BHEL continues Double-digit growth trajectory, Turnover crosses Rs.100,000 million, Pre-Tax profit crosses Rs.15,000 million; Dividend enhanced to 80%; Strategic Roadmap in place to ensure long-term growth.

During fiscal 2004-05, Bharat Heavy Electricals Limited (BHEL) has accelerated the momentum of double-digit growth achieved in the previous year, with an all-time high turnover at Rs.103,364 million, growing by a healthy 19% and net profit at Rs.9534 million, soaring 45%. Consequently, an enhanced equity dividend of 80% - the highest so far, has been proposed by the company. This was disclosed by Mr.AK Puri, Chairman & Managing Director, BHEL at the 41st Annual General Meeting of the company, here today.

Addressing shareholders, Mr.Puri said that BHEL once again posted a sterling performance notching up the highest growth rate achieved in the last two decades, besides sizeable gains in all areas of its activity and reaffirming its commitment to ‘Brightening Lives & Powering Progress’. Significantly, in line with its vision – ‘committed to enhancing stakeholder value‘, BHEL recorded a surge in Economic Value Addition (EVA), which catapulted to Rs.5045 million from Rs.3660 million in the year before, he said.

Notably, BHEL secured the highest-ever orders worth Rs.182,300 million in a single year, despite operating under intense competitive pressure in domestic & international markets. With an all-time high order book of over Rs.320,000 million, at the close of the financial year, the company expects to achieve healthy top and bottom line growth in 2005-06 and beyond, said Mr. Puri.

Dwelling upon the fiftieth year of the company’s Bhopal plant, the CMD said that the setting up of the plant marked the beginning of the heavy electrical industry in India as also the inception of BHEL – a great company that the country is proud of. The reason that the company stood the test of time has been that it has been able to re-calibrate itself to meet the challenges it faced. Now, BHEL is at a threshold where it needs yet another re-calibration. For the last couple of years, this has been engaging the attention of the management and a process has already been set in motion to position the company for accelerated growth.

Outlining the trends in the global power plant equipment industry, Mr.Puri said that the sector has started looking up since 2004. The world’s original equipment market is forecast to grow with the maximum gains in developing economies like India and China with relatively slower growth in USA and Europe. While gas-based plants took a lion’s share of orders in the last 6-7 years, conventional steam-based plants are expected to be back in demand for the next few years, due to volatility in pricing of gas, emergence of more environment-friendly clean coal technologies and growing demand from Asian countries rich in coal reserves.

Enumerating BHEL's milestones in international business, he said that in 2004-05, the company secured several prestigious orders, each one of which signifies a major step forward towards consolidation in international business. The momentum has picked up pace in the current year (2005-06) and BHEL has already booked physical export orders worth Rs.11,750 million. Major achievements include a landmark turnkey contract for two power projects from PDO Oman. These are the sixth and seventh such projects being set up by BHEL in Oman. In addition, the company has made inroads into two new markets namely Ethiopia and Surinam, he said.

For further enhancing overseas business, BHEL will continue to pursue new initiatives / strategies like thrust on identified target countries/ regions, enhanced focus on product sales and spares & services, local tie-ups and joint ventures for manufacture/assembly/ repair and servicing of equipment, positioning itself as an EPC contractor in the global market, setting up overseas joint ventures, etc., he added.

Reflecting on the country’s economic scenario, Mr.Puri said that India is emerging as an engine of global growth along with China. Effective macroeconomic management during the year ensured that India remained one of the fastest growing economies among the emerging economies and the overall GDP growth was almost 7% during 2004-05. For sustained annual economic growth in the region of 8% and above, an energy policy is being drawn up for the country. The challenge is to secure adequate, reliable and quality supplies of energy needed to meet India's stated growth imperatives. As per the Planning Commission, to sustain 8% annual GDP growth, India’s energy needs must rise by at least 5.2% annually under the low-energy-growth scenario and by 5.9% annually under the high-energy-growth scenario.

