“Analysis of business of BHEL in the

light of Corporate Monitoring”

BHARAT HEAVY ELECTRICALS LIMITED

SIRIFORT, NEW-DELHI.

A report in partial fulfillment for the degree ofMasters in Business Administration

BY

TABISH SOHAIL MBA 2013-15,AMU

Under the esteemed guidance of

Shri Yasbir SinghAGM (MON)

&Shri Ayush Gupta

1

Engineer (MON)

2

Declaration

I, Mr. Tabish Sohail hereby declare that this project report is the record of authentic work

carried out by me during the period from 4th June, 2014 to 4th August, 2014 and has not been

submitted to any other University or Institute for the award of any degree

Tabish Sohail

13 MBA 50

3

Date : 4th August,2014

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. Tabish Sohail, a bonafide student of MBA, Faculty of

Management Studies and Research, Aligarh Muslim University has undertaken eight weeks

training from 4th June, 2014 to 4th August 2014 in Corporate Monitoring Division of BHEL.

During his training in BHEL, he undertook a project entitled, “Analysis of business of

BHEL in the light of corporate monitoring”. The project is an original work of Mr. Tabish

Sohail.

Mr. Tabish Sohail was sincere and well disciplined during the course of his training.He was

a keen learner

I wish him a very successful and bright life.

Yasbir Singh

(Additional General Manager – Corporate Monitoring)

ACKNOWLEDGEMENT

4

With profound respect and gratitude, I take this opportunity to convey my heartfelt gratitude

to various individuals involved in making this training a truly learning and enriching

experience. I hereby take this opportune moment to express my deep thanks to our

Department Head Shri BabuLal, GM (Mon) for his support.

I convey my profound thanks to Shri Yasbir Singh (AGM), Shrimati Kamlesh Kelkar, Shri

Ayush Gupta (Engineer) for their profound guidance, support and encouragement.

Besides, I express my sincere thanks to all the members of Corporate Monitoring and

Marketing Department, all the people who one way or the other, directly or indirectly as well

as HR Department for constant support and their friendly and helpful attitude.

I am deeply thankful to the Dean and Chairman Respected Prof. Mohammad Israrul

Haque for providing me this golden opportunity and the much required motivation,

Respected Dr.Feza Tabassum Azmi for helping me throughout my training, Respected

Dr. Asif Akhtar for supporting me in the hours of constant perseverance and the entire

faculty, Department of Business Administration, AMU for their sincere guidance in

finalizing the project and giving suggestions which has helped me in completing my

project.

As people say you‘re what your friends let you be. I take this opportunity to thank all

my friends for their invaluable support and cooperation.

I am extremely grateful to my family for their invaluable support and encouragement

throughout the course of my life. Above all I am thankful to Almighty for giving me the

desire, ability and zeal to fulfill the completion of this project.

Tabish Sohail

EXECUTIVE SUMMARY5

Purpose of study

The study was commissioned to examine the factors responsible for success of Chinese

power generation equipment manufacturers in India.

Background:

Till Recently, BHEL dominated the market but with the Chinese stepping in things started

changing. The Chinese in a matter of few years grabbed a significant market share. BHEL’S

market share increased but not in proportion with the increase in the market size.

Trend Observed:

BHEL has managed to retain its strong hold as far as central and state power producing

companies are concerned. On the other hand it has lost significant market share in private

sector companies. Independent power producer (IPP) contract are being successfully bagged

by Chinese companies adding this to the fact that the capacity of power project under IPP

have increased significantly, it is important that BHEL analysis the facts responsible for

success of Chinese. Government of India has ambitious plans for capacity addition during

12th fifth plan and it means potential business for power generation equipment

manufacturers.

The study identified the following factors responsible for IPPs switching to Chinese:

Lower Price Shorter

Delivery Period

Easy Credit Availability for Buyers

Factors contributing towards achievement of cost leadership:

Labor

Trade Policies

Credit Availability

Raw Materials

6

Infrastructure Performance

Recommendations

BHEL should influence government to levy Heavy Duty on import of power

generation equipment

Promotion of importance quality (as BHEL provides high quality products and

Chinese do not)

BHEL should influence the government to provide easy and cheaper credit tackle

tough competition from chinese

BHEL should look into how it can reduce its delivery schedule

BHEL should influence the government to development infrastructures such as roads

and highway as it will help in increasing competitiveness of manufacturing industries

and enhance its logistics performance.

Increase value addition of labor in BHEL to increase productivity there by become

more competitive

Optimize value chain. With the beginning of new era in power generation equipment

manufacturing industry, BHEL should analyze its value chain and should find out the

areas where there is scope for optimization

Further vendor development, BHEL should try to increase its vendor base as it will

help in reducing costs

Global sourcing. BHEL should go far global sourcing and it should look towards

foreign economic to source inputs at lower price

BHEL should try to enter into long term contracts for procuring raw materials at fixed

low rate

7

Contents

Chapters Topic Page

Executive Summary 5

Chapter 1 Industry Profile 10

Chapter 2 Company Profile 21

Chapter 3 Research Methodology 42

Chapter 4 Balance Score Card Analysis 47

Chapter 5 Business and Marketing 57

Chapter 6 Special Findings and Loopholes 85

Chapter 7 Recommendations & Conclusions 88

Annexure 92

References 94

8

9

VISION

A world-class, innovative, competitive and profitable engineering enterprise providing

total business solution

MISSION

To be the leading Indian engineering enterprise providing quality products system and

services in the fields of energy, transportation, industry, infrastructure and other

potential areas

VALUES

Meeting commitments made to external and internal customers

Foster learning, creativity and speed of response

Respect for dignity and potentail of individuals

Loyalty and pride in the company

Team playing

10

Integrity and fairness in all matters.

Chapter 1

INDUSTRY PROFILE

11

Introduction

Bharat Heavy Electricals Ltd. (BHEL) is the largest engineering and manufacturing

enterprise of its kind in India and is one of the leading international companies in the

energy related and infrastructure sector today. BHEL's operations are organized around

three business sectors namely Power, Industry and Overseas business and is engaged in

the design, engineering, manufacturing, construction, testing, commissioning and

servicing of a wide range of products and services for the core sectors of the economy,

viz. Power, Transmission, Industry, Transportation, Renewable Energy, Oil & Gas and

Defense.

BHEL was granted the ‘Maharatna’ status on 1st February 2013 by the

government of India making it one of the only 7 mega Public Sector Undertakings

(PSUs) of India clubbed under this esteemed status.

BHEL is the 7th largest power equipment manufacturer in the world. In the year 2011,

it was ranked ninth most innovative company in the world by US business

magazine Forbes. BHEL is the only Indian Engineering company on the list. It is also

placed at 4th place in Forbes Asia's Fabulous 50 List of 2010. It is the only Indian PSU

to be recognized for the second time as “Star PSU” Company of the year by leading

business daily ‘Business Standard’.

BHEL has a well-recognized track record of performance. The company has been

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

Bucking the uncertainties surrounding the global economic recovery, BHEL registered

the highest turnover ever and crossed the Rs 50,000 Crore mark for the first time during

12

the year 2012-13; a Turnover of Rs. 50, 015 Crore and a Net Profit of Rs. 6,485 Crore.

The company has grown in stature over the years with continued inflow of orders,

manufacturing prowess, continued thrust on technology leading to a strong presence in

domestic and international markets as a major supplier of power plant equipment

besides establishing substantial inroads in select segment of products in Industrial

sector and Railways.

BHEL has acquired certifications in the domains of Quality Management Systems (ISO

9001), Environmental Management Systems (ISO 14001) and Occupational Health &

Safety Management Systems (OHSAS 18001) and Information Security Management

Systems (ISO 27001) and has made significant strides towards Total Quality

Management as well.

The high level of quality & reliability of its products is due to the emphasis on design,

engineering and manufacturing, expected to match international standards. BHEL is

moving ahead in this direction by acquiring and adapting some of the best technologies

from leading companies in the world, together with technologies developed in its own

R&D centers.

BHEL: Evolution and Growth

Feb 1947: Advisory Planning Board envisaged the need for Electrical Machinery

Industry in India.

13

Mar 1948: Sir J.C. Ghosh (Exploratory Committee) - set up Heavy Electricals

Generating Equipment Factory in State Sector.

Jan 1955: S.A. Gadkary Committee reiterates the need for Heavy Electrical

Equipment Factory.

Aug 1956: Heavy Electricals (Pvt.) Ltd incorporated, later renamed HEIL (Heavy

Electricals India Ltd set up in Bhopal.

