Bharat Heavy Electricals Limited (BHEL), a public sector undertaking, is the largest engineering and manufacturing enterprise in India in the energy-related/infrastructure sector.
The company was set up at Bhopal under the name of Heavy electrical (India) in collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Trichy.
BHEL manufactures over 180 products under 30 product groups and caters to sectors like power generation & transmission, industry, transportation, telecommunication, renewable energy, etc. The company has 14 manufacturing divisions, four power sector regional centres, over 100 project sites, eight service centres and 18 regional offices.
The company has installed equipment for over 90,000 MW of power generation and has supplied over 225,000 MVA transformer capacity and other equipment operating in the transmission & distribution network up to 400 kV (AC & DC).
Between January 92 and February 92, the government disinvested a portion of its share holding in the company.
From FY2005 to FY2009, sales revenues have grown from Rs 10,682 crore to Rs 28,504 crore, at average annual rate of over 41.7%. In the same period, net profit grew by over 57% average annual growth rate from Rs. 953 crore to Rs. 3,138 crore. As the company runs on an order backlog of over three years sales value, the global economic downturn had no effect on it. The company is also insulated from any adverse conditions prevailing in the international markets as it generates 95% of its revenues from domestic projects.
The company has not made any significant capital investments from FY 2005 to FY 2009, hence due to depreciation, the fixed assets to turnover ratio has gone up from 2.67 in March 2005 to 5.2 in March 2009. On 6th May 2009, BHEL announced plans to invest 12,000 crores in capacity expansion to effectively execute the backlog orders. The company has only 0.01% long term debt to equity ratio also because of the nature of the business the company has to maintain an inventory of over 9 months, this has resulted in to pressure on the current ratio and the quick ratio, both of which have gone down from 1.63 to 1.36 and 1.22 to 1.02 respectively.
Share holding pattern: The promoters own 67.72% of BHEL. FIIs with focus on Indian infrastructure segment have invested in the company and own 15.45% of the company. Banks and financial institutions own another 4.45%. ICICI Pru Infrastructure Fund - Retail Plan, SBI Magnum Tax Gain Scheme, DSP BlackRock India T.I.G.E.R. Fund - Regular Plan and UTI Infrastructure Advantage Fund - Series are the mutual funds invested in the firm, with 0.184%, 0.136,0.125 and 0.097% ownership respectively.
|President of India||67.72%|
|Banks Fin. Inst. and Insurance||4.45%|
|Private Corporate Bodies||4.18%|
BHEL is a heavy engineering company with focus on infrastructure projects related to electrical applications. It operates in the following two segments.
Power segment :(77.3% of revenues)
In FY 2009-10 the power segment’s revenue grew 23.1% to Rs. 54.3 bn. EBIT for the segment stood at Rs. 11.2 bn. The segment contributed 77.3% to the total revenues. BHEL has its main expetise in coal-based Thermal Power Plants. BHEL's domestic market share in the coal-based thermal power plant segment is 75%, 65% in nuclear-based thermal plants, 50% in hydro-based thermal power plants. However, in the emerging gas-based combined cycle thermal plants, which have short gestation period, the company has a relatively low market share of just 18%. This is due to presence of other competitors with same level of expertise in this emerging field. BHEL also provides services of erecting plants and executing projects on a turnkey basis. The cumulative capacity of power generating equipment supplied by BHEL outside India is over 3000 MW.
Industrial segment :(22.7% of revenues)
In order to reduce the dependence on power utility providers, the company widened its focus area and hence product base. The company manufactures equipments for industrial users, railways and several other industries including telecommunications, metallurgical and process industry. This segment consist of transportation, non conventional energy and R & D related activities of the company.
In FY 2009-10 the industrial segment’s revenue grew 6.6% yoy to Rs. 15.9 bn. EBIT for the segment stood at Rs. 2.7 bn. The segment contributed 22.7% to the total revenues.
As of 2007, India faced over 15,000 Mw of electricity shortfall against a demand of over 1,00,000 Mw. This has resulted in to the government taking steps to upgrade the power infrastructure in the country. Of the USD 23 billion that is planned to be spent on the infrastructure development, 41% will be spent on the power sector. BHEL has a 65% market share in the countries total installed capacity. Because of its long history, indigenous production and expertise in the power sector, the company is given preference in order placement.
In-spite of the global economic downturn, the heavy engineering industry in India continued to have high capacity utilization rates. The industrial sector grew by over 9.2% in 2009. This has led the industry in to making capital expenditures. BHEL has diversified in to other non power related heavy industries which are at a growth phase in India.
Raw material cost constitutes around 58% of the sales value. Increase in raw material prices result in subsequent decrease in the profit margin associate with any project. Although BHEL maintains an inventory of 9 months of basic raw material, increase in raw material cost would affect the profit margin because the inventory is only for the basic components and many of the components are to be sourced as per the specific requirements of the project. Also since the projects are long term in nature the deals include the risk on change in commodity prices. Increased raw material costs also increase the risk of BHEL loosing the orders to Chinese competition as their business model is based on standardisation which enables them to maintain stockpiles of required raw material at the lowest prices.
Exports constitute only around 5 to 6% of the total sales of BHEL, this makes the company vulnerable to downturn in the domestic market. The company has been making efforts to reduce its risk by diversifying its portfolio of business segments and increasing its exports. The company has identified key export markets where it plans to increase its business to 5 times its existing value by 2012. The company is also exploring the mergers and acquisitions route both in India and abroad to increase its exports.
Financial Comparison of the competitors:
|Financial metrics FY2009|
|Name||Revenue in Rs Crore||Net Profit in Rs Crore||Total assets in Rs Crore||Return on long term funds|