BHEL Capital Budgeting Project

8/7/2019 BHEL Capital Budgeting Project

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CAPITAL BUDGETINGFOR CAPACITY ENHANCEMENT OF AC

LOCOMOTIVES FACILITIES

TM

At

BHARAT HEAVY ELECTRICAL LIMITED

JHANSI (U.P.)

By

RAJKUMAR ARYA

Under the guidance of

Dr. (Mr.) Kushal Kataria Mr. Ghanshyam mouryaAssociate Professor Engineer,G D Goenka World Institute P&DDepartment, BHEL

LancasterUniversity, U.K. Jhansi

A project report submitted in partial fulfilment of the requirements fortheAward of the Degree

Of

MASTER OF BUSINESS ADMINISTRATION (MBA)

G D GOENKA WORLD INSTITUTE, GURGAON, INDIA

(LANCASTER UNIVERSITY, U.K.)

MAY-JUNE 2010


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ACKNOWLEDGEMENT

I express my deep sense of gratitude to Mr. Ghanshyam Mourya, Engineer -P&D, BHEL,

Jhansi for offering me this project. I am also grateful to Mr. Abhishek Jain, Assistant

Manager-FP&A, Wipro Technologies, Bangalore and the whole FP&A Team for taking

pains in explaining the requirements, correcting errors, clearing doubts and patiently guiding

me throughout the project.

I sincerely thank my internal guide Dr. Kushal Kataria, Assistant Professor, G D Goenka

World Institute, Gurgaon for meticulously reviewing my work, making corrections and

offering suggestions without which the project would have been incomplete.

I am indebted to all my colleagues at BHEL intern for theirconstant support and help at all

times, without which this project would have remained incomplete.

Finally, I extend my heartfelt thanks to my parents forbeing a source of constant inspiration

and continuous encouragement.

RAJKUMAR ARYA


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PREFACE

With immense pleasure and deep sense of sincerity, I have completed my Industrialtraining. It is an essential requirement for each and every student to have some

practical exposure towards real world situations. A systematic practical experience is a

must to inculcate self confidence in a student so that they can mentally prepare

themselves for this competitive environment.

The purpose of the training was to:

1. Developing intellectual ability

2. Bringing confidence

3. Developing skills

4. Modify attitudes


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EXECUTIVE SUMMARY

The objective of the study is to analyze the process use forcapital budgeting done in BHEL

in which the proposals are analyzed in terms of Return on investment and Payback period and

also the internal rate of return. The acceptance rules for the proposal are decided by the

management of the Organization.

Capital budgeting refers to the process we use to make decisions concerning investments in

the long-term assets of the firm. The general idea is that the capital, or long-term funds,

raised by the firms are used to invest in assets that will enable the firm to generate revenues

several years into the future. Often the funds raised to invest in such assets are not

unrestricted, orinfinitely available; thus the firm must budget how these funds are invested.

BHEL is one among the Navaratna and continuous growing organization. This report

summarized the process forcapital budgeting in BHEL Jhansi unit with the example of the

proposal of scheme Capacity Enhancement of AC LOCO under this scheme the

organization is having an investment forRs.4535 Lakhs and this amount is invested forthe

opening of a new workshop named as BAY 10 which will enhance the capacity of the

Organization to manufacture the AC LOCO which are in demand by the Railways.

After analyzing the proposal with all aspects, such as doing the sensitivity analysis etc,

following results have been obtained. The investment is giving the IRR of 15.43%, Paybackperiod is 7.96 years and the return on investment is 19.81%.


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CHAPTER 1

INTRODUCTION

1.1INTRODUCTION

Capital budgetingis concerned with designing and carrying through a systematic investment

programme. According to Charles T. Horngren; Capital budgetingis a long-term planning

formaking and financing proposed capital outlays.

As perthe words of G. C. Philippatos; Capital budgeting is concerned with the allocation

of the firms scarce financial resources among the available market opportunities. The

consideration of investment opportunities involves the comparison of the expected future

streams of earnings from a project with the immediate and subsequent stream of expenditure

forit.

According to Richards and Greenlaw, The capital budgeting generally refers to acquiring

inputs with long-run returns.

Thus, the capital budgeting decision may be defined as the firms decision to invest its

current funds most efficiently in long-term activities in anticipation of an expected flow of

future benefits over a series of years. Such decisions may consist of addition, disposition,

modification, mechanization orreplacement of any fixed assets.


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SCOPE OF CAPITAL BUDGETIG DECISION

y Mechanization of a process In orderto reduce costs, a firm may intend tomechanizeits existing production process by installing machine. The future cash inflows on this

investment are the savings resulting from the lower operating costs. The firm would be

interested in analyzing whetherit is worth to install the machine.

y Expansion decision Every company want to expand its existing business. In order toincrease the scale of production and sale, the company may think of acquiring new

machinery, addition of building, mergerortakeoverof anotherbusiness etc. this all would

require additional investment which should be evaluated in terms of future expected

earnings.

y Replacement decision A company may contemplate to replace an existing machinewith a latest model. The use of new and latest model of machinery may possi bly bring

down operating costs and increase the production. Such replacement decision will take

with help of capital budgeting.

y Choice of equipment A company needs an equi pment to perform a certain process.Now a choice can be made between semi- automatic orfully- automatic machine. Capital

budgeting process helps a lot in such selections.

y Product or process innovation The introduction of new product ora new process willbe involve heavy expenditure and will earn profits also in the future. So, a study of capital

budgeting will be very useful and the ultimate decision will depend upon the profitability

of the product orprocess.


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1.2 STATEMENT OF THE PROBLEM

Capital budgeting decisions are among the most crucial and critical business decisions. The selection

of the most profitable assortment of capital investments can be considered a key function of

management. The need and importance of capital budgeting can be illustrated on the following

grounds.

y Heavy investment Almost all the capital expenditure projects involve heavy investment offunds. And these funds are accumulated by the firm from various external and internal sources at

substantial cost of capital. So theirproperplanning becomes inevitable.

y Permanent commitment of funds The funds involved in capital expenditure are not only largebut more orless permanently blocked also. Therefore, these are long-term investment decisions.

The longerthe time, the greaterthe riskis involved. Hence, a careful planning is essential.

y Long-term impacts on profitability Capital expenditure decision have long term implicationsfor the firm and influence its risk complexion to a large extent. These projects exercise a great

impact on the profitability of the firm fora very long time. If properly planned, they can increase

not only the size, scale and volume of sales but firms growth potentiality also.

y Complicacies of investment decisions The long-term investment decisions are morecomplicated in nature. They entail more risk and uncertainty. Further, the acquisition of capital

assets is a continuous process. So the management must be gifted ample prophetic skill to peep

into future.

y Worth maximization of shareholders Capital budgeting decisions are very important as theirimpact on the well-being and economic health of the enterprise is farreaching. The main aim ofthis process is to avoid over-investment and under-investment in fixed assets. By selecting the

most profitable capital project, the management can maximize the worth of equity shareholders

investment.


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1.3 OBJECTIVES OF THE STUDY

Following are the objectives of the study

To understand the procedure followed in BHEL forCapital Budgeting. To understand the schemes forwhich Capital Budgeting is done. To study the various parameters forassessing the performance of the organization To offer suggestions based on the findings

1.4 RESEARCH METHODOLOGY

RESEARCHResearch is a process in which the researchers wish to find out the end result fora given problem andthus the solution helps in future course of action. The research has been defined as A carefulinvestigation orenquiry especially through search fornew facts in branch of knowledge

RESEARCH DESIGNThe research design used in this project is Analytical in nature the procedure using, which researcher

has to use facts orinformation already available, and analyze these to make a critical evaluation of the

performance.

DATA COLLECTION

Primary Sources1. Data are collected through personal interviews and discussion with Finance-

Executives.

2. Data are collected through personal interviews and discussion with MaterialPlanning- Deputy Manager.

Secondary Sources1. From the annual reports maintained by the company.2. Data are collected from the companys website.3. Books and journals pertaining to the topic.


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TOOLS AND TECHNIQUES OF ANALYSIS

y Payback Periody IRRy ROI.

1. PAY BACK PERIOD:y Paybackis the numberof years required to recoverthe original cash outlay invested

in a project.

y If the project generates constant annual cash inflows, the payback period can becomputed by dividing cash outlay by the annual cash inflow. That is:

y Assume that a project requires an outlay of Rs 50,000 and yields annual cash inflowof Rs 12,500 for7 years. The payback period forthe project is:

y Unequal cash flows In case of unequal cash inflows, the payback period can befound out by adding up the cash inflows until the total is equal to the initial cash

outlay.

y Suppose that a project requires a cash outlay of Rs 20,000, and generates cash inflowsof Rs 8,000; Rs 7,000; Rs 4,000; and Rs 3,000 during the next 4 years. What isthe projects payback?

