BHEL FORGES AHEAD ON HIGH-GROWTH PATH - Records All-time high Turnover and Profit; Dividend enhanced to 245%; New Strategic Roadmap targets Rs.450,000 MillionTurnover by 2012

In fiscal 2006-07, a year of solid execution and growth in almost all of its businesses, Bharat Heavy Electricals Limited (BHEL) maintained the high growth momentum achieved in the previous three years, with an all-time high Turnover at Rs.187,390 Million, growing by a healthy 29% and Net Profit at Rs.24,150 Million, soaring 44%. Significantly, while Turnover and Orders inflow have doubled in three years, the Profit Before Tax and Net Profit have doubled in just two years. This was disclosed by Mr. A.K Puri, Chairman & Managing Director, BHEL at the 43rd Annual General Meeting of the company, here today.

Addressing shareholders, Mr. Puri said that a total dividend of nearly Rs.6,000 Million – the highest ever, has been declared for 2006-07, which is 245% of the paid-up capital pre-bonus (including a final dividend of 60% on the enhanced paid-up share capital consequent to 1:1 bonus issue which amounts to 120% on the pre-bonus equity share capital) as against 145% paid for 2005-06.

He said that BHEL recorded a surge in Economic Value Addition (EVA), which went up to Rs.16,570 Million from Rs.10,790 Million for the year before – commendable performance for the engineering industry. Notably, BHEL secured the highest-ever orders worth Rs.356,430 Million in a single year, while operating in fiercely competitive domestic and international markets. With an order book position of Rs.550,000 Crore, at the close of the financial year, the company expects to achieve robust growth in 2007-08 and beyond.

Outlining the trends in the global and domestic economies, Mr. Puri said that the global macroeconomic environment appears healthy with a growth rate of around 5% in the last 3 years and may moderate somewhat during 2008. Growth is expected to remain very strong among emerging markets and developing countries. These trends have been driving the global demand for capital goods.

Also, the Indian economy continues on its high growth trajectory, which began in 2003-04 and the buoyancy in the domestic economy makes BHEL optimistic about its long term prospects. The Indian economy is expected to maintain its growth momentum as the Government has been according a high priority to infrastructure development including the power sector, with capacity addition in generation, coupled with distribution reforms and rural electrification as focus areas.

Enumerating BHEL's milestones in international business, he said that during the year, the company continued to expand its international footprint by entering new markets and building up existing ones. BHEL booked export orders worth Rs.19,030 Million against an average yearly order book of Rs.12,750 Million of the last five years. The year witnessed significant steps towards globalization with the receipt of orders for Power Equipment for over 900 MW of power projects and 5,600 MVA of transformer capacity, the highest-ever in the Transmission sector overseas, spread across ten countries, besides successful forays in a host of new market segments.

Over the next five years, in the pursuit of achieving its globalization aspirations, BHEL is aiming to grow physical exports by six times the current size. The Mergers & Acquisitions (M&A) route will be pursued to avail inorganic growth opportunities to enlarge the company’s operations both in domestic as well as export markets, he added.

The CMD apprised shareholders that the country is planning to add 78,000 MW in the XI Plan and over 85,000 MW in the XII Plan, translating into an average capacity addition of 15,000 to 17,000 MW per annum during these two plans. Higher-rating supercritical thermal sets, Ultra-High Voltage Transmission Systems, Advanced-class Gas Turbines and Higher-rating Nuclear Power Plants are planned to be introduced during the XI Plan and beyond. Capacity creation in future would demand upgradation to higher range equipment, faster capacity augmentation and shorter cycle times with better project execution. The Indian Power Sector has witnessed reforms oriented to improving the investment climate in the sector. With the country poised to achieve higher GDP growth, the Industry Sector is also expected to continue its growth momentum. Besides, Rail Transportation is expected to expand in a big way. All these will throw up challenges as well as opportunities in the core business of BHEL.

He stated that BHEL is fully equipped to capitalize on these emerging opportunities and has taken steps to increase its productivity and enhance its output to meet the schedules of XI Plan projects and beyond. Main plant equipment that BHEL manufactures constitutes about 40-50% of the total power plant and the rest includes balance of plant (BoP) equipment like coal and ash handling systems, water treatment plants, cooling water systems, cooling towers, construction equipment, civil works and services, etc. There has to be a commensurate expansion of capacities in the country for these BoP items by the Indian industry. The growing demand for large power capacity additions in the country warrants that the Power Plant Equipment industry should gear up for the challenge and meet the requirements of the country, he said.