1960's: Three major plants were set up at Haridwar, Hyderabad and

Tiruchirapalli. All these worked as independent units and competed with each

other, till the government decided to merge theseand on 1/1/1974 BHEL came

into existence.

January 1974: HEIL merged with BHEL.

Second Generation Units – Vertical Integration - TP Jhansi, CFFP, Hardwar and

SSTP Tiruchy.

Further vertical integration through acquisition of REMCO and MPL

Setting up of third generation units – IP Jagdishpur, BAP Ranipet, IVP

Goindwal, CFP Rudrapur

14

1980s - Formation of Business Sectors – Power, Industry and International

Operations

Business Focus Areas

BHEL is engaged in the design, engineering, manufacturing, construction, testing,

commissioning and servicing of a wide range of products and services for the core

sectors of the economy, viz. Power, Transmission, Industry, Transportation, Renewable

Energy, Oil & Gas and Defense.

15

Power Generation

Power is the focal area for BHEL and comprises thermal, nuclear, gas, diesel and hydro

businesses. BHEL has taken India from a position of total dependence on overseas

sources to complete self-reliance in power plant equipment. Today, BHEL sets account

for nearly 57 % of the total installed capacity in the country.

BHEL has contracts for supplying boilers and auxiliaries, turbo generator sets and

associated controls, piping and station control & instrumentation of up to 800 MW unit

rating and has the technology and capability to produce thermal sets with higher unit

ratings including 1000 MW. BHEL has access to technology for higher size gas

turbines and can supply gas turbines up to 270 MW unit size. It engineers and

constructs custom built combined cycle power plants, Hydro sets of Francis, Pelton,

Kaplan and bulb types for different head - discharge combinations, with matching

generators, are also designed and manufactured by BHEL.

Industry

BHEL manufactures and supplies major capital equipment and systems like captive

power plants, centrifugal compressors, drive turbines, industrial boilers and auxiliaries,

waste heat recovery boilers, gas turbines, pumps, heat exchangers, electric machines,

valves, heavy castings and forgings, electrostatic precipitators, ID/FD fans, seamless

pipes etc.

These serve a number of industries like metallurgical, mining, cement, paper, fertilizers,

refineries and petro chemicals, etc. in addition to power utilities. BHEL has also

16

emerged as a major supplier of controls and instrumentation systems, especially

distributed digital control systems for various power plants and industries.

Transmission

BHEL supplies a wide range of products and systems for transmission & distribution

applications. The products manufactured by BHEL include power transformers,

instrument transformers, dry type transformers, shunt reactors, capacitors, vacuum and

SF6 switchgear, gas insulated switchgear, ceramic insulators, etc. BHEL has developed

and commercialized the country's first indigenous 36 KV Gas Insulated Substation

(GIS) and has also developed 145 KV GIS which has undergone successful field trials

at Hyderabad. For enhancing the power transfer capability and reducing transmission

losses in 400 KV lines, BHEL has indigenously developed and executed fixed series

compensation schemes. It has developed thyristor controlled series compensation

scheme, involving thyristor-controlled reactors, popularly known as Flexible AC

Transmission System (FACTS). BHEL has indigenously developed state of the art

controlled shunt reactor for reactive power management of long transmission lines.

With a strong engineering base, the company undertakes turnkey execution of

substations up to 400 KV and has capability to execute 765 KV substations. High

Voltage Direct Current (HVDC) systems have been supplied for economic transmission

of bulk power over long distances.

17

Transportation

Most of the trains in the Indian Railways, whether electric or diesel powered, are

equipped with BHEL's traction propulsion systems and controls. The systems supplied

are both with conventional DC drives and state of the art AC drives. India's first

underground metro at Kolkata runs on drives and controls supplied by BHEL. The

company also manufactures complete rolling stock i.e. electric locomotives up to 5000

HP, diesel electric locomotives from 350 HP to 3100 HP for both mainline and shunting

duty applications. Further BHEL undertakes retrofitting and overhauling of rolling

stock. In the area of urban transportation, BHEL is geared up for turnkey execution of

electric trolley bus systems, light rail systems and metro systems. BHEL is contributing

to the supply of electrics for EMUs for 1500V DC & 25 kV AC to Indian Railways.

Almost all the EMUs in service are with electrics manufactured and supplied by BHEL.

BHEL has also diversified into the area of track maintenance machines for Indian

Railways.

Renewable Energy

In conformity with its concern for the environment, BHEL has been contributing to the

national effort for developing and promoting renewable energy based products on a

sustained basis. Starting from small applications like Solar Powered Street Lighting,

Rural Water Pumping Systems, Railway signaling, Offshore Drilling Platforms, etc.,

BHEL has supplied and commissioned large size stand-alone as well as Grid interactive

Solar Power Plants. With an aim to perform a significant role in National Solar

Mission’s proposed target of 20,000 MW of grid connected solar power.

18

BHEL signed an agreement with Abengoa, Spain, a leader in solar projects to provide

EPC solutions in Concentrated Solar Thermal Power (CSP) areas. The company is

working jointly with IOCL and IIT-Rajasthan for development work of product and

systems in the Concentrated Solar Power (CSP) area. A new record has been set by

installing 15MWp Grid Interactive Solar Photo Voltaic (SPV) plants across the country.

In the context of Jawaharlal Nehru National Solar Mission, BHEL is executing the

orders for Renovation and Operation & Maintenance of SPV plants

(aggregate2.15MWp) at various Islands of Lakshadweep.

Defense

BHEL manufactures the following for the defense sector:

Integrated platform Management system (IPMS)

Integrated Bridge system

Machinery control room simulator

Training simulator for vehicles, platforms, radars, weapons, missiles and CBT for

all defense and para-military forces

Weapon fire control system, Avionics, Radio communication products,

Electronic warfare systems and early warning system.

Oil & Gas

BHEL is supplying equipment for onshore drilling rigs viz. draw works, rotary-table,

travelling block, swivel, mast & sub structure, mud systems and rig electrics and X'mas

tree valves & well heads up to a rating of 10,000 psi. BHEL has also supplied Casing

19

Support System, Mudline Suspension System & Block Valves for offshore applications.

It has the capability to supply complete on-shore drilling rigs, super deep drilling rigs,

desert rigs, mobile rig, work-over rigs and sub-sea well heads.

Overseas Operations

BHEL has, over the years, established its references in over 70 countries of the world.

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

covering turnkey Power projects (Thermal, Hydro and Gas based), Transmission

Substation projects, Rehabilitation projects for Boilers, Power Stations etc., besides a

wide variety of products, like Transformers, Compressors, Valves and Oil field

equipment, Electrostatic Precipitators, Photo Voltaic equipment, Insulators,

Switchgears, heat exchangers, Castings & Forgings. Some of the major successes

achieved by BHEL have been in:

Gas based power projects in Oman, Saudi Arabia, Iraq, Libya, Bangladesh,

Malaysia, Sri Lanka, China, Kazakhstan;

Thermal power projects in Cyprus, Malta, Egypt, Malaysia, Sudan, Indonesia,

Thailand;

Hydro power plants in New Zealand, Azerbaijan, Bhutan, Nepal, Taiwan,

Malaysia, Afghanistan and Substation Projects & equipment in various countries

of Africa, Europe, South & South East Asia.

20

Research & Development

The company is taking a number of strategic business initiatives to fuel further growth

in overseas business. This includes firmly establishing itself in target export markets,

positioning of BHEL as a regular EPC Contractor in the global market and, exploring

various opportunities for setting up overseas joint ventures etc.

The Corporate R&D Division at Hyderabad leads BHEL's research and development

efforts, ably supported by engineering and R&D groups at the manufacturing divisions.

BHEL's technology policy advocates a judicious mix of indigenous efforts and selective

collaboration in essential areas. The company is thus able to continuously upgrade its

technology and product designs to contemporary standards.

BHEL is one of the few companies worldwide involved in the development of

Integrated Gasification Combined Cycle (IGCC) technology, which would usher in

clean coal technology. It has set up Asia's first 6.2 MW IGCC power plants with an

indigenously designed pressurized fluidized bed gasifier. Presently, there are

development efforts underway to set up a 182 MW IGCC power plant.

