS for EHVAC & UHVAC range etc. MoU with GE for Diesel Electric Locos & mfg. of propulsion systems

10) Market capitalisation of over One Trillion rupees.

11) Significant growth in Intellectual Capital; one Patent/Copyright filed every alternate working day.

12) Rs. 2311 Crore export orders from twenty six countries.

13) Breakthrough in transportation business with bulk order for 50 nos. 25 KV Electric Locomotive type WAG 7 from Indian Railways.

14) Forays in new markets –Belarus, Senegal, Rwanda & new market segments in Syria, Tajikistan, Japan, Nigeria. Presently executing 40 contracts in 25 countries

Internal Factor Evaluation Matrix ― BHEL

IFE –BHEL(2010)

Key Internal Factors Weight Rating Wtd.

Score

Strengths

1. Good corporate Image & established brand name 0.20 4 0.80

2. Single source for multiple solutions for Infrastructure & Industrial sector

0.20 4 0.80

3. Possessing technology & design ability 0.15 1 0.15

4. Strong & wide network of manpower across India 0.15 2 0.30

Weakness

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

0.10 4 0.40

2. BHEL being a public sector company various processes for procurement and supplying are cumbersome and are subjected to auditing

0.05 2 0.10

3. Bureaucratic structure 0.15 3 0.45

Total 1 3

The score of 3 indicate that BHEL is above average in their overall internal strategic position.

Financial Analysis

The Company follows Straight Line Method (SLM) of depreciation to value the fixed assets. SLM is the commonly used method of depreciation used in India. Since BHEL is an Indian

Company, it too follows the follows Straight Line Method (SLM) of depreciation to value the fixed assets.

BHEL does not have any commitments and contingencies. This is because it is the Numero Uno in the Capital Goods industry. It is also generating increasing profits year by year.

Dividend Per Share of BHEL & top 4 competitors

1 2 3 4 50

5

10

15

20

25

30

Dividend Per Share(BHEL)Dividend Per Share(L&T) 22 13 17 10.5 12.5Dividend Per Share(Suzlon)Dividend Per Share(BGR ENERGY)Dividend Per Share(BEML)

X axis represents year from 2005 to 2009

Y axis represents rupees in crores

BHEL is constantly paying dividends to its share holders and the closest to paying dividends is L&T.

Operating Profit Margin (%) of BHEL & top 4 competitors

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

-10

-5

0

5

10

15

20

25

30

Operating Profit Margin(%)(BHEL)Operating Profit Margin(%)(L&T)Operating Profit Margin(%)(Suzlon)Operating Profit Margin(%)(BGR Energy)Operating Profit Margin(%)BEML)


Operating Profit margin has decreased considerably in the last two years. An area of concern for BHEL.BHEL should concentrate on using technology & methodology which can increase operational efficiency.

Gross Profit Margin (%) of BHEL & top 4 competitors


-10

-5

0

5

10

15

20

25

30

Gross Profit Margin(%)(BHEL)Gross Profit Margin(%)(L&T)Gross Profit Margin(%)(Suzlon)Operating Profit Margin(%)(BGR Energy)Operating Profit Margin(%)BEML)


Gross Profit has decreased in the year 2008 & 2009. One of the factors can be due to decrease in demand of Capital goods due to the economic slowdown in 2008.

Debt-Equity ratio of BHEL & top 4 competitors


0.5

1

1.5

2

2.5

3

3.5

Debt Equity Ratio(BHEL)Debt Equity Ratio(L&T)Debt Equity Ratio(Suzlon)Debt Equity Ratio(BGR Energy)Debt Equity Ratio(BEML)


Debt-Equity ratio for BHEL is one of the lowest in the industry. It is efficiently using its financial resources. In the year 2008 & 2009 it has decreased to 0.1, indicating that it can again go for debts as and when required, depending on the requirements of future projects.

Inventory turnover ratio of BHEL & top 4 competitors


20

40

60

80

100

120

140

160

180

Inventory Turnover Ratio(BHEL)Inventory Turnover Ratio(L&T)Inventory Turnover Ratio(Suzlon)Inventory Turnover Ratio(BGR Energy)Inventory Turnover Ratio(BEML)


BHEL is able to efficiently manage its inventory as its one of the lowest in the industry.