3 years + 12 (1,000/3,000) months

3 years + 4 months

Acceptance Rule

y The project would be accepted ifits payback period is less than the maximumorstandard paybackperiod set by management.

y As a ranking method, it gives highest ranking to the project, which has theshortest payback period and lowest ranking to the project with highest

payback period.

2. INTERNAL RATE OF RETURN (IRR):y The internal rate ofreturn (IRR)is the rate that equates the investment outlay with the

present value of cash inflow received afterone period. This also implies that the rate

ofreturn is the discount rate which makes NPV = 0.


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Calculation of IRR:

Uneven Cash Flows: Calculating IRR by Trial and Error

y The approach is to select any discount rate to compute the present value of cashinflows. If the calculated present value of the expected cash inflow is lowerthan the

present value of cash outflows, a lower rate should be tried. On the other hand, a

highervalue should be tried if the present value ofinflows is higherthan the present

value of outflows. This process will be repeated unless the net present value becomes

zero.

Level Cash Flows

y Let us assume that an investment would cost Rs 20,000 and provide annual cashinflow of Rs 5,430 for6 years.

y The IRR of the investment can be found out as follows:

Acceptance Rule:

y Accept the project when r> k.y Reject the project when r< k.y May accept the project when r= k.y In case ofindependent projects, IRR and NPV rules will give the same results if the

firm has no shortage of funds.

1.5 LIMITATIONS OF THE STUDY

1. The procedures involved in Energy sector for the Capital Budgeting may vary accordingly.Hence the suggestions cannot be generalized.

2. The study can collect only 1 Report, as the data were kept confidential.


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CHAPTER 2

PROFILE OF THE COMPANY


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BHEL AN OVERVIEW

BHEL is countrys premier engineering organization and one of the NAVARATNA PSUs

(PUBLIC SECTOR UNDERTAKINGS)

BHEL is the largest engineering and manufacturing enterprise in India in the energy-

related/infrastructure sector, today. BHEL was established more than 40 years ago, ushering in the

indigenous Heavy Electrical Equipment industry in India - a dream that has been more than realized

with a well-recognized record of accomplishment of performance. The company has been earning

profits continuously since 1971-72 and paying dividends since 1976-77.

It has the financial turnoverduring the year2008-09 was Rs.21,401 Crores and current orderof book

is of around Rs.1,20,000 crores. DHEL plans to be a Rs.45000 crores company by 2011-12 and a

Rs.90, 000 crores company by 2016-17.BHEL is the only PSU among the 12 Indian companies to

figure in Forbes Asian Fabulous 50 list.

BHEL manufactures over180 products under30 majorproduct groups and caters to core sectors of

the Indian Economy viz., Power Generation & Transmission, Industry, Transportation,

Telecommunication, Renewable Energy, etc. The wide network of BHEL's 14 manufacturing

divisions, four Power Sector regional centres, over 100 project sites, eight service centres and 18

regional offices, enables the Company to promptly serve its customers and provide them with suitable

products, systems and services -- efficiently and at competitive prices. The high level of quality &

reliability of its products is due to the emphasis on design, engineering and manufacturing to

international standards by acquiring and adapting some of the best technologies from leading

companies in the world, togetherwith technologies developed in its own R&D centres.

BHEL has already attained ISO 9000 and all the majorunits/divisions of BHEL have been upgraded

to the latest ISO- 9001:2000version quality standard certification forquality management. All the

major units/division of BHEL has been awarded ISO- 14001 certification for environmental

management system and OHSAS- 18001 certification foroccupational health and safety management

systems.

BHEL has

y Installed equi pment for over 90,000 MW of power generation -- for Utilities, Captive andIndustrial users

y Supplied over 2,25,000 MVA transformer capacity and other equi pment operating inTransmission & Distribution network up to 400 kV (AC & DC).


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y Supplied over25,000 Motors with Drive Control System to Powerprojects, Petrochemicals,

Refineries, Steel, Aluminium, Fertilizer, Cement plants, etc.

y Supplied Traction electrics and AC/DC locos to powerover12,000 kms. Railway network.y

Supplied overone million Valves to PowerPlants and otherIndustries.

BHEL including Transmission, Transportation, Telecommunication & Renewable Energy - and

Overseas business this enables BHEL to have a strong customer orientation, to be sensitive to his

needs and respond quickly to the changes in the market.

BHEL's vision is to become a world-class engineering enterprise, committed to enhancing

stakeholdervalue. The company is striving to give shape to its aspirations and fulfil the expectations

of the country to become a global player.

The greatest strength of BHEL is its highly skilled and committed 43,500 employees. Every

employee is given an equal opportunity to develop himself and grow in his career. Continuous

training and retraining, careerplanning, a positive work culture and participative style of management

all these have engendered development of a committed and motivated workforce setting new

benchmarks in terms of productivity, quality and responsiveness.

POWER GENERATION:

Power generation sector comprises thermal, gas, hydro, and nuclear power plant business. As on

31.3.2002, BHEL supplied sets account fornearly 67.232 MW or60% of total installed capacity of 1,

04,917 MW in the country, as against Nil till 1969-70.

BHEL has proven turnkey capabilities forexecuting powerprojects from concept to commissioning.

It possesses the technology and capability to produce thermal sets with supercritical parameters up to

1000 MW unit rating and gas turbine-generatorsets up to 250 MW units rating. Co-generation and

combined cycle plant have been introduced to achieve higherplant efficiencies. To make the efficient

use of the high-ash-content coal available in India, BHEL also supplies circulating fluidized bed

combustion boilers forthermal plant.

TRANSMISSION AND DISTRIBUTION (TD):

BHEL offers wide ranging products and systems for T&D applications, products manufactured

include: power transformer, instrument, transformers, dry type transformer, series & shunt reactors,

capacitorbanks,vacuum & SF6 circuit breakers, gas-insulated switchgears and insulators.


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INDUSTRIES:

BHEL is a majorcontributorof equipment and system to industries cement, sugar, fertilizers,petrochemicals, paper, oil and gas, metrological and other process industries. The range of

systems and equi pment supplied includes captive power plants, co-generation plants, DG

powerplants,industrial steam turbines,industrial boilers and auxiliaries, waste heat recovery

boiler, gas turbine, heat exchangers and pressure vessels, seamless steel tubes, electrostatic

precipitator, fabric filters, reactors, fluidized bed combustion boilers, chemical recovery

boilers and process controls.

TRANSPORTATION:

BHEL is involved in the development, design, engineering marketing, production,

installation, and maintenance and aftersales services ofrolling stock and traction propulsions

systems. BHEL manufactures electric locomotives up to 5000 IIP, diesel electric locomotives

from 350 IIP to 3100 IIP formainline and shunting duty applications. It also produces rolling

stock for special applications viz. overhead equi pment cars, special well wagons, and rail-

cum road vehicle. Besides traction propulsion systems forin-house use, BHEL manufactures

traction propulsion systems forotherrolling stock producers of electric locomotives, diesel-

electric locomotives, electrical multiple units and metro cars.

TELECOMMUNICATION:

BHEL also caters to communication sectorby way of small, medium and large switching system.

RENEWABLE ENERGY:

Technologies that can be offered by BHEL forexploiting non-conventional and renewable sources of

energy includes: wind electric generator, solar photovoltaic systems, solar heating systems, solar

lanterns and battery powered road vehicles. The company has taken up R&D efforts fordevelopment

of multi-junction amorphous silicon solarcells and fuel cells based systems.


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OIL AND GAS:

BHELs product range includes deep drilling oil rigs, mobile rigs, work overrigs, well heads and x-

mass trees, chock and kill manifolds, full bore gate valves, mud line suspension system, casing system

sub-sea well heads, blockvalves, seamless pipes, motors, compressors, heat exchangers etc.

INTERNATIONAL OPERATION:

BHEL has, overthe years, established its references in 70 countries across all inhabited continents of

the world. These references encompass almost the entire range of BHEL products and services,

covering Thermal Hydro and Gas based turkey power projects, substation projects, Rehabilitation

projects, besides a wide variety of products like Transformers, compressors, Values, Oil field

equipment, Electrostatic Precipitators, Photovoltaic equipments, insulators, heat Exchangers,

Switchgears, Casting and Forgings etc..

TECHNOLOGY UPGRADATION, RESEARCH & DEVELOPMENT

To remain competitive and to meet customers expectations, BHEL lays emphasis on the continuous

up gradation of the products and related technologies, and development of new products. The

company has upgraded its products to contemporary levels through continuous in-house efforts as

well as through acquisition of new technologies from leading engineering organization of the world.