The CMD apprised shareholders that the Indian power sector is on the threshold of witnessing a transformation and business in the sector indicates high growth potential. India's current commercial energy mix is dominated by coal with a share of 51% compared to 26% for the rest of the world. It is expected that coal would continue to be the most important domestic energy resource for India even under aggressive assumptions about the level of contribution from domestic hydro, nuclear and gas resources. This would continue to be the fuel for the power generating stations in the future. What is of significant interest to BHEL is that the capacity and investment needs in generating capacity are projected to rise by 4.8 to 5.9 times the 2003-04 level (131,424 MW) to reach a level of 6,27,000 – 7,78,000 MW by 2031-32. In the near future, projects are under various stages of finalization for the 11th Plan capacity addition programme of over 60,000 MW, he added.

He stated that BHEL is fully equipped to capitalize on these emerging opportunities. This has also mandated BHEL to rise to the challenge, re-align with fast changing market requirements and evolve strategies to tackle issues related to growth and value creation. As a part of this, BHEL is investing Rs.10,000 million to enhance its equipment manufacturing capacity to 10,000 MW per annum. Secondly, it is pursuing introduction of new technologies for 800-1,000MW thermal sets with supercritical parameters, Advanced Class Gas Turbines of above 250 MW and higher-rating Hydro sets. BHEL is also taking steps to strengthen the engineering and R&D functions and is presently carrying out R&D in emerging new technologies viz. Integrated Gasification Combined Cycle (IGCC), Fuel Cells, etc.

Elaborating further on BHEL’s growth strategies, the CMD said that in order to enhance its competitive edge, integrated operations’ improvement strategies like Design-to-Cost, Purchasing and Supply Management, IT effectiveness, Focus on project deliveries, Structured product development, Enhancing system design capability, etc., are being pursued with vigour. Having obtained ISO-9001 certification and upgrading the same to the latest ISO-9001:2000 version, the company has also taken several initiatives for Business Excellence under CII-EFQM model. In addition, with services emerging as the economy’s new growth engine, BHEL is adopting a renewed approach to tap opportunities in the area of after-market services.

Mr.Puri informed shareholders that to keep pace with the demand for compression of time cycles, enhanced quality and productivity, the ongoing process of holistic modernization of facilities would continue to result in manufacture of state-of-the-art products.

As part of this, to enhance BHEL’s competitive market positioning, an investment of Rs.1550 million was made under capital programmes, during fiscal 2004-05, to enhance the competitiveness of key products/areas.

Notably, in the same period, BHEL once again demonstrated its commitment towards the nation’s power development programme and added 21 sets of 3548 MW.

With this, BHEL has far exceeded CEA’s target for capacity addition for the first three years of the tenth five year plan, even making up for the shortfall of others. BHEL sets now account for 74,780 MW, maintained its share of 65% in the country's total installed capacity, which contributed 73% of the total power generation in the country, said Mr.Puri.

On the performance of BHEL equipment, the CMD said that during the year, BHEL-built thermal sets ranging from 500 MW to 195 MW, which form the backbone of the country’s power generating capacity, registered the highest-ever PLF of 80.8 per cent, which continued to be higher than the national average. In recognition of the reliability and quality of performance of BHEL equipment, out of the 27 power stations awarded with the Govt. of India’s Gold Shield for excellent performance, BHEL had the privilege of supplying power generating equipment to 23 stations, he added.

As part of R&D efforts, Mr.Puri said that a significant highlight was the in-house development of the largest size 60 MW Bubbling Fluidized Bed Combustion Boiler. Also, an indigenously designed Bowl Mill named ‘BHEL 280’, for pulverizing coal in thermal power plants was successfully commissioned at MSEB’s Chandrapur 500 MW site. This optimized mill can reduce the number of mills required for thermal power stations. Also, following the setting up of a Centre of Excellence for Simulators in 2003-04, similar world-class Centres of Excellence for Computational Fluid Dynamics and Permanent Magnet Machines have been established – creating an enabling environment in crucial technology areas.

As a continuing process of linking HRM policies to growth strategies, several new HR initiatives were put in place during the year. Aimed at encouraging individuals to take up improvement projects for capability building and for continuous improvement in every sphere of activity, an Improvement Projects Rewards Scheme (IMPRESS) has been introduced company-wide. The e-network based scheme has a well-defined, structured modus operandi and is expected to enhance the culture of excellence in BHEL by motivating its human resources, said Mr.Puri.

The CMD told the shareholders that there is a growing momentum in BHEL’s activities and growing confidence in its future and the best is yet to come for BHEL.