Earning Per Share of BHEL & top 4 competitors


-20

0

20

40

60

80

100

120

Earnings Per Share(BHEL)Earnings Per Share(L&T)Earnings Per Share(Suzlon)Earnings Per Share(BGR Energy)Earnings Per Share(BEML)


The recent decrease in earning per share in the years 2008 & 2009, is due to the fact that BHEL project take turn key projects for completion , which have high gestation period so it may take sometime to get returns. EPS is highest for L&T.

Annexures: ------------------- in Rs. Cr. -------------------

Balance Sheet

BHEL LarsenSuzlon

Energy

BGR

EnergyBEML


Sources Of Funds

Total Share Capital 489.52 120.44 311.35 72.00 41.77

Equity Share Capital 489.52 120.44 311.35 72.00 41.77

Share Application Money 0.00 25.09 15.72 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves12,449.29

18,166.115,277.24 489.15 1,996.07

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth12,938.81

18,311.645,604.31 561.15 2,037.84

Secured Loans 0.00 955.73 3,891.16 635.98 753.05

Unsecured Loans 149.37 5,845.10 3,710.06 71.82 155.50

Total Debt 149.37 6,800.83 7,601.22 707.80 908.55

Total Liabilities13,088.18

25,112.4713,205.53 1,268.95 2,946.39

BHEL Larsen Suzlon EnergyBGR EnergyBEML


Application Of Funds

Gross Block 5,224.43 7,235.78 1,355.74 113.17 798.71

Less: Accum. Depreciation 3,754.47 1,727.68 438.58 22.12 524.84

Net Block 1,469.96 5,508.10 917.16 91.05 273.87

Capital Work in Progress 1,212.70 857.66 10.38 5.42 32.21

Investments 52.34 13,705.357,592.60 4.78 8.20

Inventories 7,837.02 1,415.37 797.80 12.48 1,653.00

Sundry Debtors15,975.50

11,163.702,986.81 1,278.02 1,360.74

Cash and Bank Balance 1,950.51 1,431.87 469.32 15.85 567.15

Total Current Assets25,763.03

14,010.944,253.93 1,306.35 3,580.89

Loans and Advances 4,616.67 12,662.554,187.79 671.15 502.89

Fixed Deposits 8,364.16 0.00 129.90 594.98 0.00

Total CA, Loans & Advances38,743.86

26,673.498,571.62 2,572.48 4,083.78

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities23,415.10

19,443.773,641.87 1,337.12 892.24

Provisions 4,975.58 2,188.36 244.36 67.67 560.88

Total CL & Provisions28,390.68

21,632.133,886.23 1,404.79 1,453.12

Net Current Assets10,353.18

5,041.36 4,685.39 1,167.69 2,630.66

Miscellaneous Expenses 0.00 0.00 0.00 0.00 1.45

Total Assets13,088.18

25,112.4713,205.53 1,268.94 2,946.39

Contingent Liabilities 2,546.25 1,719.39 2,572.67 17.08 179.84

Book Value (Rs) 264.32 303.66 35.90 77.94 489.34

------------------- in Rs. Cr. -------------------

Cash Flow BEMLSuzlon Energy

BEMLAIA Engineering

Larsen

Mar '09

Mar '10Mar '10

Mar '10 Mar '10

Net Profit Before Tax12 mths

12 mths12 mths

12 mths 12 mths

Net Cash From Operating Activities 387.47 -799.67 320.64 186.30 5880.67

Net Cash (used in)/fromInvesting Activities

-412.40

2423.62 98.18 86.86 5482.75

Net Cash (used in)/from Financing Activities

-37.94 -2596.53 -28.06 -113.26-6071.73

Net (decrease)/increase In Cash and Cash Equivalents

192.75 571.85 233.52 -66.03 1245.56

Opening Cash & Cash Equivalents-257.59

398.37 303.64 -92.43 656.58

Closing Cash & Cash Equivalents 521.10 70.95 263.51 219.19 775.29

Profit & Loss account ------------------- in Rs. Cr. -------------------

BHEL Larsen Suzlon EnergyBGR Energy

BEML


Income

Sales Turnover 28,504.0537,418.633,504.34 1,932.42 2,974.65

Excise Duty 1,889.69 317.31 0.00 10.32 136.41

Net Sales 26,614.3637,101.323,504.34 1,922.10 2,838.24

Other Income 1,017.86 2,158.75 -182.59 31.53 137.41

Stock Adjustments 1,151.54 -422.99 -254.97 1.61 150.99

Total Income 28,783.7638,837.083,066.78 1,955.24 3,126.64

Expenditure

Raw Materials 15,587.439,613.98 2,284.16 1,351.73 1,829.90

