ACKNOWLEDGEMENT

I wish to place geartful thank to Mr. C.N. SARASWAT Manager(Finance), Ms. Arti Hote (H.R. Manager), BHEL Jhansi for providing an opportunity to work as a trainee in the Company.

Completion of any job & this project is no different. Although strenuous, yet it is interesting. However, our success to this project report cannot be accounted for by only these factors. During the course of this study many useful suggestions and constructive criticism came across which really help a lot in giving this project a professional look. I am immensely gatefull and express my sincere thanks to (Mr.Jeetendra verma)for timely help,encouragement,suggestions and repuired knowledge about project report.I did my level best correcting my short comings to possible extend & I sincerely hope that this report will serve its purpose for the B.H.E.L..

Although, I am thankful to all those who have contributed towards the completion of this report. I would be failing in my duty if I do not mention the warm help extended to me by the staff of B.H.E.L. for providing me an opportunity to work in the esteem organization and without whose willing cooperation and encouragement the accomplishment of this project would have become impossible.

( VISHAL KUMAR GUPTA)

1

PREFACE

As a matter of fact every management student has to under go practical training practical in an approved business organization for not less then seven weeks. Normally in summer vocation under the guidance of professional managers as to became aware of the real life of the business Environment.

I undertook my summer training in B.H.E.L. Jhansi. Which is one of the navaratan & is an ISO-9000 COMPANY.During my training I give rotation of the entire unit. Which help me to understand systems,functions process & relationship of various departments.

I under took the said training at B.H.E.L Jhansi. The duration of june Training is from 01.06.09 to 24.07.09 during this period I did comprehensive study of various departments of the organization and also doing the project on “PROJECT REPORT ON WORKING CAPITAL OF B.H.E.L.” Jhansi unit.During my training period,I spent my major time in understanding functions of finance & accounts departments.

Submitted by:- VISHAL KUMAR GUPTA (PGDITM Finance)

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INTRODUCTION

OF

B.H.E.L. UNITS

BHARAT HEAVY ELECTRICAL LIMITED JHANSI

In the post independence era when India wmovi towards industrialization, the thrust by the government was in the core sector.with this objective BHARAT HEAVY ELECTRICALS LIMITED was setup in Bhopal in August 1956,with a view to reach self sufficieny in industrial products and power equipments.This plan was setup under collaboration of M/s. AEJ, U.K.

3

Now more plants were setup at Tiruchy, Hyderabad and Haridwar with Czechoslovakian and Soviet Union assistance in May 1956, Dec. 1965, Jan. 1967 respectively. Today B.H.E.L. has become the largest engineering plant employing managing apporoximately 72000 employees. Its headquaters are located at Delhi.

B.H.E.L. is the largest engineering and manufacturing enterprise in India in the energy/infrastructure sector, today. B.H.E.L. was established more than forty years ago ushering in the indigenous heavy electrical equipments industry in India a dream that has been more than realized with a well-recognized track record of performance.It has been earning profits since 1971-72 and paying dividends sice 1976-77.B.H.E.L. manufactures oer 180 products under thirty major product groups and caters to core sectors of the Indian Economy viz., Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. The wide network of B.H.E.L.’S fourteen manufacturing divisions, four power sector regional centers, over hundred project sites, eight service centers and eighteen regional offices, enables the company to promptly serve its customers and provide them with suitable products efficiently and at competitive prices.

The quality and reliability of its products is due to the emphases on design ,engineering and manufacturing to international standards 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.B.H.E.L. has acquired certification to quality Management Systems- ISO 9001, Environmental Management Systems-ISO 14001 and occupational Health and Safety Management Systems-OHSAS 18001 and has also adopted the concepts of Total Quality Management.

B.H.E.L. has installed equipment for over 90,000 MW of power generation- for Utilities,Captive, and Industrial users. It supplied over

2,25,000 MVA transformer capacity and sustained equipment operating in transmission and distribution network up to 400 KV- AC & DC. It supplied over 25,000 motors with Drive Control System to power projects, petrochemicals, refineries, steel, aluminum, fertilizer, cement plants, etc. It also supplied traction electrics and AC/DC locos to power over 12,000 Km railway network. Supplied over one million valves power plants and other industries.

4

B.H.E.L.’S operations are organized around three business sectors, namely Power Industry including Transmission, Transportation, Telecommunication and Renewable Energy and Overseas Business. This enables B.H.E.L. to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market.

B.H.E.L.’s vision is to become a world class engineering enterprise, committed to enhance stakeholder value. The company is striving to give shape to its aspirations and fulfill the expectations as a Navratan Company.