BHELS investment in R&Dis amongst the largest in the corporate sectors in India. Products

developed in the corporate sectorin India. Products development,in-house, during the last five years

contribution over7% to the revenues in 2004-05.

BHEL JHANSI UNIT

By the end of 5th five-year plan, it was envisaged by the planning commission that the

demand for power transformer would raise in the coming years. Anticipating the countrysrequirement BHEL decided to set up a new plant, which would manufacture powerand other

types of transformers in addition to the capacity available in BHEL Bhopal. The Bhopal plant

was engaged in manufacturing transformers of large ratings and Jhansi unit would

concentrate on power transformerup to 50 MVA, 132 KV class and other transformers like

Instrument Transformers, Traction transformers for railway etc.This unit of Jhansi was established around 14 km from the city on the N.H. No 26 on Jhansi Lalitpur


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road. It is called second-generation plant of BHEL set up in 1974 at an estimated cost of Rs 16.22

crores inclusive of Rs 2.1 crores fortownship. Its foundation was laid by late Mrs. Indira Gandhi the

prime minister on 9th Jan. 1974. The commercial production of the unit began in 1976-77 with an

output of Rs 53 Lakhs since then there has been no looking back for BHEL Jhansi.

The plant of BHEL is equipped with most modern manufacturing processing and testing facilities for

the manufacture of power, special transformer and instrument transformer, Diesel shunting

locomotives and AC/DC locomotives. The layout of the plant is well streamlined to enable smooth

material flow from the raw material stages to the finished goods. All the feederbays have been laid

perpendicularto the main assembly bay and in each feederbay raw material smoothly gets converted

to sub assemblies, which after inspection are sent to main assembly bay.

PRODUCTS

Transformers:

- Powertransformerup to 220 KV/250 MVA

- Special Transformers up to 180 KA 33 KV

-Dry type transformerup to 6300 KVA,33 KV

- Instrument transformer(current transformer/voltage transformerup to 220KV)400 KV CTs areundersupply.

- HVR transformerup to 95 KVP, 1400 MA

- Traction transformerforrailway application up to 21.6 MVA - 220 KV class.

- ACEMU transformerforrailway.

Locomotives:

-Diesel locomotive

- AC/DC locomotive

- Special purpose wagons.

- Rail cum road Vehicle.

- Synchrolift


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DEPARTMENTS/ WORKSHOPS (JHANSI UNIT) ROTATION REPORT

FABRICATION

Fabrication is nothing but production,it comprises of:

Three bays (workshops): bay1, bay2, bay3

BAY 3:

There are three sections in bay 3:

1. Machine section2. Coppersection3. Tooling section

MACHINE SECTION:

The operations to form small components of powerand traction transformerare done in this section.The shop consists of following machine:

CENTRAL LATHE: It consists of a tailstock & headstock. Lowerpart of tailstockis fixed and tail

stock spindle is moving. On this machine facing, turning and threading is done.

TURRET LATHE: Its main function is same as central lathe but is used formass production. Here

turret head in presence of tailstock because turret head contains many tailstocks around six.

CAPATAN LATHE: It is a belt drive.

RADIAL ARM DRILLING MACHINE: It is used fordrilling and boring.

HORIZONTAL BORING MACHINE: It is computerized and used formaking bore, facing etc.

MILLING MACHINE:

a) Horizontal milling machine: It is used formaking gearand cutting operation.b) Vertical milling machine: by this machine facing, cutting, and T-slot cutting is done.

COPPER SECTION:

All the processes related to copperare done in this section.

TUBE SLITTING MACHINE: This machine is developed here and is used forcutting the along its

length and across its diameter. Its blade thickness is 3mm.

SHEARING MACHINE: It is operated hydraulically and its blade has V-shape and a thickness of

15mm.

DIE AND PUNCHING MACHINE: It is also hydraulically operated and has a die and punch for

making holes.

HYDRAULIC BENDING MACHINE: It is used forbending the job up to 900


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SEARCHING MACHINE: It is fully mechanical and is used the job along its width.

FLY PRESS MACHINE: It is used to press the job it is operated mechanically by a wheel, which is

on the top of the machine.

BEND SAW MACHINE: This machine is used for cutting job having small thickness it has acircularly blade, around 5.1 metre long.

WATER COOLED BRAZING MACHINE: It contains two carbon brushes. The sheet is put along

with a sulphas sheet and the carbon brushes are heated. A lap joint is formed between the sheets as the

sulphas sheet melts.

LINCING BELT MACHINE: It creates a smooth surface.

HYDRAULIC PRESS MACHINE: It has pot that contains solder. Solderhas a composition of60%

Zn and 40% Pb.

TOOLING SECTION:

In this section the servicing of tools is done.

BLADE SHARP MACHINE: It sharpens the blade using a circulardiamond cutter. Blade of CNC

dropping line machine is sharpened here.

MINI SURFACE GRINDING MACHINE: It serves grinding purposes. It has a grinding wheel

made of Aluminium Oxide

TOOL & SURFACE GRINDING MACHINE: This is specially used to grind the tools in BAY 7

DRILL GRINDING MACHINE: To grind the drills.

BAY 4:

It is the winding section.

TYPES OF WINDING:

1. Reverse section winding.2. Helical winding3.

Spiral winding

4. Interleaved winding5. Half sectional winding

There are fourtypes of coil fixed in the transformer. They are

1. Low voltage coil (LV)2. High Voltage coil (HV)3. Tertiary coil


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4. Tap coil

The type of ending depends upon job requirement. Also, the width and thickness of the conductors are

designed particulars and are decided by design department. Conductors used for winding is in the

form of very long stri p wound on a spool. The conductors are covered by cellulose paper for

insulation.

For winding first the mould of diameter equal to inner diameter of required coil is made. The

specifications of coil are given in drawing. The diameterof mould is adjustable as its body is made up

of wooden sections that interlock with each other; this interlocking can be increased ordecreased to

adjust the innerdiameterof coil.

The moulds are of following types:

1. Belly type2. Link type3. Cone type

BAY 5:

It is core and punch section. The lamination used in power, dry, EPS transformer, etc formaking core

is cut in this section.

CRGO (cold rolled grain oriented) silicon steel is used forlamination that is imported in from Japan,

UK Germany .It is available in 0.27 and 0.28mm thick sheets, 1 metre wide and measured in kg. The

sheet is coated with very thin layerofinsulation material called carlites.

Forthe purpose of cutting and punching the core three machines are installed in shop.

1. Shipping machine:it is used to cut CRGO sheets in different width. It has a circularcutterwhose position can be changed as perthe requirement.

2. CNC cropping line pneumatic:it contains only one blade. Which can rotate 900 about thesheet? It is operated pneumatically.

3. CNC cropping line hydraulic:it is also used to cut the CRGO sheet. It contains two blades,

one is fixed and the otherrotates 900above the sheet. It is operated hydraulically. M4 quality

sheet 0.23-0.33 mm thickness is used.

BAY 6:

Single-phase traction transformerforAC locomotives is assembled in this section. These freight

locomotives transformers are used where there is frequent change in speed. In this bay core winding

and all the assembly and testing of traction transformeris done.

Three phase transformers forACEMU are also manufactures in this section. The supply line forthis is

of25KV and powerof the transformeris 6500 KVA.

The tap changerofrectifiertransformeris also assembled in this bay rectified transformeris used in

big furnace like the thermal powerstations/ plants (TPP).


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BAY 7

This is the insulation shop. Various types ofinsulation are

1. AWWW: all wood waterwashed press paper.The paperis 0.2-0.5 mm thick cellulose paperand is wound on the conductors forinsulation.

2. PRE-COMPRESSED BOARD: This is widely used forgeneral insulation & separation in theform of blocks.

3. PRESS BOARD: This is used forseparation of coils eg. L.V. from H.V.it is up to 38 mmthick.

4. UDEL: UN Demnified electrical lamination wood orperm wood this is special type ofplywood made forinsulation purposes.

5. FIBRE GLASS: This is a resin material and is used in fire prone areas. 6. BAKELLITE: 7. GASKET: It is used forprotection against leakage.8. Silicon rubbersheet:it is used fordry type transformer.The machines used forshaping the insulation material are

1. Cylindrical machines2. Circle cutting machine3. Scarfing machines4. Punching press machine5. Drilling machine6. Guillotine machines7. Bench saw (spt forOD)8. Jigsaw (spt forID)9. Circularsaw10.Line sin machine

BAY8

It is the instrument transformerand EPS transformermanufacturing section.

