Bharat Heavy Electricals Ltd. (BHEL)

Presented by:M. Arsalan Sheikh (#7989)Ahsan Bham (#8106)Sobia Khan (#6316)

Capital Goods Industry:Overview• Manufacturing sector is the key end-user sector of

capital goods• Presence of a large width of products, with almost all

major capital goods being manufactured locally• Focus/investment in branding & marketing and

customer orientation is low.• Most items produced compare functionally with those

manufactured elsewhere in the world, but lag behind as far as finish is concerned

• Labor is highly cost-competitive

Capital Goods Industry:Statistics

• Capital goods sector has registered a growth of 7.0% during the current year 2008-09.

• The share of China in India’s total import of capital goods has gone up from 38 per cent in 2002-03 to 50 per cent in 2007-08

• BHEL has been growing at a CAGR of around 25 per cent since 2007-08

Heavy Industry:Overview

Industry UnitProduction

Growth Rate (%)2007-08 2008-09

Industrial Machinery Rs. lakhs 355892.3 515431.6 44.83

Machine Tools Rs. lakhs 269144.6 242816.7 (9.78)

Boilers Rs. lakhs 823134 1015393 23.36

Turbines (Steam/Hydro) Rs. lakhs 351814.3 419300.4 19.18

Electric Generators Rs. lakhs 147415.98 177809.5 20.62

Power Distribution Transformers Mill. KVA 73.26 71.86 (1.91)

Telecommunication cables Mill. Mtr. 8013.2 7050.68 12.0

Commercial Vehicles Numbers 545104 416491 (23.59)

Passenger Cars Numbers 1421984 1516791 6.67

Source: Department of IPP

Heavy Electrical Industry:Overview• The Government of India has an ambitious mission of

‘Power for All by 2012’ and planned power capacity addition of 78,577 MW in the 11th five year plan (2007- 12)

• Manufacturers of Heavy Electrical equipment have absorbed latest technology available in the world up to a unit capacity of 660/800 MW for thermal sets.

• Latest technology for generation of nuclear power will be accessible to Indian manufacturers and bigger players in the field like Bharat Heavy Electricals Ltd. (BHEL) and Larsen & Toubro will be benefited immensely.

Heavy Electrical Industry:Categories• Boilers– High pressure steam thus generated may be used directly

as the working fluid in a prime mover to convert thermal energy to mechanical work, which in turn may be converted to electrical energy.

• Transformers– The transformer industry in India has developed for over

50 years and has a well matured technology base. Energy efficient amorphous core transformers with low losses and low noise levels are also being developed to meet International requirements.

Heavy Electrical Industry:Categories• Switchgear and Control Gear– Switchgear & Control gear Industry in India is a fully

developed and mature industry, producing and supplying a wide variety of switchgear and control gear items needed by the industrial and power sector. This industry sector manufactures the entire voltage range from 240 V to 800 KV.

• Generator Sets– Manufacturers in India are capable of manufacturing

AC Generator right from 0.5 KVA to 25,000 KVA with specified voltage ratings.

Heavy Electrical Industry:Categories

• Turbines– The capacity established for manufacture of

various kinds of turbines such as steam and hydro turbines including industrial turbines is more than 10,000 MW per annum

Heavy Electrical Industry:Leading Players (2006)Categories Players

Transformer Crompton Greeves, BHEL, Vijay Electricals, Emco, Bharat Bijlee

Switchgears ABB, Siemens, L&T, Crompton Greeves, BHEL, Areva T&D India Ltd. (formerly Alstom)

Steam & Hydro Turbines BHEL, Triveni Engineering & Inds., Bellis India

Generator/Generating Sets Honda Siel Power Products, Powerica, Kirloskar Electronic Co., Cummins India

Boilers BHEL, Thermax, Saraswati Industrial Syndicate, Sterling Strips

Porter’s 5 Forces Model

Rivalry among competitorsCreating competitive advantages to gain bigger market shareAcquisitions, mergers and joint-ventures in other countriesTechnological Improvements

SuppliersMaterials, parts, components, other resourcesSuppliers are well diversified across the globePrompt delivery by Suppliers are ensured by BHEL

Potential of New EntrantsCompetitive PriceMany orders are captured in recent timesExisting tactic in the market will not help in the current scenario

BuyersWide Customer base in India and in all parts of the worldWith excellent customer satisfaction the order are booked for the next two years (Information from the employee)

SubstitutesHas many substitutes that might pose a threatHas less diversification with sectors, so that concentrated focusing on the respective sector avoids chance of getting substitutedHas a order book worth thousands of Crores

BHEL:Introduction• Lower cost is due to low capital cost • Manpower has been streamlined; with the

introduction of VRS their manpower cost are of the order of 17% of turnover. Hence their fixed cost is low as compared to their competitors.