Power & Fuel Cost 341.82 334.08 3.93 1.66 31.69

Employee Cost 2,982.63 2,379.14 181.01 73.14 555.14

Other Manufacturing Expenses2,086.06 18,147.09235.23 168.34 16.80

Selling and Admin Expenses 2,414.84 0.00 371.27 57.67 91.96

Miscellaneous Expenses 165.12 1,462.74 369.25 29.39 200.38

Preoperative Exp Capitalised 0.00 -36.25 0.00 0.00 0.00

Total Expenses 23,577.9031,900.783,444.85 1,681.93 2,725.87

BHEL Larsen Suzlon EnergyBGR Energy

BEML


Operating Profit 4,188.00 4,777.55 -195.48 241.78 263.36

PBDIT 5,205.86 6,936.30 -378.07 273.31 400.77

Interest 30.71 505.31 734.35 91.65 48.93

PBDT 5,175.15 6,430.99 -1,112.42 181.66 351.84

Depreciation 334.27 383.65 126.27 7.00 32.22

Other Written Off 0.00 30.95 0.00 0.00 0.00

Profit Before Tax 4,840.88 6,016.39 -1,238.69 174.66 319.62

Extra-ordinary items 96.64 -2.39 0.00 0.00 2.46

PBT (Post Extra-ord Items) 4,937.52 6,014.00 -1,238.69 174.66 322.08

Tax 1,799.31 1,640.87 175.40 59.56 99.23

Reported Net Profit 3,138.21 4,375.52 -1,414.09 115.09 222.85

Total Value Addition 7,990.47 22,286.801,160.69 330.20 895.97

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 832.18 752.75 0.00 21.60 41.64

Corporate Dividend Tax 141.43 110.25 0.00 3.67 7.08

Per share data (annualised)

Shares in issue (lakhs) 4,895.20 6,021.95 15,567.32 720.00 416.45

Earning Per Share (Rs) 64.11 72.66 -9.08 15.98 53.51

Equity Dividend (%) 170.00 625.00 0.00 30.00 100.00

Book Value (Rs) 264.32 303.66 35.90 77.94 489.34

SWOT ANALYSIS

Strengths

➢Good corporate image & established Brand Name➢Complete range of products for transmission and distribution➢ Strong relationship with NTPC is a strength as NTPC is planning a capacity expansion of Rs. 52 bn and based on the past, 85% of NTPC projects have been bagged by BHEL. The company also enjoys purchase price preference.

➢Considered to be having design ability

Weaknesses

➢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. Being a public sector company BHEL is suffering from sub optimality of control due to:

i. Displacement of social objectives by political objectives, which may lead toredundant costs and also rising costs.ii. Direct political intervention in managerial decision over an arm length relationship that would restrict government’s task of setting appropriate managerial incentive structure.iii. Private goals that lead to budget growth and employment growth.iv. Internal inefficiencies in bureaucratic activity

➢ Larger delivery cycles in comparison with international suppliers of similar equipment.➢ Inability to provide supplier’s credit, soft loans and financing of power projects ➢Non productive working environment and increased of private sector participation.

Opportunities

➢BHEL has huge investments opportunities in infrastructure by governments & large organizations leading to greater demand of goods & services. Ageing power plants would give rise to more spares and services business.

➢Increase in demand (part of economic recovery process) leading to industry operating at full capacity.➢Formation of business groups & tie-ups for joint bidding.➢Early birds to learn faster and thus achieve repeat orders

➢ Demand for power and hence plant equipment is expected to grow

➢Increased external commercial borrowings opportunities leading to better payment options.

Threats

➢BHEL has number of small contractors leading to price wars & loss of business.➢Emergence of new players in the market and old players becoming strong and eating away a part of the market share➢Political pulls and pressures may jeopardize the whole process, raising alarm about the privatization and being anti-people

➢Increased threats from Chinese manufacturers.