INSTRUMENT TRANSFORMER-

These are used for Measurement. Actual measurement is done by measuring instruments but these

transformers serve the pur pose of stepping down the voltage to protect the measuring instrument.

They are used in AC system formeasurement of current voltage and energy and can also be used for

measuring power factor, frequency and for indication of synchronism they find application in

protection of powersystem and forthe operation of overvoltage, overcurrent, earth fault and various

othertypes ofrelays.

They are of two types.

1. Current transformer(CT)2. Voltage transformer(VT)


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Current transformer-

It is a step down transformer. High current is not directly measured by th CT but is stepped down to

lowermeasurable voltage.

BODY:

y The main body is a dushing which houses the winding and also acts as an insulatory The CT has a bottom and top chamber.y The top chamberis cylindrical tank of mild steel. It has terminals forconnection of HV coils.

It also has a glass window to insulate the oil level.

y Below the top chamberis the bushing made of porcelain. It has several folds orrain shedsto provide a specific electric field distribution and long leakage path. Some bushings are

cylindrical which modern ones are conical as amount of oil porcelain used is reduced without

any undesirable defect.

y Bottom chamber house the secondary winding. There is also connection box to which theconnection of the low voltage (LV) coil is made.

WINDINGS

The primary winding consist of hollow copper/aluminium pipe bent in form of a U aluminium

is used forlow rating. Forhigherraring a set of wires is passed through the pipe is used and for

highest rating copperpipe with copperwire passing through is used. This arrangement depends on

the current carrying capacity. The bent portion of primary as in the bottom chamberwhere as the

free end is the top chamber. The straight portion lies inside the bushing.

The primary is wound with crepe paper insulation. The thickness of the insulation goes in

increasing as we go downwards in the bottom chamber. The free ends are provided with

ferrules, which are, small hollow cylinders through which wires can pass connection to the

primary are made through these ferrules.

VOLTAGE TRANSFORMERS:

This is also a stepped down transformers. The outerconstruction is same as that of the CT that is

this is also has a top chamber, bushing and a bottom chamber. The difference is only in the

winding.

WINDINGS:

The primary winding is of thick wire having a few turns the winding is heavily insulated withpaperinsulation. It has a hollow cylinderpassing centrally through it, which houses the secondary

winding. The clean and painted with eitherenamel orproxy paint. The customergives the choice

of paint. Epoxy paint is generally used in chemical plants and seashore installation. Terminals are

then ratings and diagram plate is fixed.

The job is then sent to the shipping department. Which takes care ofits dispatch by packing it in

the wooden boxes?


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ESP TRANSFORMER:

The electrostatic precipitatortransformeris used forenvironmental application. It is used to filter

in a suspended charge particles in the waste gases of an industry. They are of particularuse in

thermal powerstation and cement industry.

The EPS is a single-phase transformer. It has a primary and secondary. The core is laminated and

is made up of CRGOS. It is a step up transformer. An AC reactor is connected in series with

primary coil. The output of the transformermust be DC, which is obtained by rectifying AC using

a bridge rectifies (bridge rectifieris a combination of several hundred diodes). A radio frequency

choke (RF choke) is connected in series with the DC output forprotection of secondary circuit

and filtercircuit. The output is chosen negative because the particles are positively charged. The

DC output from secondary is given to a set of plates arrange one afterthe others impurity particles

being positively charged stick to these plates.

BAY 9

In the bay powertransformerare assembled. Aftertaking different input from different bays 0-9assembly is done.

Power transformer is used to step and down voltages at generating and sub-station. There are

various rating- 11KV,22KV manufactured, they are:

a) Generatortransformer.b) Systems &

c) AutotransformerA transformer in a process of assemblage is called a job. The design of the transformer is

done by the design dept. & is unique of each job, depends on the requirement of the customer.

The design department provides drawing to the assembly shop, which assembles itaccordingly.

The steps involved in assembly are:

1. Core building2. Core lifting3. Unlacing4. Replacing and end frame mounting5. High voltage terminal gearand low voltage gearmounting.6. Vaporphasing and oil soaking7. Final servicing and tanking8. Case fitting.

TRANSFORMER ENGINEERING (TRE):

The transformermanufactured in BHEL Jhansiranges from 10 MVA to 240 MVA and up to 220 KV.

The various transformers manufactured in this unit are:

POWER TRANSFORMER:-

y Generatortransformer


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y System transformery Auto transformer

SPECIAL TRANSFORMER:-

y ESP transformery

Instrumental transformery Dry type transformer

All above types are oil cooled except dry type, which is air cooled. The generated voltage at the

powerstation is 6.9 KV, 11 KV, & 13.8 KV but due to certain advantages like economical generation

11 KV is the most widely used. Forthis,voltage needs to be stepped up. Transformerat high voltage

is desirable because it result in lesserlosses, need thinnerwire and hence is economical.

In certain cases the required voltage may be less than the output voltage, so in orderto obtain it we

require a tapping circuit. The output voltage may have a certain percentage variation. This may be

tapped in 4 or6 equal steps.

TECHNOLOGY:

This department analysis the changes taking place in the world and suggest changes and upgrades

accordingly. This is very important department because the product must get obsolete in the market

otherwise they will be rejected by the customer.

FUNCTION: Technology function can be classified as:

y Processing sequences: the sequence of process of manufacturing is decided for timely andeconomic completion of the job.

y Operation time estimation:it includes incentive scheme management.y Allowed operation time:it includes incentive amount.y Facilities identification: it includes looking for new equi pment or plant or tools to increaseproductivity.y Special process certification: special processes are the ones requiring expertise for example

identifying errors, cracks, airbubbles in the welding.

y Productivity projects compilation: it includes the initial analysis of the problem and theirappropriate solution to enhance productivity.

TRANSFORMER COMMERCIAL (TRC)

The objective of the department is interaction with the customers. It brings out tenders and notices and

also responds to them. It is the department that bags contracts of building transformers. Afterdelivery

regarding faults, this department does failures and maintenance.

One of the majortasks of this department is to earn decent profits overall negotiations. Transformer

industry has become very competitive.

The company offering the lowest price gets the contract but this process may continue does the work

on very low profits. To avoid such a situation, a body by the name of INDIAN ELECTRICAL

MANUFACTURES ASSOCIATION (IEMA) was set up. This association helps to maintain a healthy

competitive atmosphere in the manufacturing of electrical appliances.


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The main work of TRC is classified as:

y Tenderand notices.y Interaction with design departmenty Place of the worky Approximate cost of the worky Earnest moneyy Place & time ofviewing contract documentsy Place & time of obtaining tenderdocuments.y Deciding time up to which tenderdocuments will be soldy The amount if any, to be paid forsuch documents.y The place, date and time of submission of tenders and opening of tenders.

LOCOMOTIVE DEPARTMENT:

This unit was started in1985. This department of Jhansi consists of two sections the first is

manufacturing & other is design. The diesel electronic shunting locomotives (DESL) and AC/DClocomotive are manufactured here.

1. The diesel locomotives:

Salient feature:

a. Flat bed underframe.b. All pneumatic valves provide in single panelc. All electrical equipments provided in single paneld. Improved filtration system.e. Brush less traction alternatorsf. Fault display on control desk with alarm.g. Simple driving procedureh. Automatic wheel slip detection & correctioni. Multiple unit operation up to three locomotives.j. Air& vacuum brakes.

2. The AC locomotive: salient featuresa. Operate on 25 KV single-phase lines.b. Driving cab at both ends.c. Corridors on both sides formaintenanced. All pneumatics valves at one place.e. Automatic wheel slip detection & correction.f. Multiple unit operation up to three locomotives.g. Fault display on drivers deskh. VCB in AC circuit.i. Air& vacuum brakes.

3. The AC/DC locomotive: salient features

a. Designed to operate both in 1500 V DC & 25 KV AC linesb. Driving cab at both ends


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c. High adhesion bogie.d. Corridors on both sides formaintenance.e. All pneumatics valves at one place.f. Automatic wheel slip detection & correction.g. Multiple unit operation up to three locomotives.h. Fault display on drivers desk.i. Static inverterforauxiliary supply.j. FRP control desk.k. VCB in AC circuit.l. Air& vacuum brakes.m. Airdryerforbrake system.

LOCOMOTIVE MANUFACTURING (LMM)

This section deals with manufacturing of locomotives. The main parts of the locomotives are:-

y Underframe: the frame on which a locomotive is built.y Superstructure: the body of locomotive is called superstructure orshell and is made of sheet

of mild steel

y DC motory Alternatory Compressory Flowery Static rectifier MSRy Static converter SCy Exchanger

Bogie- the wheel arrangement of a loco is called bogie. A bogie essentially contains

1. Wheel axle arrangement2. Suspension3. Brake riggingy Traction transformer:it is fixed on underframe and gets supply from an overhead line by

equipment called pantograph. The type of pantograph depends on supply. This transformer

steps down voltage and is fitted with a tap changer.Different taps are taken from it for

operating different equipment. One tap is taken and is rectified into DC using MSR and is fed

to the DC motor.