• Also continuous productivity improvements, value engineering and better inventory management among others contributes to their cost competitiveness.

• Technology absorption/engineering skills.

BHEL:Introduction• Technical/development abilities to improve the

product and keep it current. • Professional strategic management (coming up

with suitable strategies in marketing, operations and financial management)

• Skills established in production, erection, commissioning and servicing

• Ability to offer total solution and system sale• BHEL targets to achieve Rs 50,000 crore turnover

by 2011-12

BHEL:M&A Strategy

• Intensifying competition

• Global markets

• Growth in new industries

• Get the technology and market access

– BHEL acquired Bharat Heavy Plates and Vessels

BHEL:International Competition• Enhancing overseas business is one of the strategic

thrust areas.• Physical export orders worth Rs.3,265 Crore ($ 653

Million) received in 2008-09.• BHEL plans to enhance export revenues to Rs.6,000-

7,000 Crore by 2011-12– By positioning BHEL as an effective EPC contractor– Attempting large projects through project partnerships– Leveraging business through Govt. of India line of credit– Product sales through distribution networks

BHEL:Core competence• In order to meet the increasing demand of power

equipments it is currently expanding its capacities to 20,000 MW, which expected to commission by Dec 2011.

• Robust order book with visibility for next three and half years

• Capacity expansion to provide economies of scale • Supercritical projects to provide the next growth trigger • BHEL proving its prowess in spite of competition from

Chinese equipment

BHEL:Power Segment

• The manufacturing range of BHEL includes Steam turbines, Boilers, Generators up to 500 MW for utility and combined cycle application and is capable of manufacturing Steam Turbines with super critical steam cycle parameters and matching generators up to 660/800 MW size.

• BHEL has the capacity to manufacture gas turbines up to 260 MW.

BHEL:Power Segment

• BHEL is the largest manufacturer of boiler in the country accounting for around 2/3rd of the market share. It has the capacity to manufacture steam generators for utilities ranging from 30 to 500MW capacity using coal, lignite, oil, natural gas or a combination of these fuels.

BHEL:Financials

BHEL:Next five years…

• Technical collaboration• Investing heavily in R&D• Improving finishing of its products• Introducing new technologies in power

generation• Increase its overseas business by increasing

supplies

BHEL:Global Competitiveness• BHEL has fully established state-of-the-art

technology for manufacture of HT Motors up to 28000 kw rating

• Winning a prestigious contract for supply of 650 HT Motors for Essar Steel Plant Valued (at Indian Rs. 650 million (US $14.8741 million)

• The company has an investment plan of Indian Rs. 1340 million (US $30.5951 million) for modernization of production and testing facilities

BHEL:Global Competitiveness

• BHEL is taking long strides to become a major global player in the field of HT Motors also by enhancing its presence in international market

• The company is targeting a six-fold increase in its physical exports by 2012

• India's BHEL gets $44 Million order from Oman in 2009

BHEL:SWOT Analysis

• Strengths– Sound engineering base and easy to assimilate– Ability to manufacture or procure or supply spares– Largest source of domestic business leading to

major presence and influence in the market– Ability to successfully overhaul and renovate

power stations equipment of different international companies

– Low labor cost

BHEL:SWOT Analysis

• Weaknesses– Large delivery cycles in comparison with

international suppliers of similar products– Inability to provide suppliers’ credit, soft loans,

and financing power projects

BHEL:SWOT Analysis

• Opportunities– Demand for power and hence plant equipment is

expected to grow– Private sector power plants to offer expanded

market as utilities suffers resource crunch– Ageing power plants would give rise to more spares

and services business– Life expansion program for old power stations.– Easy processing of joint ventures/

collaboration/import/ acquisition of new technology.

BHEL:SWOT Analysis• Threats– Increased competition both national and international– Multilateral agencies reluctant to lend to power sector

because of poor financial management of S.E.Bs– More concessions to private sector and not to government

owned utilities like NTPC or S.E.Bs, so future power projects would be opened up in private sector

– Level playing ground not available, foreign companies spending much more on business promotion tactics.