Strategies to capitalize the strengths

➢Having a good brand image and product portfolio, they should aggressively defend and increase the market share.

➢Improve internal efficiency and productivity of the employees of BHEL.

Strategies to improve the weakness

➢Improve the speed and quality of purchases as the competition in this range is with small contractors

➢To create channel partners rather than operate as individual companies

Strengths opportunities (SO) strategies

➢Increase market share aggressively

➢Present a better way of performing the jobs in tune with the established brand name

➢To address the demand in all the parts of nation to gain wide spread experience and exploit the opportunities

➢To offer design solutions to the customers

➢Invest money in the process to have financial advantage

Weakness opportunities (WO) strategies

➢Improve procurement cycle and reduce the process difficulties

➢Execute pilot projects to gain experiences and minimize risks

Strengths Threats (ST) strategies

➢To increase lobbying with the government to prevent extension of purchases preference and maintaining level playing field in the segment.

➢To check the emergence of new players and be well prepared to counter them

➢To be cautious in the event of change of the government and the process of reforms falling off the track.

Weakness Threats (WT) strategies

➢Reduce costs to increase margins

➢To train manpower to counter the threats of enhanced competition and to execute the job efficiently

BHEL in order to get considerable and profitable share in the increasing competitive market, need greater emphasis on the following areas

➢Increasing market share aim to increase penetration.➢Price Competitiveness➢Brand building exercise- To gain customers confidence in the distribution business also

The above can be achieved through

➢Increased level of public relations with the customer through dedicated marketing and sales team.

BCG MATRIX

BHEL has its contribution are 6 sectors. These sectors are as follows:

1. Power

2. Transmission

3. Industries: Petrochemicals

4. Refineries, Cement etc.

5. Oil and Gas

6. Non-Conventional energies

7. Transportation

Power sector:

BHEL is the topmost producer of boilers with two third market share and even turbines and generators are manufactured making them the market leader.

Transmission sector:

The transmission sector comes under the industry segment which caters to 22% of BHEL’s industry segment. It consists of gas insulated substation SBU and transformation SBU which holds a good market share and the growth in this sector is much more than power sector which is 40% y-o-y. Thus these are the question mark products of BHEL and should be invested upon more to bring it to star position. It should invest more in technology to sustain competition in this sector and saving it from becoming a dog product.

Refineries and cement sector:

The cement sector does not have any individual player who accounts for more than 12% of market share. But the growth of cement sector has dropped to 10.43%. Hence, BHEL with a small market share in a slow growth market is a dog SBU.

The refineries SBU takes a good share of the market and it is growing rapidly in India at 62% which accounts to a high growth. Thus with a high market share and high growth this is a star SBU for BHEL and it should reap upon the most on it.

Oil and Gas sector:

The oil and gas sector is growing by 45% in which the major contribution is of gas sector. Since BHEL is one of the oldest producers of drilling equipments it has a good market share in its supply. But due to cheap and technologically better equipments supply from international level, BHEL has lost significant market share. Due to the high growth market and decreasing market share it is a question mark product now and BHEL should decide fast whether to invest more and improvise market share or divest from this sector. The BCG matrix can be presented as follows:

Non conventional energies:

The renewable energy sector especially wind energy is seeing a massive growth y-o-y. Thus it’s a highly growing market. But due to many producers of equipments and foreign competition BHEL has not succeeded to secure a high market share. In fact all producers hold more or less similar market share. But due to the overseas expansions of BHEL it has a high market share in this sector. Thus this is on the verge of becoming a star product for BHEL.

Analysis of major strategies

Strategy1:-BHEL has decided to enter into continent of Africa. Bharat Heavy Electricals Ltd (BHEL) has secured diamond, cobalt and iron ore mines in the Democratic Republic of Congo.

Analysis: -The above point is listed as an opportunity in SWOT analysis as huge investments by governments in infrastructure. In India BHEL is able to get orders for supply of equipments like boilers, turbines etc. But in Africa it has got a bigger order that of EPC (engineering,

procurement, and construction) contract. It is also leveraging India’s relation with Africa and enhancing diplomatic relation.

Although there are political uncertainties in countries such as Congo, which may affect this arrangement. It may be difficult for the arrangement to work out so BHEL should look orders from other politically stable countries.

