BHEL BUILDING CAPACITY AND CAPABILITY FOR THE FUTURE - Turnover and Profit at All-time high; Enters Supercritical league; Capacity of Projects installed worldwide crosses 1,00,000 MW; Manufacturing capacity enhanced to 10,000 MW per annum

In fiscal 2007-08, Bharat Heavy Electricals Limited (BHEL) further built on the growth momentum achieved in the year before, with an all-time high Turnover at Rs.214,010 Million, crossing the Rs.200,000 Million mark for the first time and registering a growth of 14.2 per cent and Net Profit at Rs.28,590 Million, soaring nearly 19 per cent, over the previous year. This was disclosed by Mr. K. Ravi Kumar, Chairman and Managing Director, BHEL at the 44th Annual General Meeting of the company, here today.

Addressing shareholders, Mr. Ravi Kumar said that BHEL recorded a surge in Economic Value Addition (EVA), which went up to Rs.18,100 Million from Rs.1,657 Million for the year before. Notably, BHEL secured the highest-ever orders worth Rs.502,700 Million in a single year, despite operating under intense competitive pressure in domestic and international markets. With an order book position of over Rs.850,000 Million - the highest-ever both in physical as well as financial terms, at the close of the financial year, the company expects to achieve robust growth in 2008-09 and beyond.

Outlining the trends in the global and domestic economies, the CMD said that the Indian economy has grown at an average rate of about 8.5 per cent per annum during 2004-08 and the GDP growth rate in 2007-08 is placed at 9 percent. Financial markets around the globe have witnessed turbulence due to the sub-prime crisis in US, rising oil and commodity prices as well as inflationary pressures in the domestic market. In this backdrop, the Economic Advisory Council to the PM has estimated that GDP growth in 2008-09 is likely to be around 7.7 percent. However, India is emerging as an important driver of growth in the Asian region. What is of significance is that the growth has been investment driven in the country, he said.

Mr. Ravi Kumar said that the country's desire to sustain a higher GDP growth rate means that there is going to be a constant attention on the growth of the power sector. Therefore, the power equipment market in India will continue to remain attractive and recent developments in the market as well as initiatives taken by the Government point to this optimism. The ordering pattern in 2007-08 and technology drivers were evident with most of the XIth Plan schemes getting ordered. The majority of orders in BHELs year-end outstanding order book are from the power sector. Such business opportunities are good for BHEL but at they also pose challenges, he added.

In this economic backdrop, he said that the company's performance is indeed commendable, adding that while operating in a fiercely competitive environment, BHEL is constantly defending its existing businesses and seeking out growth opportunities. Major highlights of the year included the first-ever orders for new rating thermal sets in the sub-critical range, 660 MW supercritical boilers, and receipt of all the thermal orders finalised by NTPC and its JVs as well as all hydro orders placed by NHPC, during the year, said the CMD.

The company's efforts in building up its Industry related business during the year also saw many first time achievements. A breakthrough was made in the transportation business with a bulk order for 50 nos. 25 KV Electric Locomotive from Indian Railways after a gap of more than 8 years. In addition, BHEL made an entry into coach building for Indian Railways with the receipt of a developmental order for 9 AC EMU coaches. The company's capability building efforts in the development of 3-phase IGBT based propulsion system for AC EMUs and AC DEMUs, received a boost with the entry into a long term agreement with the technology leader in the field, 'Strukton', said Mr Ravi Kumar.

Enumerating BHEL's milestones in international business, he said that significant steps were taken during the year in the quest to enhance its global footprint with successful forays in new markets and new product areas, apart from firmly establishing the company's presence in existing markets and areas. The year witnessed major strides towards globalisation with the receipt of several orders including an entry into a new market – New Caledonia, an island in the south-west Pacific Ocean, with an order for 2x135 MW environment friendly CFBC Boilers from Koniambo Nickel SAS, an overseas Joint Venture of Extrata, Switzerland. BHEL also secured its first ever order for generating equipment from UAE – secured from Ras Al Khaimah Investment Authority for supply and supervision of 2x42 MW Gas Turbine Generator sets. This path breaking achievement is expected to pave the way for more opportunities not only in UAE but also in other Middle East and North African countries, he said.

The CMD said that in 2007-08, BHEL achieved a significant landmark with its cumulative installed projects crossing 100,000 MW worldwide. Overall, BHEL commissioned 7,150 MW of power plant equipment comprising 6,772 MW Utility and Captive/Industrial sets in the country and 378 MW overseas. A major milestone of the year was the commissioning of a non-BHEL Nuclear set of 220 MW at Kaiga in a record time of about 16 months, besides re-commissioning of 740 MW Gas-based Ratnagiri Block 3 Dabhol, which had been inoperative since the last six years.