CENTRAL QUALITY SERVICES (CQX):

First we get acquainted with a few terms concerning this department

QualityIt is the extent to which products orservices satisfy the customerneeds

Quality assurance


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All those plants and systematic action necessary to provide adequate confidence that a product or

service will satisfy the given requirement is called quality assurance.

Quality controlThe operational technique and activities that are used to fulfill requirement for quality are qualitycontrol.

Quality inspectionActivities such as measuring, testing, gauging of more characteristics of a product or service and

comparing these with specified requirement to determine conformity are quality inspection.

HEALTH, SAFETY AND ENVIRONMENT MANAGEMENT:

BHEL as an integral part of business performance and in its endeavourto becoming a world class

organization and sharing the growth global concern on issues related to environment, occupational

health and safety,is committed to protecting environment in and around its own establishment, and

providing safe and healthy working environment to all its employees. Forfulfilling this obligation,

corporate policies have been formulated as:

ENVIRONMENTAL POLICY:

y Compliance with applicable environmental legislation/regulation.y Continual improvement in environment in environment management system to protect our

natural environment and control pollution.

y Promotion of activities forconservation ofresources by environment management.y Enhancement of environment awareness amongst employees, customers and suppliers.

OCCUPATIONAL HEALTH AND SAFETY POLICY:

y Compliance with applicable legislation and regulations.y Setting objective and targets to eliminate/minimize risks due to occupational and safety

hazards.

y Appropriate structured training of employees on occupational health and safety (OII &S)aspects.

y Formulation and maintenance of OII &S management programs forcontinual improvement.y Periodic review of OII&S management system to ensure its continuing suitability, adequacy

and effectiveness.y Communication of OII&S policy to all employees and interested parties.

The majorunits of BHEL have already earned international recognition by implementation of ISO

14001 Environmental Management System and OHSAS 18001 occupational health and safety

management system.


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In pursuit of these policy requirements, BHEL will continuously strive to improve work practices in

the light of advances made in technology and new understanding in occupational health, safety and

environmental science.


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COMPANYS BUSINESS MISSION AND OBJECTIVES

BUSINESS MISSIONTo maintain a leading position as suppliers of quality equipment, systems and services in the field of

conversation of energy, forapplication in the areas of electric powertransportation, oil and gas

exploration and industries. Utilize companys capabilities and resources to expand business into allied

areas and otherpriority sectors of the economy like defence, telecommunication and electronics.

BUSINESS OBJECTIVESy Growth:

To ensure a steady growth by enhancing the competitive edge of BHEL defense,

telecommunication and electronics in existing business, new areas and international

operations so as to fulfill national expectations from BHEL.

y Profitability:To provide a reasonable and adequate return on capital employed, primarily through

improvements in operational efficiency, capacity utilization, productivity and generationadequate internal resources to finance the companys growth.

y Customer focusTo build a high degree of customerconfidence by providing increased value forhis money

through international standards of product quality, performance and superiorservices.

y People-orientationTo enable each employee to achieve his potential,improve his capabilities, perceive his role

and responsibilities and participate and contribute positively to the growth and success of the

company and to invest in human resources continuously and be alive to theirneeds.

y TechnologyAchieve technological excellence in operation by development ofindigenous technologies

and efficient absorption and adaptations ofimported technologies to suit business need andpriorities and provide the competitive advantage to the company.

y ImageTo fulfill the expectations which stakeholders like government as owner, employees,

customers and the country at large have from BHEL.

STORES DEPAERTMENT:

There are three sections in store:

y Control receiving sectiony Custody sectiony Scrap disposal sectionFunction:

A list of material coming in store is prepared and quality control people are called forinspection.

If material is found as perstandard, SRV (store receipt voucher)is issued foreach material. A


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total of08 SRVs are prepared. Some material such as silicon oil, transformeroil,insulating

material are directly stored in the bays.

SUMMARY OF BHELS CONTRIBUTION TO VARIOUS CORE

SECTORS:-

BUSINESS SECTORSBHELs operation is organized around three business sectors, mainly power,industry and

international operations. This enables BHEL to have a strong customers orientation, to be

sensitive to his needs and respond quickly to the changes in the market.

POWER SECTORSPoweris the core sectorof BHEL and comprises of thermal, nucleargas, diesel and hydro

business. Today BHEL supplied sets, accounts fornearly 66% of the total installed capacity in the

country as against nil till 1969-70. BHEL manufactures boilers auxiliaries, TG sets and associate

controls piping and station C & I up to 500 MW rating with technology and capability to go up to

1000 MW range.

BHEL has contracted so fararound 240 thermal sets ofvarious ratings. Which includes 14 power

plants set up on turnkey basis? Nearly 85% of World Bank tenders forthermal sets floated in

India have been won by the company against international competition.

INDUSTRY SECTORSBHEL is a majorproducerof large size thyristordevices. The products include centrifugal

compressors, high speed industrial drive turbines,industrial boilers and auxiliaries, waste heat

recovery boiler, gas turbines, electric motors, drive, and control equipments, high voltage

transformers, switch gears and heavy castings and forgings.

TRANSMISSIONA wide range of transmission products and systems are produced by BHEL to meet the needs of

powertransmission and distribution sector. These include:

y Dry Type Transformery SF6 Switch Gearsy 400 KW Transmission Equipmenty High Voltage Direct Current Systemy

Series and Shunt Compensation SystemsIn anticipation of the need forimproved substations, a 33 KV gas insulated sub-station with

micro processors base control and protection system has been done.

TRANPORTATION65% of trains in Indian Railways are equipped with BHELs traction control equipment. These

include:


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y Broad Gauge 3900 HP AC /DC locomotivesy Diesel Shunting locomotives up to 2600 HPy 5000 HP AC Loco with thyristorcontroly Battery Powered Road Vehicles and Locomotives

RESEARCH AND DEVELOPMENTBHEL has a corporate R&D centre supported by R&D group at each of the manufacturing

divisions. The dedicated effort of BHELs R&D engineers have produced several new products

like automated storage retrieval system automated guide vehicles formaterial transportation etc.

establishment of Asias largest fuel evaluation test facility at Tiruchy was high light of the year.

This facility will enable evaluation of combustion, heat transferand pollution parameters in

boilers.

MajorR&D achievement includes:

y Design manufacture and supply of countries first 17.2 MW industrial steam turbines.y

Development 4700 HP AC /DC loco forIndian Railways.y Development of largest capacitorvoltage transformers of8800 PF 400 KV rating.y Development and application low cost ROBOTS forjob loading/unloading.

According to ex- CMDMR. R.K.D. SHAH, BHEL is spending Rs. 60 Crores on research and

development. Earning from product which has been commercialized has gone up26% to Rs. 760

Crores.

TECHNICAL COLLABORATIONS, DIVISIONS, COMPETITORS ANDVARIOUS PRODUCT OF BHEL

TECHNICAL COLLABORATIONPRODUCT COLLABORATIONS

# Thermal Sets, Hydro Sets, Motors & PROMMASHEXPORT

Control Gears. RUSSIA

# Bypass & Pressure Reducing Systems SULZER BROTHER LTD. SWITZERLAND

# Electric Automation System for SIEMENS AG.Steam Turbine & Generators GERMANY

# Francis Type Hydro Turbines GENERAL ELECTRICCANADA

# Moisture SeparatorReheaters BALOKE DUERR


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GERMANY

# Christmas Trees & Conventional Well NATIONAL OIL WELL

Head Assemblies USA

# Steam Turbine, Generators and Axial SIEMENS AG.

Condensers GERMANY

# Cam Shaft Controllers and Tractions SIEMENS AG.

Current Control Units GERMANY

# HDVC ABB

SWEDEN

# Programmable Controls ABBSWITZERLAND

# Gas Turbines GENERAL ELECTRIC CO.

# Tube Mills STIEN INDUSTRIESFRANCE

DIVISIONS OF BHEL:There are 20 divisions of BHEL, they are as follows:

y HEEP, Hardwary HPEP, Hyderabady HPBP, Tiruchyy SSTP & MHD, Tiruchyy CFFP, Hardwary BHEL, Jhansiy BHEL, Bhopaly EPD, Bangalorey SG, Bangalorey

ED, Bangalorey BAP, Ranipety IP, Jagdishpury IOD, New Delhiy COTT, Hyderabady IS, New Delhiy CFP, Rudrapury HERP, Varanasi