Elaborating on BHEL’s growth strategies, the CMD said 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 10,000 MW p.a. will be completed by December 2007 and 15,000 MW p.a. by December 2009. Manpower is also being ramped up in a commensurate and timely manner. To meet the surge in demand and manufacturing load, critical machines are being operated round the clock on three shift operations. Further, BHEL has embarked on a major exercise of ‘Integrated Operations Improvement Programme’ to address all aspects of its operations to enhance its strategic positioning which include initiatives on competitiveness like Design-to-cost, Purchase and Supply Management, Lean manufacture, etc. Besides, the company has taken broad steps like shift in operational focus from Product to Project and implementation of effective Project Management Systems.

He informed shareholders that BHEL has tied up technology for higher rating (upto 1,000 MW) supercritical Boilers with Alstom, France and for Steam Turbine Generator sets with Siemens AG, Germany and is confident of participating in supercritical power projects. BHEL is also ready to introduce Advanced class Gas Turbines. Besides, initiatives are being put in place to gain from the emerging opportunities in the Transmission and Transportation business segments.

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. BHEL is one of the few companies worldwide, involved in the development of Integrated Gasification Combined Cycle (IGCC) technology which would usher in clean coal technology. BHEL has set up Asia’s first 6.2 MW IGCC power plant with an indigenously designed pressurised fluidised bed gasifier. Efforts are underway in scaling this up to a 125 MW IGCC power plant, said Mr. Puri.

BHEL is already a pioneer in the Solar Photovoltaics and hydro electric energy, and will be concentrating on hydrogen energy technologies especially in the area of Fuel Cells, he added.

The CMD said that in 2006-07, BHEL commissioned 7,863 MW of power plant equipment comprising 4,791 MW Utility & Captive/Industrial sets in the country and 1,332 MW in overseas markets. In addition 1,740 MW was added to the national grid by erecting and commissioning non-BHEL sets, including part supplies. A major milestone of the year was the re-commissioning of the 740 MW Ratnagiri Block II (Dabhol), which had been inoperative since the last six years. BHEL also commissioned the 6x170MW Tala Hydro Electric Project, Bhutan which has become the highest capacity hydro power station, erected and commissioned by BHEL outside the country.

He added that BHEL sets account for 80,782 MW (as on 31st March ’07) or 65% of India’s installed generating capacity and contribute 73% of the total power generation. BHEL-built thermal sets achieved the highest-ever PLF of 78.3% in 2006-07 which is 1.5% higher than the National average. The Operating Availability (OA) of these sets was also the highest-ever at 84.7%. Significantly, 11 out of 12 power stations awarded with Govt. of India’s Gold Shield for excellent performance are equipped with BHEL sets, once again reinforcing the reliability and quality of BHEL equipment.

Reinforcing its commitment to providing prompt and efficient customer service aimed at facilitating uninterrupted power supply and keeping power plants in good running condition, BHEL has set up a Spares & Services Business group to focus on Renovation & Modernisation of old power plants and actively contributing in the Ministry of Power’s Partnership in Excellence programme.

As part of R&D efforts, Mr. Puri said that BHEL spent Rs.2,530 Million on R&D programmes, nearly 66% higher than the year before. In fact, in the last two years, the R&D spend has doubled and turnover through products & services developed in-house has tripled. Significantly, technology development efforts undertaken by BHEL led to filing of 119 patents and copyrights. Spurred by this, BHEL plans to increase its R&D spend over the next five years by at least four times the size of 2006-07.

Looking to the future, Mr. Puri informed shareholders that BHEL has drawn up a ‘Strategic Plan 2012’ to ensure sustainable profitable growth over the next five years with the objective of reaching a turnover level of Rs.4,50,000 Million by 2011-12. Expansion of activities in the market segments that BHEL operates in is the core element that will drive its growth strategy in future. The growth planks for the company over the next five years will be driven by ‘Capacity and Capability enhancement’ that will leverage BHEL’s efforts in its core area of power supported by industry, transportation, transmission, exports and spares & services businesses. The implementation of the Plan is being taken up with full vigour.

Mr. Puri assured shareholders that excellent business opportunities are emerging for the company and BHEL will maintain its strength, stability and focus to grow its businesses and remain a well managed company.