BHEL's R&D efforts have produced several new products. To optimize power plant operations during varying operating conditions, BHEL has developed an advanced software package for Performance Analysis, Diagnostics and Optimization of power plants

21

CHAPTER 2

COMPANY PROFILE

22

Bhopal, Jhansi, TBG, CSU & FP Balance Scorecard MCM Co-ordination Audit Queries RCSU

Bhopal, CSU & FP, EMRP RMSG

Jhansi, TBG

HPBP, Truchy, SSTP, BAP, IVP MCM Co-ordination ISO Co-ordination Balance Scorecard Rajbhasha Kriyanvan RCSU

HPBP, BAP, IVP & HERP

23

GM (Mon) Babu Lal

Kamlesh KelkarAdmn. Officer (RDP)

(PS)

AGM (Mon) B. Mishra

Sr. Engineer Amit Garg

Engineer Rudesh Kumar

AGM (Mon)Yasbir Singh

Sr. Manager Rakesh Ranjan

Dy. Manger Anit Shakya

EngineerAyush Gupta

AGM (Mon)R.K. Verma

Engineer Anuj Sain

EngineerMayank Mittal

Manufacturing Units/ Service Divisions and

Product Profile

BHEL has 17 manufacturing plants, 4 power sector regional offices, 8 service centers,

18 regional offices, 4 offices abroad, 1 subsidiary and over 150 project sites spread all

over India and abroad. It offers a wide spectrum of products and services to the core

sector like power generation, transmission, distribution, industry, transportation, oil and

gas, defense, and non-conventional energy system. The brief description and of the

manufacturing units and their product profile is outlined as under

Manufacturing Units

Sno. Unit Product

1 HPBP, Trichy Boiler - structure, pressure parts, fuel oil system

components, ducting system, insulation &

refractory, coal feeders and piping, HP bypass

valves and other motorized/ manual valves

2 HEP, Bhopal AC motors & alternators, hydro turbines &

generators up to 250 MW, heat exchangers,

steam turbine, TG (Nuclear, 700 MW),

transformers, switchgear, on load tap changer,

bushings, capacitors, large current rectifiers,

control & relay Panels, traction motors, oil rig

fabrication, diesel generators.

24

3 HEEP, Hardwar Large steam turbines, turbo generators (200 MW

& Above), hydro turbines & generators, gas

turbines & generators, condensers.

4 CFFP, Hardwar Steel and cast iron forgings & castings.

5 HPEP, Hyderabad Gas turbines, industrial steam turbines,

compressors, turbo generators, heat exchangers,

pumps, pulverizers, bowl mills & tube mills.

6 BAP, Ranipet Electro-static precipitators, industrial fans, air

pre-heater, chimney, heat exchangers,

desalination bag filters, wind mill Generators,

dampers for louvers, gates, Fabric filters.

7 Transformer Plant, Jhansi Power Transformers, Dry Type Transformers,

HVR Transformers, Instrument Transformers,

Traction Transformers, Electric & Diesel

locomotives.

8 EDN, Bangalore Control Systems (Power/ Defense), Sub-station

Automation & Supervisory Control and Data

Acquisition Systems (SCADA), Photo Voltaic

Cells, HVDC Systems/ FACTS/ Custom Power

Controllers, AC/ DC Drive Systems, Energy

Meters, Digital Switching System, Simulators,

RAX (Rural Automatic Exchange)

9 Piping centre, Chennai Power Cycle Piping, SG Piping

10 SSTP, Trichy Seamless Tubes, Large Size Forgings

11 EPD , Bangalore Porcelain Insulators, Ceramic Products

25

12 IP, Jagdishpur Ceramic Insulators

13 CSU, Jagdishpur Fabrication and Stampings

14 CFP, Rudrapur SP and IP Bus Ducts and hardware.

15 IVP, Goindwal Valve Sub – Assemblies

16 Power Plant Piping unit,

Thirumayam

Critical piping, Nuclear Secondary Piping and

other piping for non BHEL contracts e.g.

Refineries, sugar mills

17 BHPV-Bharat Heavy Plate &

Vessels Ltd, Visakhapatnam.

High Pressure parts and other parts of Boiler.

Service Divisions

18 Heavy Equipment Repair Plant, Varanasi Bowl Mill Spares, Steam

Turbine Spares (Governing

Spares, Parting plane

fasteners etc.), Hydro

Turbine Spares (Guide

Vanes, UGB/LGB Pads,

Bearing and Bearing

Housing, Coolers etc.),

Hydrogen Coolers for

Turbo –generators, Tools

& Tackles of Steam

Turbine, Spares for Boiler

Auxiliaries like Coal

Burners, Fuel Piping, ESP,

Air Preheater & RC Feeder

26

etc., Repair / Re-babbiting

of TG bearing, HP Rotor

machining, Repair of

Diaphragm, Mills &

Pumps-foundation

material.

19 Electrical Machine Repair Plant, Mumbai.

(Part of Bhopal unit)

Motors Repair and BOIs of

Hydro –Power plants

Other divisions

1 ISG-Industrial System Group

/Bangalore

Overall system engineering

of the Drives, Coal

Handling Plant, Ash

Handling Plant etc., which

includes design,

procurement, supply,

erection & commissioning

of the same.

2 TBG- Transmission Business

Group/ New Delhi.

Overall system engineering

of the HV Substations

which includes design,

procurement, supply and

erection & commissioning.

Subsidiary & Joint Ventures companies

1 BHEL-GE Gas Turbine

Services Pvt Ltd,

Secunderabad.

It is a Joint Venture

Company of BHEL & GE,

27

and is engaged in Services

and Spares supply of Gas

Turbines.

2 NBPPL-NTPC- BHEL Power

Projects Pvt Ltd, Tirupati

It is a Joint Venture

Company of BHEL &

NTPC, and is engaged in

design, procurement,

supply and erection &

commissioning of Balance

of Plants (BoP). Presently it

is executing BOPs of Gas

based plant situated at

Namrup, Monarchak and

OTPC-Palatana and civil/

erection & commissioning

work of the same.

3 BHEL-KEL LT motors

28

Corporate Office, New Delhi

The role of Corporate Office of BHEL situated at New Delhi is primarily that of laying

corporate objectives, formulating corporate policies, coordinating and synthesizing the action

plans to achieve these objectives. In this process, Corporate Office liaises with the

Government, identifies business opportunities and formulates long term plans for growth of

the company. The key functions at Corporate Office cover Planning & Development,

Engineering & Product Development, Manufacturing Technology, Materials Management,

Monitoring, Quality, IT, HR, Finance and Medical Services which provide policy directions,

plans and budgets for all the business sectors, manufacturing units and service divisions of

BHEL in the respective functions

The Corporate functions report to the respective Directors and Chairman & Managing

Director [CMD]. Structured interactions between Corporate, Business sectors, Units and

Regions are held through Management Committee meetings. This is the apex body

comprising of the CMD, Functional Directors and Heads of Manufacturing Units, Business

Sector and Service Divisions. The Committee holds monthly meetings and reviews, in

addition to operating performance, all major aspects relating to the business scenario, new

business development, Quality Management, Human Resource Management issues, etc. The

strategies are continually tuned to the latest developments in the business environment.

BHEL’s operations are organized around major Business sectors- Power sector, Industry

sector & International Operations, which have primary marketing responsibility for major

29

products & systems. Power sector regions install the supplies from manufacturing units &

related accessories. All the units of BHEL act in an integrated manner to deliver the products

& services for timely commissioning of power plants.

Major achievements of BHEL:-

Has installed equipment for over 1, 00,000 MW of power generation -- for Utilities,

Captive and Industrial users.

Govt. of India has conferred ‘Maharatna’ status in 2013.

Supplied over 2,25,000 MVA transformer capacity and other equipment operating in

Transmission & Distribution network up to 400 kV (AC & DC).

Supplied over 25,000 Motors with Drive Control System to Power projects,

Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc.

Has footprints in 71 countries.

Supplied Traction electrics and AC/DC locos to power over 12,000 km Railway network.

Has supplied over one million Valves to Power Plants and other Industries.

Has over 150 Project construction sites in India & Abroad.

The company has grown in stature over the years with continued inflow of orders,

manufacturing prowess, continued thrust on technology leading to a strong presence in

domestic and international markets as a major supplier of power plant equipments besides

establishing substantial inroads in select segment of products in Industrial sector and

30

Railways.

In the thermal generation, BHEL supplies steam turbines, generators, boilers and matching

auxiliaries up to 800 MW ratings which include sets of 660/700/800 MW based on

supercritical technology. BHEL has capabilities to offer sets upto 1000 MW unit rating.

BHEL has been maintaining its reputation for high quality and reliable equipment. BHEL,

where Quality Systems as per ISO-9000 have taken deep roots, has made significant

achievements in Business Excellence by securing ‘Commendation for Significant

Achievements in TQM’ for three of its manufacturing units and one power sector-region

during 2011-12.

In recent years, BHEL has optimally invested for manufacturing capacity expansion. The

country has adopted capacity and capability enhancement strategy and accordingly BHEL has

achieved capability to deliver 20000 MW power generating equipment per annum.