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y Regional Operations Division ARP, New Delhiy TPG, Bhopaly PowerGroup (FourRegion and PEM)

MAJOR COMPETITORS OF BHEL

y Ansoldo Italyy Asian Brown Bowery Switzerlandy Beehtel USAy Block & Neatch USAy CNMI & EC Chinay Costain U.K.y Elect rim Polandy Energostio Russiay Electro Consult Italyy Fransco Tosi Francey Fuji Japany GEC Alshthom U.K.y General Electric USAy Hitachi Japany LMZ Russiay Mitsubishi Japany Mitsui Japany NEI U.K.y Raytheon USAy Rolls Royce Germanyy Shanghai Electric Co. China

PRODUCTS OF BHEL1. Thermal powerplants 16. Industrial and special ceramics

2. Nuclearpowerplants 17. Capacitors

3. Gas based powerplants 18. Energy Meters

4. Hydro powerplants 19. Electrical Machines

5. Dg powerplants 20. Compressors

6. Industrial sets 21. Control Gear

7. Boilers 22. Silicon Rectifiers

8. BoilerAuxiliaries 23. ThyristorGTO/ IGBT equipments

9. Piping System 24. PowerDevices

10.Heat exchangers and pressure Vessels 25. Transportation equipments

Pumps 26. Oil Field equipments

11.Powerstation Control equipment 27. Castings and Forgings

12.Switchgear 28. Steams Steel Tubes

13.Bus Ducts 29.Distributed powerGeneration and

14.Transformer Small hydro plant

30. Systems and services.


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FINANCE DEPARTMENT IN BHEL, JHANSI

A sound financial management is the crux of the efficient management of a business enterprise and

financial management on scientific and sound lines is a prime consideration of BHEL. The

finance/accounts department of the company controls all the finance operations. That is directed at

improving profitability and internal resource generation through optional utilization of men, material,

machine, tools and money,

According to its various function the finance/account departments is divided in to following sections:-

1. Price store leader(PSL)2. Supply bills3. Cash4. Pay5. Books budget and MIS6. Sales7.

Miscellaneous and revenue

8. Internal audit9. Export incentives, sales tax and income tax10.Provident fund11.Works12.Travelling allowing.PRICE STORE LEDGER:

PSL section is entrusted with the job formaterial pricing and determination of material

consumption. PSL are used forthe material accounting as well as theirfinancial accounting. The

documents involved are:

a. SRV-store receipt voucherb. MIV- material issue voucherc. SRN- store return noted. MTV- material transformernotee. RCDV- receipt cum dispatch voucherPASSING OF BILLS:-

The bills passing process starts afterthe account section gets the purchase order, SRVs and bills

from supplier. The accountants section then makes payment.

Terms of payment are of three kinds:

a) 10%in advance payment

b) 100% afterreceipt and acceptance

c) Partial advance and the remaining afterreceipt and acceptance

FOREIGN PURCHASE:

There are certain items which are to be imported. A license is required forsuch items. The license can

be acquired from DGTD. There is also a provision forforward cover.


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CASH:

This section is responsible forbanking all the money worth received by the company from customer

and disbursement of all authorized payment on behalf of the company to suppliers, contractors,in

from cheques, cash, drafts, postal orders etc.

It is also concerned with payment of salaries, wages and otherpersonal payment of employees.

Cash section prepares these statements formanagement information

Daily-cash flow > daily collection of sales.

Weekly-cash inflow > outflow-during week.

Statement of pending bills of cash section of margin money.

Monthly-cash flow forecast for3 months.

Operating result statement.

Statement of outstanding letterof credit & bank guarantee.

Daily bank transferstatement.

Bankreconciliation statement is also prepared BHEL has centralized cash credit system.

PAY SECTION

It is assigned the job of payment of salaries and otherpersonal payment to employees it took afterprovident fund, gratuity and bonuses insurance facilities extend to medical claims.

BOOKS, BUDGET AND MIS

General leaderis the consolidated list of general entries. As soon as the general voucheris received,

the general leaderis prepared.

In the general leader,receipt and expenditure both are recorded. This section prepares section wise

and monthly trail balance.

Afterthe preparation of general leader, trail balance, P&L account and balance sheet are preparedyearly. The balance sheet is prepared in accordance with the companys act.

Two types of audit are done:

1. Internal audit2. Government

BUGDET:


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Budget is a target setting foroperations:

REVENUE BUDGET:it consist of consolidated production programmed & related expenses to carry

out that programmed.

CAPITAL BUDGET:it includes the fixed assets. Preparation of budget is done at three levels

1. Internal level: each department is sent information about the budgeted expenses provided tothe department. It is necessary forcontrol.

2. Corporate level: budget of BHEL unit is sent to the corporate office.3. Government level: budget of BHEL is also sent to government level.

MANAGEMENT INFORMATION SYSTEM:

Three types ofinformation systems are generated:

1. Internal forthe unit2. Forthe corporate office3. Forgovernment.Every month information is generated regarding allocation on various funds on various aspects

foreach department and is sent to every department.

Information is generated mainly forcontrol purpose. Otherinformation generated is:

1. Cash flow2. Inventory level ( non moving and slow moving items).3. Inventory of finished goods.COST SECTION:

This section is responsible foraccounting and reporting of cost. It determines direct labourrates

and engineering rates, overheads recovery factors of manufacturing, engineering, commercial and

administration forcost estimates.

The cost accounting is done to record and allocate forwork orders and product level information.

It furnishes cost reports to management about:

1. Profitability- profit wise, orderwise2. Variance-estimated and actual cost.3. Performance-efficiency and operating result.SALES SECTION:

The accounting of sales is done in this section. The activity of this section starts when the

commercial department issues a work. Work orderpart 2 (financial) summarizes the financial

terms of the contract. It contains the information like the name customer& consignee, description

of goods to be produced and sold, quantity sales value, terms of delivery and payment, price

variation clause, sales tax, excise duty, liquidated damages, bank guarantee, freight etc. with the

part 2 W.O. details. Apart from that the terms and conditions embodied in W.O. part 2 as regarded

adjustment of advances, deferred debts and calculation of PVC, excise duty and sales tax must


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also be complied with, sales section submits the bills to the customers as desired by commercial

eitherdirect orthrough such as banks.

MISELLANEOUS AND REVENUE:

Miscellaneous wing of this section deals with payment of advances to employees going on official

tours, LTC etc. payment to transporters, welfare, activities, security services, repairs and

maintenance, daily wages, furniture, departmental and otherpetty expenses.

The revenue wings of the section with recovery ofrent, electricity and watercharges and charges

forotherfacilities from the salary of the employees.

INTERNAL AUDIT:

BHEL is having its own team ofinternal auditors, who to unearth the discrepancies in accounting,

check periodically the books of accounts as well as schedules forming accounts.

EXPORT INCENTIVES, SALES TAX AND INCOME TAX:

This section deals with exports procedures of finished foods, it is entrusted to get licenses for

export. It is also responsible forclaim of duty draw back and export incentives. This section also

looks the import ofraw materials that forms parto finished goods.

It also assesses of sales tax,income tax and othertax matters related to custom duty.


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BHARAT HEAVY ELECTRICALS LTD., JHANSI

PLANNING & DEVELOPMENT DEPARTMENT

SCHEME AT GLANCE

Framed by : Bharat Heavy Electricals Limited, Jhansi.

Scheme description : Capacity Enhancement of AC LocomotivesFacilities

Reference : New Proposal

Estimated Cost : Rs.4535 Lakhs

Investment Phasing : Within 21 months

Installed :30 nos.

AfterInvestment :50 nos.

Majorfacilities : Facilities proposed are:

y Bogie machining centers -1 No.y Wheel press machine -1 No.y Radial drilling machine -1 No.y CNC pipe Bending machine -2 Nos.y CNC Vertical milling machine -1 No.y EOT cranes 2x10T, 1x20T,2x50T.y Stress Relieving Furnace -1 No.y Painting Booth -1 No.y New Bogie & Assembly shop.

Reckoning with the emergence of growing demand of electric locomotives by Indian

Railways & Inadequate capacity at theirChittranjan Locomotive works (CLW) to meet this

requirement, BHEL Jhansi has set up locomotive manufacturing facilities to produce 30

Locomotives perannum. Since 1988-89 BHEL Jhansi has rolled out 160 electric locomotives

worth Rs. 782.61 crores. After last supply in 99-2000 the facilities were used for different

products as there was no order for main line locomotives. Orders for 50 numbers electric

locomotives (WAG-7) have been received from Indian Railways. Marketing sectorhas also

indicated forfurtherorder in future. Revival of existing locomotive manufacturing facilities

is under progress. Further to meet the projected demand of locomotives, capacity

enhancement up to 50 numbers peryearis essential. To enhance the manufacturing facilities,

additional facilities as given above have been proposed.