Strategy2:-BHEL to acquire Czech power plant

Analysis: - Listed in SWOT analysis formation of joint ventures. BHEL failed in acquiring Czech power plant equipment-maker Skoda Power because its bid was around 10% lower than Doosan Heavy Industries and Construction, which finally bought the firm.

BHEL is trying by way of M&A to get the technology for large turn key projects and market access to unexplored areas.

Bhel has also been looking at Romanian and Chinese companies.

Strategy3:- BHEL to compete with overseas vendors for equipment supply orders for nuclear power projects

Analysis:-BHEL has credibility and has supplied state-of-the-art power generating equipment of various ratings corresponding to nearly 3,280 MW for various nuclear power plants. This is a good strategy as it will help BHEL get orders from outside and not depend only on Indian firms like NTPC. Also it will help BHEL understand its market standing globally.

Startegy4:-BHEL partnership with NPCIL

Analysis:- Listed in SWOT analysis formation of joint ventures. BHEL has been a major partner in NPCIL's vision to achieve self-reliance in nuclear energy and its association with NPCIL began in 1970 with the development of technology and manufacture of prototype channel covers and heavy water heaters. Aimed at synergizing the strengths of the two companies, BHEL and NPCIL have also recently signed a memorandum of understanding to form a joint venture (JV). The JV will carry out EPC activities for nuclear power plants both within the country and outside on mutually beneficial terms.

It will help in the development of BHEL as an indigenous source capable of designing and manufacturing steam turbine generator sets of these ratings to meet the needs of various nuclear projects proposed to be set up in the country in the future.

Although NPCIL will eat some of the profit but it’s necessary as then they can capture market as both are experts in their respective areas as illustrated when they jointly developed turbine generator sets and steam generators at Tarapur.

Strategy5:- BHEL units plan to re-enter defense business

Analysis:-Defense is one of the areas where government allocates large chunk of it’s money. BHEL can develop technology so that it can enter into supplying of equipments to defense.

Strategy6:-BHEL puts in place system of performance-based loading

Analysis:-Listed in SWOT analysis as a threat number of small contractors leading to price wars and loss of business. It’s good on part of BHEL as it will help in monitoring vendors. According to the system a vendor who performs well in a month will get further orders. The system will motivate them to perform better. As BHEL's outsourcing target keeps increasing to reach 7.5 lakh tonnes in 2010-11 and 10 lakh tonnes in 2011-12, sub-contractors will have to inevitably expand their capacities through technology up gradation.

Strategy7:-Time-saving HR systems in BHEL

Analysis: - Listed in SWOT analysis as a weakness that working environment in BHEL is non productive. Bharat Heavy Electricals Limited (BHEL) has taken up on pilot basis the Release II of HR systems for Payroll, Time Management, Travel Management, Employee Self Service, Manager Self Service and Product Development based on SAP model in the Power Sector Southern Region, Chennai, and the Tiruchi unit.

It will help augment productivity of BHEL. It is aimed at aimed at fulfilling the long-felt need to synergize and integrate human resource function across the organization to leverage maximum benefits. Besides reaching out to internal customers for their requirements on real-time basis, they would also play an increasing role as strategic partner in business.

The system would help in taking quicker decisions

Strategy8:- BHEL nuclear expertise

Analysis:- Bharat Heavy Electronics Limited (BHEL) is facing difficulties in securing timely supply of basic raw materials for its manufacturing units and its supply commitments for power projects envisaged for commissioning in the Eleventh Five-year Plan. BHEL should build suppliers relations well. BHEL should concentrate on less number of suppliers and long term relationships (like Toyota). This non availability of raw materials is adversely affecting BHEL & putting a question mark in building equipments for power plants like reactors.

Startegy9:-Implementation of Share point portal

Analysis: - It is a good strategy and save cost of integration & deployment time. Integrate Search & document management with every day tools- Microsoft internet Explorer & Microsoft office application to help ,create, manage and share content. Create a division portal website. Bidding for international and national power project, procuring, integrating all system and delivering a complete project to the customer within a stipulated timeframes will become easy. Will help improve the intra- team collaboration.