To maintain a balanced growth, BHEL intends to increase its focus on transportation,

transmission, nuclear power and renewable energy segments for business portfolio

diversification.

Strategic Plan 2012-17

BHEL has formulated its Strategic Plan 2012-17. The plan attempts to steer the company

towards becoming a global engineering enterprise. Key drivers of our success are expanding

31

the offerings in Power sector by building EPC Capability, focus on Industry businesses,

expansion of spares and services and adoption of collaborative approach.

Power sector will continue to remain major contributor in the company’s top line with

transportation and transmission emerging as next big business verticals. Strategies are in

place to strengthen company’s presence in Nuclear, Renewable and Water segments.

Financial Performance

During the financial year 2011-12, the Company has achieved a turnover of Rs 49510 crore

as against Rs 43337 crore (Rs 41299 crore excluding one-time impact of change in policy

related to provision for warranty obligation for earlier years) in the year 2010-11 recording a

growth of 14.2% (19.9% excluding one-time impact) over 2010-11.

Profit after Tax for the year 2011-12 stood at Rs 7040 crore as compared to the 2010-11

figures of Rs 6011 crore (Rs 5665 crore excluding one-time impact).

During the year 2011-12, the company received orders worth Rs 22096 crore. The total order

book outstanding as on 31.12.12 available for execution in 2012-13 and beyond stood at Rs

113700 crore down from Rs 135000 crore as on 31.03.12. Order inflow has been impacted

due to structural issues related to coal linkages, environment/forest clearances, land

acquisition and gas availability. Industrial orders also remain weak. Things are expected to

look up only from FY16. Order book will improve only when the sector will overcome

hurdles like fuel and lack of off take arrangements which is likely by 2015-16.

32

The Departmental Analysis

Human Resource Management

The module for human resource management taught the lessons about knowing yourself,

managing yourself, emotional Quotient and its importance in success motivating yourself,

RajabhashaNiti and its role in life. The module also familiarized us with HR policies of the

company.

Organizational Effectiveness

In this module, I learnt how to be effective and work effectively in an organization. The

Module covered lectures on Communication skills- Concepts and Models, the art of public

speaking and body language, how to develop, build & continue interpersonal relations,

personality preferences & personal styles, concepts like FIRO-B (Fundamental Interpersonal

Relations Orientation), the interpersonal needs etc. There were some exercises to touch these

practical aspects in life. These exercises really helped in some way to understand ourselves in

a better way.

Finance Management

This module has provided an overview of various basic fundamentals of finance and practices

that are followed in BHEL. These included Audits & Auditing practices, the concepts of

Indirect Taxation in BHEL consisting of Custom duty, Import duty, Export duty, Sales tax,

VAT etc., budgeting budgetary control, types of budgets, income tax (direct tax), accounting

policies and accounting methods for revenue recognition, Invoicing and debtors management.

33

Other aspects covered were financial statements such as, cash flow statements, balance

sheets, operating results etc. and ratio analysis of financial ratios like profitability ratio,

liquidity ratio, leverage ratio, turnover ratio & valuation ratio etc.

Industrial Health/Safety & Environment

With the exemplification about health, safety & environment I could assert the importance of

these in an industry’s success. BHEL’s contributions towards Corporate Social Responsibility

till date include adoption of villages, free medical camps/charitable dispensaries, schools for

the underprivileged and handicapped children, ban on child labour, disaster/natural calamity

aid, Employment for handicapped, Widow resettlement, Employment for Ex-serviceman,

irrigation using treated sewage, pollution checking camps, plantation of millions of trees,

energy saving and conservation of natural resources through environmental management.

Quality, TQM & Business process RE-Engineering

This module introduced the concepts of quality circle, Total Quality Management & Business

Process Re-engineering. The lectures started with the history of quality circle, its

development and its adoption by BHEL in 1980, the philosophy of quality circle and the need

of quality circle. The lecture included the methodology adopted, the evaluation & rewarding,

the weight-age scheme, how the scoring is done and the normalization. The tools and

techniques for quality circle were illustrated i.e. the seven basic quality tools, the steps in

problem solving, the PDCA (Plan-Do-Check-Act) cycle & the process improvement tools.

Work Study & Productivity

34

In this module, another method to improve productivity was taught. The work study includes

Method study and work measurement which are the techniques to increase productivity. The

module showed the steps to be followed for method study and work measurement, the charts

used for recording the data, time study and work sampling.

Commercial Management

Commercial management keeps track of the activities related to the tenders like preparation

of the tenders & follow-ups, interaction for development of new design and new initiative,

presentation of new design & initiative directly. It is a kind of link between the business

sector and the other departments like engineering, quality etc. which is to act as an interface

between the customer and company and also the various activities involved in it like technical

scrutiny of tenders, finalization of offer price, submission of bid, negotiating offer price with

the customer, generation of purchase order and its conversion into work order to facilitate

actual manufacturing inside the factory.

Production Management

These are the modern concepts that help in improving the effectiveness and efficiency of

production and the processes. The concepts like critical path method (CPM) and Program

Evaluation & Review Technique (PERT), the process capability measures, measurement

system analysis (MSA), 5S technique, the production planning & scheduling, the value

engineering concepts etc were some of the techniques used today to enhance productivity and

manage it effectively.

This module focused on how the work order is actually executed inside the factory, beginning

from receipt of materials to circulation of manufacturing drawing on the shop floor. The

module also explained in detail about the work order code, its basis and utility. The module

35

also covered activities related to production planning such as preparation of production

budget, material budget, follow up for Engineering information, tracking the movement of

material, scheduling of jobs on different machines etc.

Material Management

Materials are essential inputs to production management that involves arranging right items

of right quantity/ quality at right time and right price for production. It was 3 day module that

highlighted on the management of supplies of raw material, components, sub-assembly,

assemblies, system eqpts, BOI &BOP’s supplied from the vendors in India and abroad, the

issues regarding the amount of inventory to be kept, the storage of the raw materials, the

logistics etc. The modern concepts of controlling the amount of inventory like JIT (Just in

Time), WIP (Work in Progress), EOQ (Economic Order Quantity) etc gave an idea about the

importance of Inventory control.

This module covered in detail, the process of procurement of raw material in the company.

Various steps involved in the process like issue of enquiry, scrutiny of offers and placement

of purchase order. Topics such as types of tendering, vendor development, inventory

management, storage of raw materials, logistics etc were also covered.

Planning and Development

It is very important for any organization to run on a validated strategy otherwise it is bound to

fail. The complete cycle involves first of all Formulation of strategy, then Alignment or

Deployment (by the help of Balanced Scorecard) followed by performance measurement and

then finally Reward. For a strategy focused organization it becomes easier to achieve its

targets, the strategy deployment/alignment is made easy by a technique known as Balanced

Scorecard (BSC). The module was about this technique that illustrated the role of strategic 36

management in an organization. It also included the history of BSC concept, the different

perspectives of BSC, advantages of BSC etc.

Quality Objectives and Key processes

The objectives of Corporate Monitoring (CM) are documented every year in the

Balanced Scorcard (BSC) cascaded from the Corporation BSC and department level

initiatives. The BSC is prepared in the beginning of every year and forms part of

annual planning exercise. The BSC is also reviewed every quarter by Head (CM) and

the final report of performance of achievement is complied at the end of the year and

sent to the Corporate Committee for evaluation.

The key activities, inputs, process, outputs, measures and control are as follows :

Key Activities Input Process Output Control

Formulation of

Revenue

Budget for the

year

Business

projections

from Sector

& units

Inputs based

on detailed

discussion for

identification

critical issues

during visit

Study of

business

projections of

units,

manufacturing

capacities of

units

Participation

with corporate

team in budget

Issues for

R.E./B.E to

Directors to

enable

decisions for

effective shop

loading/setting

yearly targets

Submission

Budget

guidelines

(Confidential

)

37

to Units with

budget teams

MIRs from

Units

discussions

Issue of

concerns for

Directors for

facililitating of

finalization of

R.E./BE

presentation in

MCW Board

Note.

of

agenda/prese

ntation

R.E./B.E. in

MCM and

Board note

Physical &

Financial T.O.

Performance

Reports/MCM

Agenda

T.O. MIRs

T.O.

Projections

MIRs on

rolling basis

Inputs during

visits to Unit

Anticipated

orders MIRS

Inputs from

Business

Sectors/Units.

Consolidation of

finance and

physical T.O.

rolling projections,

anticipated order

book status as per

MCM Agenda

Study and

analysis of

turnover

performance

based on yearly/

monthly targets,

order book,

projections etc.

Monthly

T.O.