On the performance of BHEL equipment, he said that BHEL-built Thermal sets achieved the highest ever PLF of 80.4 per cent and Operating Availability (OA) of 86.7 per cent, exceeding the national average efficiency parameters. Significantly, 12 out of the 13 power stations awarded with Govt. of India's Meritorious Productivity Awards 2006-07 for excellent performance are equipped with BHEL sets, once again reinforcing the reliability and quality of BHEL equipment.

Elaborating on BHEL's growth strategies, the CMD said that several initiatives have been taken in order to face the future with optimism. Having already tied up technology for supercritical thermal sets, BHEL broke new ground by successfully bagging its first order for Supercritical Boilers (2x660) MW from NTPC for Barh Stage-2. To meet the emerging competition in the sub-critical range, BHEL has introduced new rating thermal sets of 270 MW, 525 MW and 600 MW. In the area of Advanced-class gas turbines (Fr.9FA), the company achieved its first success during the year by bagging four orders against international competitive bidding. BHEL is also giving strong thrust in its Industry related business areas and initiatives include Coach Building for Indian Railways, electric locomotives, refurbishment and upgradation of onshore drilling rigs, development of Disc Insulators for 800 kV HVDC applications, etc., he said.

The CMD apprised shareholders that to keep up with the pace of growth in the power sector, BHEL is well on its way to increasing its size of operations supported by phased manufacturing capacity expansion where a capacity of 15,000 MW p.a. will be completed by December, 2009. The company has also decided to go in for further expansion to 20,000 MW p.a. capacity by December, 2011. Besides capacity augmentation of existing products, other major areas of investment include facilities for higher rating nuclear sets, 765 kV transformers and other associated transmission equipment. Attention is also being given to rebuild and retrofit existing facilities to enhance their life, accuracy and productivity through additional investment, said Mr. Ravi Kumar.

On the partnership front, he said that BHEL continued to build strategic relationships to enhance its presence and opportunities in the market. The company entered into an MoU with TNEB for forming a JV to set up a 2x800 MW Supercritical Thermal Power Project in Tamil Nadu. An MoU was signed with MMTC for enhancing export of power plant equipment and projects leveraging counter trade and bulk buying. An MoU was also signed with NTPC to form a JV for jointly executing EPC projects and power equipment manufacturing, he added.

He informed shareholders that improving project delivery is a priority area and BHEL is placing extra emphasis on project execution by equipping its regions with necessary plant and tools by way of higher capacity cranes, manpower, etc. A better project monitoring system using Primavera has been put in place. He said that BHEL is not alone in identifying the bottlenecks prevalent in project execution and there is also a concerted effort by the Government as well as various Utilities in finding solutions.

BHEL is conscious of the need to constantly improve its competitiveness. The company has drawn up a number of sector specific criteria covering areas of Business Excellence, Human Resource Management, Engineering and R and D and Corporate Social Responsibility. BHEL is well on its way of attaining a sustainable profitable growth with the objective of reaching a turnover of Rs.450,000 Million by 2011-12 as per the Strategic Plan of the company.

As part of Research and Development efforts, Mr Ravi Kumar said that BHEL spent Rs 4,640 Million on R and D programmes, 83 per cent higher than the previous year which is on top of 68 per cent growth achieved in 2006-07. In fact, in the last two years, the R and D spend has doubled. Significantly, technology development efforts undertaken by BHEL led to filing of 175 patents and copyrights, enhancing the companys intellectual capital to 664 patents and copyrights filed, which are in productive use in the company's business. As part of its continuous endeavour to develop more efficient products technologies, a world-class Centre of Excellence for Intelligent Machines and Robotics (COE-IMAR), the fifth in the series has also come up, he added.

The CMD said that people in BHEL have always been its strength and BHEL will continue to invest in their learning so as to enable them to develop new ways of providing innovative solutions to customers. For integrated management of Human Resources on a company-wide basis, BHEL is in the process of implementing ERP in HR, and certain modules have already been implemented, he said.

Mr. Ravi Kumar assured shareholders that BHEL is ideally positioned to capture a good share of the country's power development programme and the company has a clear agenda to do just that. It shall always be BHEL's sincere endeavor in continuing the efforts to maintain its business leadership and emerge as a world class organisation.