BHEL BUILDING CAPACITY AND CAPABILITY FOR FUTURE

Bharat Heavy Electricals Limited (BHEL) has completed yet another successful year (2005-06). The company recorded an all-time high turnover of Rs.145,250 Million, notching a growth of nearly 41% on top of 19% and 16% top line growth achieved in 2004-05 and 2003-04, respectively. This is also the highest year-on-year growth in the last three decades. Net profit has soared over 76% to Rs.16,790 Million. Consequently, an enhanced equity dividend of 145% - the highest so far, has been declared by the company. This was disclosed by Mr. A.K. Puri, Chairman & Managing Director, BHEL, at the 42nd Annual General Meeting of the company, here today.

Addressing shareholders, Mr. Puri said that BHEL once again posted a sterling performance and the events of the year confirmed that fulfillment of the company’s strategy continues to be on course. BHEL recorded a surge in Economic Value Addition (EVA), which catapulted to Rs.10,790 Million from Rs.5,040 Million for the year before, he said.

Notably, BHEL secured the highest-ever orders worth Rs.189,380 Million in a single year, while operating in competitive domestic & international markets. With a comfortable order book position of Rs.376,000 Million, at the close of the financial year, the company expects to achieve healthy top and bottom line growth in 2006-07 and beyond, said Mr. Puri.

Felicitating shareholders on the company’s Bhopal Plant celebrating its Golden Jubilee, which marks a glorious milestone in its history, Mr. Puri said that today BHEL is the leader in the heavy electrical equipment industry in the country. Looking to the future, he added that a new Strategic Plan 2012 is being developed by the company to ensure long-term growth.

Outlining the trends in the global power plant equipment industry, Mr. Puri said that International Energy Outlook studies indicate, rapid rise in the net electricity consumption among emerging economies, with an annual average growth of 4% from 2002 to 2025. An extensive expansion of installed generating capacity will be required to meet this electricity demand and good market growth is projected for developing Asian countries specifically India & China. Besides, markets are expanding in Middle-East and Gulf Cooperation Council (GCC) nations, as also in certain African & South East Asian countries.

Enumerating BHEL's milestones in international business, he said that in 2005-06, the company booked the highest-ever physical export orders of Rs.33,480 Million - a five-fold increase over the previous year. Notably, BHEL has now established its presence in all the six inhabited continents of the world. The highlight of the year was the single largest export order for any capital goods manufacturing company in the country for 500 MW power plant in Sudan, he said. BHEL will position itself as a regular EPC Contractor in the global markets and also pursue various opportunities with a view to enhance its presence globally, he added.

Reflecting on the country’s economic scenario, Mr. Puri said that the Indian economy continued its momentum of growth during 2005-06, backed by sustained manufacturing activity and impressive performance of the services sector. The Planning Commission has initiated an exercise for the Eleventh Five-Year plan, which aims for economy growth at 8.5%. Such an envisaged growth will place a heavy demand on the power sector, which would need to maintain a growth rate of at least 10-12%.

The CMD apprised shareholders that the Indian power sector is witnessing a transformation and the need for additions to the power capacity in the country till 2031-32 have been brought out in the recently released Integrated Energy Policy. Actual capacity realization during any plan period would however depend on how quickly projects get configured, necessary clearances obtained and on the actual ordering pattern during the plan period. In the years to come, environmental compulsions, as also the need to achieve energy security, demand a thrust on development of power from hydro, nuclear and non-conventional sources, in addition to deployment of clean coal technologies.

He stated that BHEL is fully equipped to capitalize on these emerging opportunities and outline a strategic framework that would enable BHEL to ensure reasonable growth in the years to come. He said BHEL is focussing on capacity & capability building along with Knowledge Management and skill up gradation/acquisition. BHEL has already taken necessary steps to cater to the likely demand for the next higher rating 800 MW Thermal sets and is actively looking at opportunities in Ultra Mega projects with various project developers. In addition, the company will concentrate on gearing up for 700 MW and higher rating nuclear sets, besides shoring up its capability for higher rating Hydro sets and advanced class Gas Turbines to cater to upcoming market requirements. In tandem with country’s power generation plans, transmission networks will also witness expansion with introduction of higher voltages and new technologies for bulk power transmission. The market leader in the 400 kV segment, BHEL is taking steps to introduce 765 kV rating transmission and associated equipment.

Elaborating further on BHEL’s growth strategies, the CMD said that BHEL is well on its way to enhancing its manufacturing capacity from 6,000 MW per annum at present to 10,000 MW per annum and will be more than willing to enhance it further as required by the country’s power sector. These programmes are in the nature of brown field expansions and have strong economic rationale in terms of time and cost benefits. BHEL has large reserves in addition to leveraging its capacity and can fully meet the resource requirements for its expansion on its own.

Mr. Puri informed shareholders that BHEL would also move aggressively on the ‘Services’ business, leveraging its established service network, spread across the country. Also, in order to further enhance its competitive edge, integrated operations’ improvement strategies like Design-to-Cost, Purchasing and Supply Management, Lean Manufacture, etc., are being pursued with vigour.

BHEL supplied sets account for 76,742 MW or around 65% of the installed power generating capacity in the country and contribute to 73% of the total power generation, said Mr. Puri. BHEL make thermal sets of 200 to 500 MW rating which are the backbone of India’s thermal generating capacity operated at a high PLF of 79.8% & OA of 87.5%.

As part of its contribution to national effort for development of remote areas on a sustained basis, BHEL commissioned three ‘Stand Alone’ Solar Photovoltaic (SPV) power plants at Kaylapara, Rakhalpur and Daudpur islands in the Sunderbans. Hon’ble President of India, Dr A.P.J.Abdul Kalam visited the solar power plant at Kaylapara and appreciated the efforts of BHEL and WBREDA in harnessing renewable energy for the welfare of people living in remote parts of the country.

As part of R&D efforts, Mr. Puri said that BHEL has taken measures to strengthen its R&D capabilities and during 2005-06, an amount of Rs.1,520 Million was spent on R&D programmes. Significantly, technology development efforts undertaken by BHEL led to filing of 84 patents during the year in addition to 13 copyright applications, taking the total number of patents filed till date to 340.

The CMD said that BHEL is well aware of the need for maintaining the quality of its human resources and training & development efforts are being revitalized with a focus on multi-skilling and skill up gradation. Also, the upswing in business and large order book for execution in the coming years has thrown up the need for additional manpower, for which BHEL has taken steps to augment its manpower, he added.

Mr. Puri assured shareholders that excellent business opportunities are emerging for the company and BHEL will take all necessary actions for delivering profitable growth, which in turn is expected to enhance value to all stakeholders.