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UNIT : Bharat Heavy Electrical limited, Jhansi

PROJECT :CAPITAL INVESTMENT PROPOSAL FOR CAPACITY

ENHANCEMENT OF AC LOCOMOTIVES FACILITIES

ESTIMATES: Cost Estimates (Rs/Lacs)

Item Total cost FE Content

Plant & machinery 2854.43 1716.08 Civil 1548.68 0

Contingencies 132.09 0

Total 4535 1716.08

Projected expenditure: Rs.533.98 Lakhs in 09-10 and Rs 4001.22 Lakhs in 10-11

Financial returns (on incremental basis):

IRR 15.43%

ROI 19.81%

Payback period 7.96 years

Scheduled completion:21 months afterapproval.


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BHARAT HEAVY ELECTRICAL LIMITED, JHANSI

FINANCIAL ANALYSIS SUMMARY OF INVESTMENT FOR CAPACITY

ENHANCEMENT OF AC LOCOMOTIVES MFG UPTO 50 NUMBERS

PROJECT COST: Rs 45.35 Cr

INCREMENTAL BASIS TOTAL BASIS

Parameters IRR% ROI% Pay BackPeriod

IRR% ROI% Pay BackPeriod

100% Equity 15.43 19.81 7.96 16.95 37.55 7.22

10%reduction in physical sale 13.81 16.67 8.40 11.36 26.43 8.93

10%increase in Material cost 3.32 4.19 11.59 -2.22 -4.97 12.29

10%increase in investment 14.28 17.55 8.25 16.39 34.40 7.35

10%reduction in physical sale,

10%increase in material cost

& investment

1.88 2.15 13 - -15.58 13.14

(-)indicates not determinable


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OVERALL PROPOSAL

A. SCOPE: The report projects the required investment in view of increasing installedcapacity of AC Locomotives from 30 numbers to 50 numbers peryear.

B. NEED FOR THE SCHEME: Capacity was built up in 1988-89 formanufacturing of30electric locomotives peryear. These facilities were impaired overthe years due to wear&

tearand technological obsolescence of machinery. Since 1999-2000 units were not having

orders of electric locos. Revamping of these facilities is underprogress with the estimated

cost of Rs. 761.58 Lakhs. Furtherin view of business sectorprojection,installed capacity

of30 numbers peryearneeds to be increased to 50 numbers peryears.

C. MAJOR INVESTMENT: For increasing locomotives manufacturing locomotivesmanufacturing facilities, investment is needed mainly on account of the capacity

enhancement.

D. PROPOSED FACILITIES: Majorfacilities proposed are:y Bogie machining centrey Wheel press machiney Radial drilling machiney CNC pipe Bending machiney CNC Vertical milling machiney EOT cranes 10T,20T& 50T.y Stress Relieving Furnacey Painting Booth.y New Bogie & Assembly shop


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ORGANIZATIONAL METHODOLOGY:

a) For identifying the facilities required for capacity enhancement a committee havingmembers from loco manufacturing, loco engineering and works engineering & services

has been constituted at BHEL Jhansi underthe chairmanship of GM(Loco & bus duct).

The facilities included in the report with respective cost estimates are based on current

budgetary offers and detailed working.

b) Organizational setup involved in implementation of investment schemes at Jhansiincluding majorfunctions is indicated at ANX-II.

c) Project implementation shall be guided and monitored by a project steering committeeheaded by GM (Loc & Bus duct) having members drawn from works engineering &

services, finance, production, MM and P&D departments. The steering committee shall

hold monthly reviews,resolve implementation problems, monitorand control the cost &

time over-runs and regularly appraise the unit head about the progress made and

corrective actions taken.

d) As per CMT&IP guidelines, under the chairmanshi p of the unit head, a project reviewcommittee shall be constituted of which concerned HODs will be members. Nominees

from CMT&IP and corporate finance will also be memberof this group. The PRC will

review and monitorthe implementation status.

RISK ANALYSIS

Risk factors, if investment is made

The investment for capacity enhancement of AC locomotive manufacturing facilities is

proposed in view of the order received and expected orders in next 5 years from IndianRailways. There is a risk,in case the projected business is not achieved. However, most of the

proposed facilities are general machines and can be utilized for diesel shunter locos, track

equipment etc. which the unit will continue to make.

Risk factors, if investment is not made

The unit is proposing bare minimum investment to meet theirrequirement formanufacture of

electric locomotives. If this investment is not made, it will be difficult to meet the delivery

requirement of Indian Railways, which shall adversely affect future orders from Indian

Railways. Also this leads to development of othervendors forlocomotives by Railways.

AnalysisAs above, there is a riskinvolved in investing as well as not investing. However, keeping in

view the strategic requirement of Jhansi unit as centre for transportation (Divisional plan

2012) and formeeting the requirement of electric locos of Indian Railways,it is essential to

go ahead with the above investment proposal.


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INVE T ENT ET IL E TING RE IRE ENT

C t

timat

r r

acilities: pr posed in estment forcapacit enhancement of AC

locomoti

e manufacturing facilities wor

s outto be Rs

Lakhs primaril

consisting ofplant & Machiner , ci il works

Categor wise details of cost estimates of in estment are as

under:

escription Rs /Lakhs

Plant & Machiner /Services

Factor civil works 1

Contingency 1

Total:

Total foreign exchange on imported plant & Machinery items works outto be Rs 171

Lakhs

Proposed location & layout: keeping sequential flow of material and assemblies the proposed

facilities have been aligned with the existing Locomotives block consisting of assembly bay,

bogie shop, and test area as perthe layout.

Turnoverbuild-up:

Locomotives will be manufactured in year

-1

and 1

-11 and

Locomotives peryearsubsequently.Considering turnovervalues will be Rs.

7.28 Lakhs/

Loco in case of existing orderand Rs 7

Lakhs/ Loco forproposed order.

Year

8-

-1

1

-11 11-12 12-1

Existing 1

1

-------------- ---------------

New Loco ------------- -------------- 20 0 0


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FINANCIAL ANALYSIS

A. CAPITAL INVESTMENT: A total investment of Rs 4535 Lakhs has been envisaged asper this proposal which includes import of certain plant & machinery of Rs 1716.08Lakhs in terms of foreign exchange. Item wise estimates are based on the latest budgetary

offers obtained from prospective suppliers. Custom duties have been taken as per

prevailing current rate (with EPCG benefits) and exchange rates. Investment of Rs 4535

Lakhs as proposed has been arrived considering CENVAT benefits. Matching statutory

export obligation for the expected EPCG benefits will be fulfilled from the export

business of the unit.

B. Total cost of investment has been arrived at after considering existing Net block oflocomotive group as on 31.3.2008 and the proposed investment as perthis scheme.

(Rs./Lakhs)

Net block as on 31.3.2008(loco group) 336Revamping of AC loco (u/progress) 762

Proposed investment 4535

Total: --------

5633

--------

C. PHASING OF INVESTMENT: Investment is planned of Rs 534 Lakhs in 09-10 and Rs4001 Lakhs in 10-11. Investment will be completed in around 21 months from approval.

Category-wise breakup i.e. P&M and civil facilities has been furnished. The benefit of

commercial production will be available from year2011-2012.

D. MATERIAL CONTENT: based on the latest estimate, material consumption onturnoverhas been considered as 72.54%.

E. MANPOWER COST: An addition of 70 workers has been projected for the scheme.Cost of manpower has been taken as per Budget 09-10 after taking account of wage

revision impact. An increase of5%in personal payment yearto yearhas been considered.

F. OVERHEADS: The overhead expenses have been considered as 12.0% of turnover forthe financial analysis in this report.

G. INVENTORY: Holding period of raw material and components has been taken as 45days of material consumption and workin progress as 75 days of turnover.

H. DEPRECIATION: Depreciation has been taken on straight line basis. Rates ofdepreciation forplant & machinery and civil works have been taken as 20% and 3.34%

respectively considering 3 shift utilization. For income tax calculations, written down

value method has been adopted with depreciation rates of plant & machinery and civil

works as 15% with additional 20%in first yearand 10%respectively.


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I. CAPITAL STRUCTURE: Funding pattern forthe scheme has been assumed on 100%equity basis.

J. INTEREST CHARGES: Since analysis is based on financing out of own resources, WCof 12.00% as interest on working capital has been considered.

K. INCOME TAX: Corporate tax has been taken as per prevailing rate of 30%, withadditional surcharge of 10% and 3% educational cess. Thus effective tax works out to be

33.99%.