Report

Three month

Rolling plan

for

T.O.

projections

Report on

status of firm

and

anticipated

orders

Submission/

Revenue

Budget

(Confidential

)

38

Finalization of

MCM agenda

with issues of

concern.

Consolidation of

Quarterly

performance

Reports based

on unit inputs.

uploading of

MCM

agenda

Board Note

Balanced

scorecard

formulation and

assessment/

performance

calculations for

plant

performance

Balance

Score Card

from

Units/Region

s

Business

Sectors

Inputs from

Corporate

functions and

business

sectors

Inputs on

Plant

Performance

Based on inputs

from functions

company Level

BSc is finalized

Unit/Sector

Level BScs are

finalized/assesse

d based on

interactions

between sectors,

units/

corporate

functions in line

with Company

BSC.

Balanced

Score Card

plants,

assessment

for approval

of Directors

PP

Stretegy map

(Confidential

)

MOU

(Confidential

)

39

from units/

corporate

sectors

PP calculations

are done as per

scheme, with

alternatives for

Corporate HT

(Confidential)

calculations

with

alternatives

for top

mgmt.

Revenue

Budget

(Confidential

)

Submission of

annual

administrative

report of the

company to

DHI, GOI.

Inputs from

corporate

functions/sectors

as per

requirements of

DHI, Govt. of

India

guidelines.

Consolidation

study/ and

analysis

of inputs and

preparation of

report as per

guidelines of

DHI, for

approval of

Directors/CMD.

Submission

of Annual

Administrat

ive

Report of

the

company to

DHI, Govt.

of India.

As per

requirement

of Ministry.

Organizing Mid

Term Review of

operations by

CMD/Directors

Input on

performance

from units

Inputs from

corporate

functions on

performance

Finalisation of

Mid Term

schedule with

Directors/CMD

Communication

to all EDs/HODs

regarding agend

and schedule.

Half Yearly

report with

issues on

performance

to

CMD/Direct

ors

Minutes of

Revenue

Budget

(Confidential

)

40

Issues for

Directors/

CMD on

performance and

areas of

concerns.

Issue of Minutes

based on

discussions in

Mid Term.

Meetings

after

consolidatio

n of data

receipt from

units

41

Introduction

I joined Corporate Monitoring Group at Corporate Office, New Delhi on 4th

June 2014. Throughout the course of the training, I have received much-

appreciated guidance, assistance and encouragement from my reporting officers

Shri BabuLal, Shri Yasbir Singh.

Roles and Responsibilities of Corporate Monitoring

Department

1) Provides intelligent decision support service to top management in formulating and

achieving budgeted performance targets.

2) Monitoring performance of operations of units/regions

3) Monitor the performance of operations of Units/Regions, identify critical issues &

generate early warning signals for top management for timely course correction.

4) Generate early warning signals for top management after assimilating information

from multiple functions on issues of concern

42

Monitoring the performance of different manufacturing units is assigned to specific

individuals.

CHAPTER 3

RESEARCH METHODOLOGY

43

RESEARCH METHODOLOGY

NEED OF THE STUDY

To comprehend the scenario of change, it is to be realized in the first place that the

environmental contexts in which organizations exist are never static. Today,

liberalization of the economy and coming up of many players has induced an

unprecedented scale of dynamism in the economic environment of the country. In this

fast changing environment, organizations as well as individuals are pro-active to join in

the game and then strive to extend their own spheres of influence for survival and

sustained growth.

To meet the challenges of the environment and extend the sphere of influence, for an

organization it is not merely a question of its commercial orientation, though it is

important. For an enterprise it has to be a quantum leap in transformation from what it

is today to a more responsive and innovative organization of tomorrow. And that

ensures the extension of its sphere of influence with a competitive strength in the

market place.

OBJECTIVE OF THE STUDY

To understand the current scenario of Power Sector

To analyze the current status of power generation equipment market

To analyze the decision making factors of customers

To identify factors for success of Chinese equipment manufacturers

To ascertain potential market and competition

44

Find out how Chinese are able to achieve cost leadership

Meaning of research

Research has been defined by various authors in different ways. It always begins with a

question or a problem. Its purpose is to find answer to question through the application

of systematic method. Thus research is the systematic approach purposeful

investigation.

This needs formulating a hypothesis, collection of data and relevant variables, analyzing

and interpreting the result and reaching conclusion either in the form of a solution or

certain generalizations.

So, finally a Research is an academic activity and systematized efforts to gain new

knowledge.

Methodology

The term methodology is defined as a specific way of performing an operation that

implies precise development at the end of each stage.

Research   Methodology

Research methodology defines what the activity of research is, how to proceed, how to

measure progress, and what constitutes success.

There are various tools for conducting a research. It can be surveys, hypothesis,

questionnaire, etc. The method used here in the project for conducting the research is

Personal Observation and Content Analysis

45

Research   Design:

The study is basically Descriptive in nature

Descriptive Research is used to describe characteristics of a population or a

phenomenon being studied. It does not answer questions regarding how/when/why the

phenomenon occurred rather it addresses the what question.

Source of data:

The data was collected from Primary and Secondary sources.

The primary data are the first hand information collected, compiled and published by

organization for some purpose. They are most original data in character and have not

undergone any sort of statistical treatment.

Example: Population census reports are primary data because these are collected,

complied and published by the population census organization

Data collection tools/instruments

Primary Data Collection:

Primary data was collected through personal observation in the Power sector, marketing

part. This method of collection through personal observation is most extensively

employed in various economics and business surveys. First hand information was

collected by personally visiting different sectors.

46

This method of data collection was chosen because:-

General Conclusions are most flexible

Observer has adequate time to think over the department activities.

Secondary Data Collection:

Various books, journals and internet sites were searched in order to find the useful

information for the completion of this project.

Data Analysis :

The data collected has been analyzed theoretically and graphically through charts

 

47

CHAPTER 4

BALANCE SCORE CARD

Analysis

48

BALANCE SCORE CARD

The monthly reports are generated based on the following formats:

Turnover performance

Reason of shortfall

Physical Turnover performance

The objectives of Corporate Monitoring (CM) are documented every year in the Balanced

Scorecard (BSC) cascaded from the Corporation BSC and department level initiatives. The

BSC is prepared in the beginning of every year and forms part of annual planning exercise.

The BSC is also reviewed every quarter by Head (CM) and the final report of performance of

achievement is compiled at the end of the year and sent to the Corporate Committee for

evaluation.

Balanced Scorecard (BSC) is a tool employed by BHEL to orient the efforts of individual

employees towards achieving Company level targets to meet strategic objectives. This is

done by setting targets in the form of Key Performance Indices (KPIs) in Company level

BSC under four different perspectives which are a) Financial perspective, b) Customer

perspective, c) Internal Process perspective and d) Learning and Growth perspective.

The Company level targets are then cascaded to formulate BSCs of Manufacturing Units,

Corp. Functions and Regions. Each Unit level BSC is further cascaded to formulate HoD /

Section level BSC which in turn is further cascaded as KRAs in e-maps of individual

executives.

49

This way alignment of employee level targets to those of Company as a whole is

Balanced Scorecard (BSC)

Every year as per the Strategic Road map of BHEL, the activities associated with Balance Score Card i.e. Assessment and Formulation of BSC are carried out. The work flow associated with it is as follows.

Formulation of BSC

50

Inputs from Strategic Plan Roadmap

Inputs from Corporate functions

Inputs from MOU

Preparation of Company Level BSC

CMC Starts CLBSC cycle

CFCs provide CLBS inputs in their respective areas and mark completion of input

CMC mark completion of input for CLBSC cycle

CMC reviews, accepts/not accepts edits and comments on input from CFCs and mark completion of 1st draft of CLBSC

UCs comment on their respective projects in 1st draft of CLBSC and mark completion of comments

51

CMC mark completion of comments by all executing agencies

CFCs review comments and do corrections in KPls in CLBSC and mark completion of review of CLBSC.

CMC discusses with Top Management and do corrections in CLBS accordingly and marks finalization of CLBSC

Additional Guidelines

Preparation of Unit Level BSC for MUs Preparation of Unit Level BSC for Corporate Functions

CMC marks start of ULBSC cycle thereby cascading CLBSC and additional KPIs to

respective ULBSCs.

CFCs edit cascaded KPIs, provided new KPIs for their respective ULBSCs and mark completion of

1st draft of their respective ULBSC

UCs edit cascaded KPIs, provide new KPIs for their respective ULBSCs and mark

completion of 1st draft of their respective ULBSC.