Startegy10:- Vendor development

Analysis:- Vendor development of 200 vendor @ Hardwar is conducted which helps in improving relation between BHEL and vendors.

Startegy11:- Research and Development Strategy

Analysis:- The R&D efforts have made significant contributions to almost all areas of operation of BHEL; a few among them are:

Atmospheric Bubbling fluidized bed Combustion (FBC) boiler up to 100 tones/hr.

Direct Ignition of Pulverized Coal (DIPC).

Ceramic liners for abrasion resistance application in thermal power plants.

MODULE 3:

PROJECTED FUTURE OF BHEL:

REVENUES: 50000 CRORE FOR THE FINANCIAL YEAR 2012

GROWTH RATE: 20%

NO OF EMPLOYEES: 50000

PROFITS: MORE PROFITS IN 2011-12 AND PROFIT MARGIN WILL DROP IN THE YEAR 2012-2013

EXPORTS: ONE SIXTH OF TURNOVER IN 2011-12

MARKET SHARE: 55% IN THE YEAR 2012

PROJECTED BALANCE SHEET:

PROJECTED PROFIT AND LOSS ACCOUNT:

Factors affecting the projected financials:

A dominant position, wide product portfolio and strong relationship with government agencies make BHEL gain advantage over the competitors with aggressive power capacity addition targets set for the XI and XII five year plans.

BHEL enjoys 54% share in the XI plan power orders and order book size of 1, 43,800 crore in the financial year 2010 and thereby the company has strong sales visibility in the coming years.

New orders are expected to slow down in the coming years since 45% of XII plan orders have already been placed.

Robust growth revenues due to enhanced execution capabilities (capacity increased by 50% during 2008-2010 to 15 GW).

BHEL is well positioned to bag supercritical orders due to its technological partnerships, joint ventures with state electricity boards.

BHEL order book will peak in the financial year 2011 since 45% of XII plan power equipment orders have been already placed (54% share of BHEL). Hence there is limited scope for growth in the order book in the future.

Rise of commodity prices, competitive pressures and higher import content in the proportion of supercritical orders will reduce margins in the financial year 2011.

BHEL is the preferred supplier of power equipment for government projects but its share in the private sector is low.

BHEL enjoys substantial economies of scale with a manufacturing capacity that is 2.5 times of its closest competitor, L&T.

Dominant industry status (63% of the installed capacity in the financial year 2009).

BHEL enjoys high EBITDA margins (16.1% in financial year 2009 and 11.5% for L&T).

It is debt free with a debt equity ratio of 0.012 in the financial year 2009.

TURNOVER OF 27% CAGR: CAPACITY ADDITION:

Robust growth in power demand leading to more order inflows for BHEL.

High private sector participation.

Recently BHEL secured the largest order to date from Indian Railways(990 crore) to manufacture 150 electric locomotives.

Industrial segment revenue to increase in the future years(transmission, transport, renewable and nuclear energy)

RISKS AND CONCERNS:

L&T, strongest domestic threat to BHEL, plans to increase its production capacity to 6GW.

Increased price competitiveness in the future leading to market share loss.

Low cost Chinese manufacturers (No import duty on Chinese goods, superior quality, timely deliveries)

Slow execution rate by BHEL may result in lower new order growth

Deregulation may lead to lower order flows

Margin contraction due to higher commodity prices

Currency appreciation may lead to preference for imported equipment

STRATEGIES:

TECHNOLOGICAL STRATEGIES:

Upgrading its product engineering and manufacturing technology base by induction of state of the art technologies.

Upgrading equipment and facilities to maintain quality leadership

FUNCTIONAL LEVEL STRATEGIES:

Focusing on initiatives such as design to cost, lean manufacturing

Purchase and supply chain management initiatives through leveraging IT(negotiations through reverse auctions, e- procurement)

Have suitable product capabilities including manufacturing capacities and technologies

Long term rate contracts(copper, steel, transformer, oil)

Prepare the organization for competition through quality, low cost operations and efficiencies

Assess and build enabling HRM & Financial Management

BUSINESS LEVEL STRATEGIES:

Vendor base expansion

Outsourcing(low technology, low core manufacturing)

Plans to go big in defense orders.

GLOBAL STRATEGIES:

Identify potential future growth drivers in domestic and international market segments(non renewable energy)

Bhel Final

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