L. OTHER FINANCIAL PARAMETERS: Have been taken as under:y Debt collection period :30 days salesy Credit payment period :60 days of material receipty Advances from customers : NIL

M. FINANCIAL ANALYSIS: IRR has been calculated based on turnover from electriclocomotive with additional investment and man power.40% provisional impact of wage

revision due with effect from 1st Jan-07 has been taken in personnel payment forfinancial

analysis purpose. ROI has been worked out based on average of PAT projection of AC

Locomotive for12 years period.Detailed working enclosed as perAnnexure-IX

IRR :- 15.43%

ROI :- 19.81%

Payback period :- 7.96 Yrs.


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Incremental Basis

In this table the calculation is based on Incremental basis which means some pa rt of the Input is

taken from old input which is already there in the organization. And the Invested amount is Rs.

4535.00 Lakhs

As perthe data calculated in the table below shows separately IRR & payback period which comes to

IRR= 15.43%

Payback period=7.96 years

Acceptance rules: Any proposal is accepted in BHEL ifit satisfies the following conditions.

1. IRR should be greaterthan orequal to current rate ofinterest forloan.2. Payback period should be less than orequal to 10 year. As decided by the management.

Interpretation:

1. As the value of IRR, 15.43 which is more than the current rate ofinterest i.e. 13%2. Payback period as calculated comes to 7.96 which are again less than 10 years. It means that

BHEL can recoverthe amount ofinvestment Max. In 8 years.

3. Average value of the profit aftertax for12 years is Rs.898.30 Lakhs which is quite high.4. The return on Investment is 19.81%.Hence the proposal is accepted.


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This table shows the calculation for internal rate of return which is as follows:

1. This table shows that the total cash inflow during yearwhich is calculated by the differencebetween total and net cash inflow in column 8

thand 9

th.

2. Second column shows the capital expenditure during the years and it is Rs.533.98 and Rs.4001.22 for1st and second yearrespectively.

3. Material used is given in column third and cash paid to laboris given in 4th column.4. 5th column shows the outflow working capital and overhead and income tax is shown in 6th

and 7th

column respectively.

5. Doing all this calculation the value of IRR comes to 15.43%.


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This table shows the calculation for Payback period

1. To establish new AC LOCO BHEL invest Rs.524.91 Lakhs in first year, Rs.3928.59 Lakhsin second yearand Rs. 1348.05 Lakhs in third year.

2. And the yearonward the value of net cash inflow becoming positive.3. In the yearbetween 7th and 8thi.e. 7.96 yearthe organization is getting back the full amount of

investment. And that yearis also known to be breakeven year.


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SENSITIVITY ANALYSIS:

1. With 10% reduction in physical sale

a. As per taking this contingency the calculated value of IRR is coming to 13.81%which is perhaps less than 15.43% but still more than bankrate ofinterest i.e. 13%.

b. This table shows that if such condition occurthen also the organization will have theprofit aftertax of Rs. 765.09 Lakhs and the return on investment will be 16.67%.

c. The payback period is coming to 8.4 yearit means that the organization will recoverthe invested amount in 8.4 years.

d. The total output is Rs. 14000 Lakhs.2. With 10% Increase in Material Cost

a. As pertaking this contingency the calculated value of IRRis coming to 3.32%.b. This table shows that if such condition occurthen also the organization will have the

profit aftertax of Rs. 189.91 Lakhs and the return on investment will be 4.19%.

c. The payback period is coming to 11.59 year it means that the organization willrecoverthe invested amount in 11.59 years.

d. The total output is Rs. 14000 Lakhs.3. With 10% Increase in Investment:

Under this the value of Investment has increased to Rs. 4988.72 which causes the

following changes.

a. As per taking this contingency the calculated value of IRR is coming to 14.28%which is perhaps less than 15.43% but still more than bankrate ofinterest i.e. 13%.

b. This table shows that if such condition occurthen also the organization will have theprofit aftertax of Rs.875.50 Lakhs and the return on investment will be 8.25%.


d. The total output is Rs. 14000 Lakhs.4. With 10% Reduction in Material, Investment & 10% reduction in physical sale

a. In this case all the contingencies above are taking together.b. As pertaking this contingency the calculated value of IRRis coming to 1.88%.c. This table shows that if such condition occurthen also the organization will have the


d. The payback period is coming to 13 year it means that the organization will recoverthe invested amount in 13 years.

e. The total output is Rs. 14000 Lakhs.


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Total for AC LOCO 100% Equity

In this table the calculation is done for total basis which means all the Inputs are new. And the

invest amount is Rs. 5633.20 Lakhs

As perthe data calculated in the table below shows separately IRR & payback period which comes to

IRR= 16.95%

Payback period=7.22 yr

Acceptance rules: Any proposal is accepted in BHEL ifit satisfies the following conditions.

1. IRR should be greaterthan orequal to current rate ofinterest forloan.2. Payback period should be less than or equal to 10 year. As decided by the

management.

Interpretation:

1. As the value of IRR, 16.95% which is more than the current rate ofinterest i.e. 13%2. Payback period as calculated comes to 7.22 years which are again less than 10 years.

It means that BHEL can recoverthe amount ofinvestment Max. In 8 years.

3. Average value of the profit aftertax for12 years is Rs.2115.42 Lakhs which is quitehigh.

4. The return on Investment is 37.55%.Hence the proposal is accepted.


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This table shows the calculation for internal rate of return which is as follows:

1. This table shows that the total cash inflow during yearwhich is calculated by the differencebetween total and net cash inflow in column 8

thand 9

th.

2. Second column shows the capital expenditure during the years and it is Rs. 1613.98 Lakhsand Rs.4001.22 Lakhs for1st and second yearrespectively.

3. Material used is given in column third and cash paid to laboris given in 4th column.4. 5th column shows the outflow working capital and overhead and income tax is shown in 6th

and 7th

column respectively.

5. Doing all this calculation the value of IRR comes to 16.95%.


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This table shows the calculation for Payback period

1. To establish new AC LOCO BHEL invest Rs.5206.77 Lakhs in first year, Rs.9978.79 Lakhsin second yearand till 7

thyear

2. And before the year8th the value of net cash inflow becoming positive.3. In the yearbetween 7th and 8thi.e. 7.22 yearthe organization is getting back the full amount of

investment. And that yearis also known to be breakeven year.


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Sensitivity analysis:

1. With 10% reduction in physical sale

a. As pertaking this contingency the calculated value of IRRis coming to 11.36%.b. This table shows that if such condition occurthen also the organization will have the



d. The total output is Rs.31500 Lakhs.2. With 10% Increase in Material Cost

a. As pertaking this contingency the calculated value of IRRis coming to -2.22%.b. This table shows that if such condition occurs then also the organization will have the

profit aftertax of Rs. -280.14 Lakhs and the return on investment will be -4.97%.

c. The payback period is coming to 12.29 yearit means that the organization willrecoverthe invested amount in 12.19 years.

d. The total output is Rs.35000 Lakhs.3. With 10% Increase in Investment

a. As pertaking this contingency the calculated value of IRRis coming to 16.39%which is more than 15.43%.

b. This table shows that if such condition occurthen also the organization will have theprofit aftertax of Rs.2093.75 Lakhs and the return on investment will be 34.40%.


d. The total output is Rs.35000 Lakhs.4. With 10% Reduction in Material, Investment & 10% reduction in physical sale

a. In this case all the contingencies above are taking together.b. As pertaking this contingency the calculated value of IRRis coming to nil.c. This table shows that if such conditions occurs then also the organization will have

the profit aftertax of Rs. -946.3 Lakhs and the return on investment will be -15.58%.

d. The payback period is coming to 13.14 years it means that the organization willrecoverthe invested amount in 13 years.

e. The total output is Rs.31500 Lakhs.


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CONCLUSION

BHEL is the leading Organization in India, and is one among the Navaratna. BHEL

maintains the standard, quality of services and the brand image through its uncompromising

customer service. It has separate finance department which is entrusted with the task of

carrying out its various roles efficiently. The business of BHEL is carried on in a very

scientific manner. The procedure followed in the capital budgeting of the proposal is in the

scientific manner. The Organization also does the sensitivity analysis so that in case of any

contingency the organization will not have loss. Overall, the financial performance of the

organization is very well as it is having a continuous growth.


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BIBLIOGRAPHY

BOOKS

I.M. Pandey, Financial Management

Documents of BHEL on Capital Budgeting

WEBSITES

www.bhel.com

www.bheljhs.com

www.wikipedia.org


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BHEL Capital Budgeting Project

Documents

Transcript of BHEL Capital Budgeting Project