CLCC reviews their respective projects in all the ULBSCs draft and provide

comments

CFCs revise KPIs as per comments provided and mark completion of 2nd draft

of ULBSC

CLCC marks completion of 2nd draft of all of the ULBSCs

CLCC reviews 2nd draft, make correction and mark finalization of ULBSCs

CFCs review their respective projects in all the ULBSCs draft and provide comments

UCs revise KPIs as per comments provided and mark completion of 2nd draft of

ULBSC.

CMC mark completion of 2nd draft of all of the ULBSCs

Data and Document Control:

The monthly reports are generated based on the following formats:

Financial Turnover performance

Reason of shortfall

Physical Turnover performance

Status of projects Budgeted/completed

Turnover projection

Unit wise issue

52

E-MAP

53

54

Evaluation of BSC

CMC marks start of BSCs evaluation cycle

Evaluation of Company Level BSCs

CFCs provide evaluation of projects with primary responsibility and marks completion

of evaluation.

Based on Committee recommendations, CMC evaluate evaluated CLBSC and mark

completion of evaluation of CLBSC.

Evaluation of Unit Level BSCs

UCs provides self-evaluation of their ULBSC and mark completion of self-evaluation.

CFCs evaluate their respective projects in UlBSC and mark completion of Corporate

Team’s evaluation.

CMC mark completion of Corporate Team’s evaluation of ULBSC.

Based on High Level Committee recommendations, CMC finalize the evaluation of

ULBSC and mark completion of evaluation of ULBSC.

Evaluation of Corporate Function BSCs

CFCs provide self-evaluation of their BSCs and mark completion of self-evaluation.

Corporate Team (CLCC) evaluate Corporate Functions’ BSC and mark completion of

Corporate Team’s evaluation.

55

Based on High Level Committee recommendations, CLCC finalize the evaluated

Corporate Functions BSCs and mark completion of evaluation.

Completion of evaluation of All Unit Level BSCs

CMS mark completion of evaluation of all ULBSCs

Completion of evaluation of All BSCs

CMC mark completion of evaluation of all ULBSCs

Status of projects Budgeted/completed

Turnover projection

Unit wise issue

PROJECT SITE/ SISTER UNIT LEARNING

In this part of training module, trainees are supposed to acknowledge themselves about the

general perception of BHEL among customers and customer’s expectations from BHEL. It

provides a platform to trainees to get the basic understanding of customer’s needs and also

help in searching new areas to expand BHEL business.

It also provides customer’s feedback about BHEL products’ quality and services that can

make an immense help to BHEL in improving the various aspects like manufacturing

planning and delivery on site with the objectives of:

To understand customer’s needs, expectations and their business.

To gain knowledge about BHEL products, services and areas needing improvements.

56

To find BHEL’s areas of improvement and new opportunities to expand BHEL’s

business.

57

CHAPTER 5

BUSINESS & MARKETING

58

BUSINESS POTENTIAL

 

BUSINESS MISSION

To maintain a leading position as suppliers of quality equipment, systems and services

in the f ie ld of convers ion of energy, for appl ica t ion in the areas of

e lec t r ic power   transportation, oil and gas exploration and industries.

Utilize company's capabilities and resources to expand business into allied areas and other

priority sectors of the economy like defence, telecommunications and electronics.

BUSINESS OBJECTIVES: GROWTH

To ensure  a   s teady  growth  by  enhancing   the  compet i t ive  edge  of

BHEL defense , telecommunication and electronics in existing business, new areas

and international operations so as to fulfill national expectations from BHEL.

PROFITABILITY: -

 

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

improvements in operational efficiency, capacity utilization productivity and generate

adequate internal resources to finance the company's growth

59

CUSTOMER FOCUS

To build a high degree of customer confidence by providing increased value

for money through international standards of product quality, performance

and superior services

PEOPLE- ORIENTATION

To enable each employee to achieve his potential, improve his capabilities, perceive his role and

responsibilities,participate and contribute positively to the growth and

success of the company and invest in human resources continuously

TECHNOLOGY

Achieve   technologica l  excel lence   in  opera t ions  by  development

of   indigenous technologies and efficient absorption and adaptations of imported

technologies to suit business need and priorities and provide the competitive advantage to the

company.

IMAGE

To fulfill the expectations which stakeholders like government as owner,

employees,customers and the country at large have from BHEL

60

Human Resource Development Institute

BHEL has envisioned becoming "A World Class Engineering Enterprise committed to enhancing

stakeholder value". Force behind realization of this vision and the source of our competitive

advantage is the energy and ideas of our 44,000 strong highly skilled and motivated people. The

Human Resource Development Institute situated in NOIDA, a corner-stone of BHEL learning

infrastructure, along with Advanced Technical education Center (ATEC) in Hyderabad and the

Human Resource Development Center at the manufacturing Units, through various organizational

developmental efforts ensure that the prime resource of the organization – the Human Capital is

“Always in a state of Readiness”, to meet the dynamic challenges posed by a fast changing

environment. It is their constant endeavor to take the HRD activities to the strategic level of

becoming active partner to the (organizational) pursuits of achieving the organizational goals

SWOT ANALYSIS

STRENGTH

1. Public sector company

2. Sound engineering base and ability to assimilate

3. Relatively stable industrial relationship

4. Ability to set up power plants on turnkey basis, complete know- how for manufacture of

entire equipment is available with the company

61

5. Ability to manufacture or procure to supply spares

6. Fully equipped to take capital maintenance and servicing of the power plants.

7. Largest source of domestic business leading to major presence and influence in the market

8. Ability to successfully overhaul and renovate power stations equipment of different

international companies

WEAKNESS

1. Difficulty in keeping up the commitments on the product delivery and desired sequence of

supplies

2. Larger delivery cycles in comparison with international suppliers of similar equipment

3. Inability to provide supplier’s credit, soft loans and financing of power projects

4. Due to poor financial position of state electricity boards, which are the major customers of

BHEL in India, liquidity position of BHEL is not satisfactory

5. Displacement of social objectives by political objectives, which may lead to

redundant costs and also rising costs

OPPORTUNITIES

1. Demand for power and hence plant equipment is expected to grow

2. Private sector power plants to offer expanded market as utilities suffers resource crunch

3. Ageing power plants would give rise to more spares and services business

4. Easy processing of joint ventures/ collaboration/import/ acquisition of new technology

THREATS

1. Increased competition both national and international.

62

2. Multilateral agencies reluctant to lend to power sector because of poor financial

management of S.E.Bs

63

MACRO MODEL:

64

Twin Problem faced by BHEL

BHEL is currently facing two problems. The first problem is competition from Chinese

power equipment manufacturers. The Chinese have cost leadership and are able to

provide equipment to power developer at low price.

The second problem is that till recently BHEL’s capacity was lesser than the capacity

addition targeted by the government in 11th five year plan which resulted in BHEL Ltd

losing potential orders to its competitors.

The second problem is being solved by capacity augmentation.

How to solve the first problem?

To solve the first problem it is required that a proper analysis should be performed.

Factors responsible for cost leadership of Chinese should be studied.

65

Need of the study

A number of players have entered the power generation equipment manufacturing

industry. They have mentioned the table 5.1 below

Suppliers Nature Type

BHEL Indian PSU Engineering Procurement Construction

Bharat Forge + Alstom Indian & French JV Turbine Generator Package

JSW + Toshiba Indian & Japanese JV Turbine Generator Package

BGR + Hitachi Indian & Japanese JV Engineering Procurement Construction

Cethar + Relay Steam Generation Package

Doosan South Korea EPC : manufacturing base in Chennai

Thermax + Babcock Indian Steam Generation

Ansaldo Italian EPC

L&T + Mitsubishi Indian & Japanese JV EPC : manufacturing base in Hazira

Shanghai Electric Chinese EPC

Dongfang Chinese EPC

66

BHEL had a monopoly over the market till recently but now a lot of private players

have crowded the market.

An analysis of power equipment manufacturer performance on several parameters is

given below in table 5.2

Parameter BH

EL

L&

T

TO

SH

IBA

AL

ST

OM

AN

SA

LD

O

DO

OS

AN

BG

R H

ITA

CH

I

CE

TH

AR

TH

ER

MA

X

CH

INE

SE

EPC

capability

3 5 1 1 2 3 4 1 1 3

Equipment

Financing

1 3 1 1 1 1 2 1 1 5

Indigenization 5 3 2 2 1 2 1 3 2 1

Newer Rating

Sets

3 4 1 1 1 2 1 1 1 1

Manufacturer

as Developer

2 4 2 1 1 1 1 1 1 1

Knowledge of

Indian

Conditions

5 3 2 1 2 2 1 2 1 2

67

1 –Very Low

2 – Low

3 – Medium

4 – High

5 – Very High

We can see from the table above that BHEL has high capability and can meet the

demand and specification of its customers. BHEL was a heavy weight in the past for

this reason they provide full customer satisfaction.

The most important information for us which is conveyed by the table is how the

Chinese are so successful in bagging orders.

The Chinese score low in knowledge of Indian conditions, medium in EPC capability

and very low in Indigenization, newer rating sets and they have no experience as a

power plant developer. Yet the Chinese have stormed the industry and the reason for

that is Equipment Financing.

The Chinese bundle their equipment with easy financing. Financing these days is a

problem as several banks are refusing to give credit to the companies because they have

already exceeded their ceiling limit and financial closure problem.

The Chinese see this as an opportunity and several Chinese leading institutions offer

credit to power plant developers on the condition that they will buy equipment from

Chinese power generation equipment manufacturers.

68

Despite Scoring low we can see that Chinese are the most competitive in many

parameters.

Chart 5.2

69

Capacity addition targeted and achieved in five year plans in Chart 5.3

From the charts above we can see that power demand in India will grow to 1207

GW by 2032. India is a developing country and its power demands need to be fulfilled

in order to achieve the 9% growth rate target set by the government. It is visible that the

capacity addition targets that the planning commission proposed were not met in 10th

and 11th five year plan. In the 12th plan we need to achieve the capacity addition targets

and the remaining unachieved capacity addition of previous five year plan.

This means that there is tremendous potential in this sector and all the target numbers

are potential orders for power generation equipment manufacturers.

70

To be successful, BHEL needs to find out and analyze the reasons behind the success of

Chinese in India and take required actions

71

Details of Work Carried Out

Market Share: Calculation and Analysis

Thermal & Hydro Projects Commissioned: Given in percentage in pie charts

72

73

Chart 5.4

74

Equipment supplied in projects Commissioned

Capacity Commissioned (MW)

Suppliers 2008-09 2009-10 2010-11 2011-12

BHEL 1710 4095 6333 8458.2

Chinese 339 2934 5371 8673

Others 1404.7 2116 236.5 2328.5

Total 3453.7 9145 13820 19459.7

Table 5.3

75

The cumulative capacity of Thermal and Hydro projects commissioned during

the period 2008-12 increased at a CAGR of 54.07%

BHEL’s numbers as far as total capacity supplied increased but lower in

proportion to the overall increase in capacity

The total capacity of equipments supplied by the Chinese increased at a CAGR of

124.9%

Others were the worst hit

Who are switching?

BHEL continued to be the preferred supplier of central and state companies.

BHEL lost a number of projects under independent power producers (Private

Players).

Analysis of projects commissioned by Independent Power Producers

Table 5.4 Capacity of Equipment Supplied

(Thermal)

Suppliers 2008-09 2009-10 2010-11 2011-12

BHEL 500 250 0 1050

Chinese 0 2295 4693 8534

Others 382.5 1742 236.5 1286.5

Total 882.5 4287 4929.5 10870.576

Source : Ministry of Power and Central Electrical Authority

77

Chart 5.5 : Equipment supplied for projects commissioned by Independent Power Producers during 2008-12

78

Table 5.5

Supplier

% of capacity of equipment supplied (Thermal)

2008-09 2009-10 2010-11 2011-12

BHEL 56.65722 5.831584 0 9.659169

Chinese 0 53.53394 95.20234 78.50605

Others 43.34278 40.63448 4.797647 11.83478

Source : Ministry of Power and Central Electrical Authority

As compared to previous year the total capacity commissioned by private sector

increase by 385.78%, 14.98%, and 54.65% in 2009-10,2010-11 and 2011-12

respectively

In 2009-10 the total capacity commissioned under private sector increased by

385.78% but BHEL’ s contribution in that decreased to a mere 5.83% from

56.66% in the previous year

Share of Chinese companies increased from 0% to 53.53%,95.20% and 78.51%

in 2009-10, 2010-11 and 2011-12 respectively

79

Why are private companies switching?

Lower price: India suffers from infrastructure deficit. In order to achieve the

promised growth rate of economy it is necessary to develop sufficient power

generation capacity. Cost leadership of Chinese equipment manufacturers makes

them the preferred supplier for upcoming projects.

Shorter delivery period: Till recently BHEL was facing capacity issues. Its

capacity was lower than the demand which resulted in independent companies

shifting towards the Chinese to meet their demand.

Easy credit: With the borrowings exceeding the limit, some of the banks have

stopped giving loans to power generation companies. The Chinese look at this as

an opportunity. The Chinese give loans to generation companies on the terms that

they must purchase equipment from Chinese manufacturers.

How are the Chinese achieving cost leadership?

Rating of various factors which create an environment for growth of manufacturing

industries by Deloitte

Highly Competitive – 5

Relatively Strong – 4

80

General Competitive -3

Relatively Poor – 2

Poor – 1

Regional

Differences

Countries F.C. Wages

(labors)

SCM Infrastructure Quality

& Availability of labor

No.ofQualified senior technical talents

Scale &

Efficiency

China 3.5 3.2 3.8 3.7 3.2 3.3

Brand &

Technology

Japan 3.1 3.3 3.9 4.3 4.3 4.3

S.Korea 3.4 3.3 3.8 3.9 3.8 3.9

IT industry

dominance

India 4.2 4.1 2.9 2.7 2.8 3.3

Emerging

Industries

Thailand 3.8 4.3 3.5 3.5 3.8 2.8

Vietnam 3.7 4.1 3.2 2.7 2.8 2.7

Indonesia 3.8 3.8 3.0 3.2 3.0 3.0

Table 5.6

It is evident the table above that the Chinese have an environment which is more

conducive for growth of manufacturing industry as compared to other Asian countries.

81

The Chinese are achieving cost leadership due to several factors. Some of the factors

mentioned below are further analysed

Labour

Trade policies

Credit Availabililty

Raw Materials

Infrastructure Performance

There are factors also but we will be analyzing only the above mentioned main

factors in this report.

Comparisons of factors between Indian and China

Labour:

We analyze labor as contributor in achieving cost leadership by comparing average

labor compensation (ALC), average productivity (ALP), and unit labor cost (ULC) in

India and China. ALC is defined as the ratio of nominal labor compensation (LC) to

total number of employees €, while ALP is obtained as a ratio of gross value added

(GVA) to number of employees. Finally, ULC is the ratio of ALC to ALP or simply the

ratio of nominal labor compensation to gross value added. The comparisons can be

made at between two pints in time or on an annual basis. In this context, it is important

to note that while labor compensation is expressed in current prices, the time series for

82

output (gross value added) is deflated with output deflators. Thus, in the calculation of

ULC, only the denominator (ALP) is expressed in real terms, while the numerator

(ALC) is in nominal terms. ULC is supposed to measure the nominal cost per unit of

real output. Hence the unit labor measure represents the current cost of labor per’

quantity unit” of output produced.

It is also important to recognize that China’s productivity advantage relative to India is

only very recent. India clearly had higher productivity levels for most of the period

(also in the before), indicating high levels of capital intensity in India as compared to

China.

The value added per employee in Machinery and equipment manufacturing in China is

40.2 units where as in India it is 15.3units.

Therefore value added by a Chinese employee is 38.052% more.

Clearly from the above analysis we can conclude that labor in china in not only cheap

but highly productive as well, the value addition by the Chinese is 38.05% more than

that by an Indian employee.

Trade Policies:

During 1950’s India and China chose substitution strategy for industrial development.

This strategy was being used by many developing countries to insulate themselves from

the world economy and industrialization under the aegis of state enterprises. This was

83

followed by paradigm shift from import substitution to outward orientation. China

started liberalization in a major way in 978. During 980s all India focused on was

primarily on internal deregulation and not trade liberalization. Changes in India’s trade

policy regime were in early years of 990s which to was in response to balance of

payment crisis.’

The rationale behind this move was that greater competition would force production

units to improve productivity which will drive overall economic growth. The

conventional wisdom says that such a move would lead to reallocation of productive

resources from import competing industries to those industries where the country has

comparative advantages, which means that export and import will grow faster but this

will come at the cost of some of the domestic industries going out of business.

China’s contribution to the world trade increased steadily from 1%to 6% from 1980 to

2004 whereas India’s contribution only increased from 0.4% to 0.8%.

Trade Policy Reforms

Prior to reforms India and China had a policy that promoted national self- sufficiency

and non- reliance on imports or economic aid accompanied by trade and exchange

control mechanism to delink domestic prices from accompanied by trade and exchange

control mechanism to delink domestic prices from world relative prices. India had a

large private sector market which was regulated by the state control on the other hand

China had a non- market economy. Both the countries created a bias against export by

overvaluing exchange rate. In China Foreign Trade Corporations had a monopoly over

foreign trade activities, but if you consider the case of India, due to involvement of

private sector an elaborate system of exchange control and allocation was instituted to

84

ensure that the foreign exchange earned by exporters was used to import only to ensure

that the foreign exchange earned by exporters was used to import only commodities that

conformed to the priority set in the five year plain.

Credit Availability

Power equipment manufacturers and power plant developers both have credit

requirements. The Power equipment manufacturers need credit for manufacturing

equipment and on the other hand power plant developers require it for purchasing

equipment from the manufacturers.

Credit Availability is seen in two parts :

Credit for manufacturers and Credit for developers

Raw Material

85

Steel is the main raw material for the power equipment manufacturing industry. In this

section we will concentrate mainly on steel as raw material and we will try to see if it

plays a role in achieving cost leadership for the Chinese or not and if yes then how?

Current Steel Production in India is 81.2 million metric tonnes. India was producing

only 1 million 86one at the time of its independence in 1947. By 1991 it grew to around

14 million tones. Thereafter, it doubled in the next ten years and then it is doubling

again, may be over a slightly longer span. Steel production in India is accepted to reach

275 million tonnes by 2020 which could make it the second largest steel maker.

86

China’s steel production stands at 779 million tonnes which is 10 times more than

India. China is facing over capacity situation and China’s output is 35% more than

supply which has forced price correction which has a positive implication for Chinese

power equipment manufacturer.

Infrastructure Performance

Industrial productivity in every country is closely related to infrastructure ,including

highways, railways, ports, aviation hubs, power facilities, water supply facilities and

telecommunication network.

Chinese infrastructure is characterized by:

Sufficient power supply

Highly developed highway and railway network

World’s largest port Cargo volume

Extensive coverage of communication networks

Social System supporting the effective operations of the infrastructure

Therefore manufacturing enterprises in China have been provided with favorable

fundamental involvement for investment.

87

Chapter 6

Special Findings & Loop holes

88

BHEL bags just 21% of target orders in

Q1

- The Financial Express

The lack of fresh orders and a general slowdown in the power sector continues to

trouble power equipment maker Bharat Heavy Electricals. The company bagged orders

worth just Rs 1,120 crore or 21.2% of the Q1 target. The company is facing a tough

time for last two financial years, when both its sales and profits took a big hit.

In 2013-14, BHEL for the first time even failed to meet the reduced turnover target of

Rs 43,000 crore, ending the year with a figure of Rs 40,366 crore. The Q1 order

booking is a fall of 23.6% over the same period last year, when the company bagged

orders worth Rs 1,466 crore. 

REASONS:

1) Environmental Clearances is a major issue. Most of the times projects are

stopped because the authority does not permit forest areas or villages to wipe off

for a project

2) Coal Linkages are not easily available, one of the major reason is Coal Scam

3) Credit limits of banks have been reached. Financial institutions are declining the

funding of projects in the area of power sector. The banks are not accepting

further offers because they have already credited other companies and have not

received the amount so credited.

89

4) Slowdown in fuel is because of no fuel linkages. Coal Authority of India Ltd.

didn’t have an expected production of coal, thus BHEL got a slowdown in terms

of coal as a fuel. Also coal supply declined from countries like Indonesia and

Australia which impacted BHEL production and the ongoing projects.

5) Coal prices hiked all over the world. Domestic production was not itself enough

and purchasing coal from outside India is expensive.

6) Demand Supply Gap increased whereas the productions halted, the ongoing

projects were scrapped off and many projects were on hold.

Major 36 projects are stuck

The flood disaster in Uttarakhand scrapped off 23 Hydro power projects. Government

still has not given a notice to re-initiate the projects as it will be of high expenditure.

Krishna Godavari D6 basin of Reliance lacked in gas reservoirs due to misleading

information which was faced by the BHEL projects and the gas projects stopped.

Therefore Thermal projects went down

Renewable Source of energy is not enough to meet the demand of the customers and the

population around but BHEL plans to install 20 GW by 2022

90

Chapter 7

Conclusions & Recommendations

91

Observations, Learning and Conclusions

Demand for power, fuelled by needs of a developing economy, will

continue to grow.

Demand is more than capacity of BHEL

PSU developers are not inclined towards Chinese

Chinese contractors are implementing about 37.7% capacity envisaged by

the power ministry under the 11th Plan.

China’s power equipment manufacturers, leveraging their lower costs and

shorter delivery periods, have begun hitting Indian majors like BHEL and

are walking away with orders worth thousands of crores of rupees. They

are simply making hay while the sun shines.

Labor cost in China is lower than India

Value addition by labor is higher in China as compared to India

Trade Policies in China are crafted to promote exports

Steel prices in China are favorable for power generation equipment

manufacturer

Steel prices are lower because of two reasons. First, due to cost

competitiveness throughout value chian of steel. Second, price correction

due to over production of about 30 to 35%.

Infrastructure performance of China is higher than India

92

China has a higher score on Logistics performance Index than India

Access to credit is easy and cheap in China for both manufacturers and

buyers

Chinese equipment manufacturers benefit by selling in India because they

get cheap export credit from EXIM bank of China

From the research it was found that EHEL has an issue about its delivery

record.

The spurt in demand over the past few years caught it unawares- it had

actually cut many jobs in 1999 and 2000 when demand was slack. Today

BHEL has an installed capacity of 15,000 MW is stated to have installed

capacity of 20,000 MW

There are quality issues that were found with Chinese as the collapse

of turbine blades supplied by Dongfang to the 300 MW Sagardighi

project of West Bengal Power Development Corporation.

Heavy Industries Minister Vilasrao Deshmukh announced that

Indian firms that will be favoured include BHEL and India- based

joint ventures like those between Larsen & Toubro and Mitsubishi

Heavy Industries; JSW Group and Toshiba Corp; GB Engineering

and Ansaldo Caldaie of Italy; and Bharat Farge and Alstom.

Recommendations/ Suggestions

BHEL should influence government to levy High Import Duty on

imported power generation equipment manufacturers

93

Promotion of importance of quality (as BHEL provides high quality

products and Chinese do not)

BHEL should influence government to provide easy and cheaper credit

tackle tough competition from Chinses

BHEL should look into how it can reduce its delivery schedule

BHEL should influence the government to development infrastructure

such as roads and highway as it will help in increasing competitiveness

of manufacturing industries and enhance its logistics performance.

Increase value addition of labor in BHEL to increase productivity there

by become more competitive

Optimize value chain. With the beginning of a new ara in power

generation equipment manufacturing industry, BHEL should analyse its

value chain and should find out the areas where there in scope for

optimization

Further vendor development, BHEL should try to increase its vendor

base as it will help in reducing costs

Global sourcing. BHEL should go far global sourcing and it should

look towards foreign economies to sources inputs at lower price

BHEL should try to enter into long term contracts for procuring raw

materials at fixed low rate

94

Annexure

S.No. Charts/Tables Page No.

1) Corporate Department 22

2) Manufacturing Units 23

3) Quality Objectives and Key Processes 36

4) Key Roles in Map 53

5) Map Performance Cycle 54

6) Macro Model 62

7) Capacity Augmentation 63

8) Table 5.1 64

9) Table 5.2 65

10) Chart 5.2 67

11) Chart 5.3 68

12) Pie Charts 70

13) Chart 5.4 72

14) Table 5.3 73

15) Table 5.4 74

95

S.No. Charts/Tables Page No.

16) Chart 5.5 75

17) Table 5.5 76

18) Table 5.6 78

19) Chart 5.6 82

96

References

www.bhel.com

www.iea.org

www.mnre.gov.in

www.coal.nic.in

BHEL Annual Report

DNA newspaper

www.moneycontrol.com

www.financialexpress.com/news/BHEL-bags-just-21--of-target-orders-in-Q1/1269623

http://www.deccanherald.com/content/162982/shocking-decline-gas-production-krishna.html

Ministry of Power

A report on Indian Iron and Steel Industry by Corporate Catalyst India

Central Electrical Authority

Changing patterns of comparative advantage by C Veeramani

Deloitte report on manufacturing industry in China

Doing Business in China report by IMF

India Vs China: Competitiveness of steel Industry in China by Avalon Consultancy

Interactions and Discussions with industry professionals

Low interest regime must for export sector survival by Federation of Indian Exporting Organizations (FIEO)

New competitive reality of steel by Gilles Calis, managing consultant, Steel Consult International, Amsterdam, The Netherlands

Planning commission 11th and 12th five year plan report97

The cost competitiveness of manufacturing in China and India: An industry and regional perspective by Indian council for research on international economics relations

98