The greatest strength of B.H.E.L. is its highly skilled and committed 44,000 employees. Every employee is given an equal opportunity to develop himself and improve his position. Continuous training and retaining, career planning, a positive work culture and participative style of management have engendered development of a committed and motivated work force leading to enhanced productivity and higher levels of quality.

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MANUFACTURING: UNITS OF B.H.E.L.

First Generation Units

BHOPAL Heavy Electrical Plant

HARDWAR Heavy Electrical Equipment

HYDERABAD Heavy Electrical power Equipment

TIRUCHY High pressure Boiler Plant

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Second Generation Units

JHANSI Transformer and Locomotive Plant

HARDWAR Central Foundry and Forge Plant

TIRUCHY Seamless Steel Tube Plant

Unit Through Acquisition and Merger

BANGALORE Electronic Division & electro Porcelain division

New Manufacturing Units

RANIPAT Boiler Auxiliaries Plant

JAGDISHPUR Insulator Plant

RUDRAPUR Component and Fabrication Plant

BANGALOR I ndustrial System Group

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8

BHEL OBJECTIVE

A dynamic is one its aim high adopts itself quickly to changing environment. So here we are in BHEL.

Business mission

To be a leading engineering enterprises providing quality product,systems and services in the field of energy, transportation, industry, infrastructure, and their potential areas.

Growth

To ensure steady growth by enhancing the competitive edge of BHEL in existing, new areas and international operations so as to fufill national expectation for BHEL.

Profitability

To provide a reasonable and adequate return on capital employed, primarily through improvement in operational efficiency, capacity utilization and productivity and generate adequate internal resources to finance the company’s growth.

Customer Focus

To build a high degree of customer confidence by providing increased value for his money through international standards of product performance superior customer service.

People Orientation9

To enable each employee to achieve his potential,improve his capabilities, perceive his role and responsibilities and participate and contribute to the growth and success of the company, to invest in human resources continuously and be alive to their needs.

Technology

To achieve technological excellence in operations by development of Indigenous technologies and efficient absorption and provide 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 B.H.E.L.

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BUSINESS AREAS

BHEL covers a wide area in production. These areas are mentioned in the following details.

01.POWER :

Provide a gamut of equipment for Thermal Hydro and Nuclear Power Plant. Range includes products and system for power generation, transmission and utilization.

02.TRANSMISSION :

BHEL manufacturing transmission equipment for all voltage rating including the 400 KV class transformers, switch gears,control and relay panel. Insulators capacitors and other substation equipment.

03.INDUSTRY :

Offers a comprehensive range of electrical, electronic and mechanical equipment for a host of industries like fertilizers, petrochemicals, refineries, paper, sugar, rubber, cement coal, steel aluminum and mining.

04.TRANSPORTATION :

BHEL offers a variety of transportationequipment to meet the growing needs of the country, 65% of Indian Railway are equipped with BHEL manufacturing traction equipment. Underground metro also runs on drives and controls supplied by BHEL. BHEL has taken up the manufacturing of Locomotives to provide a pollution free transportation . BHEL also offers a battery operated passenger Van provides to Delhi Government.

05.OIL&GAS :

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BHEL the range covers super deep drills rigs manufacture equipment for oil and gas exploration and transportation. Mobile and desert rigs with matching drew works and hoisting equipment.

06.NON-CONVENTIONAL ENERGY :

A Vital role in helping to harness the vast renewable source of solar wind and biogas energy. BHEL has supplied several water heating systems windmills, biogas generators and photovoltaic system.

07.TELE-COMMUNICATION :

BHEL has entered the field of telecom with electronics PABX system based on indigenous technology from C-DOT.

08.MANUFATURING TECHNOLOGY :

14 manufacturing plants spread over different parts of the country have unique manufacturing and testing facilities. CNC machines, turbine blade shape system, system, 8000 tom Hyderabad press, Heavy-duty lathe milling machine and many more.

09.RESEARCH AND DEVELOPMENT :

A highly talented and experienced team of scientists from the backbone of BHEL Corporate R&D. a few accomplishments are:

Direct ignition of pulverized coal (DIPC) Magnetic Hydro Dynamics Aerostatic Dearing

10.AFTER SALES SERICE :

BHEL has 8 organized service centers geographically distributed through out the country. It also undertakes power plant renovation and rehabilitation jobs.

11.EXPORTS :

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The organization commitment to quality has earned recognition from over 45 countries order range equipment to turn projects to consultancy services.

INTRODUCTION

OF

BHARAT HEAVY

ELECTRICALS

LIMITED,

13

JHANSI

BHARAT HEAY ELECTRICAL LIMITED, JHANSI

A Brief Introduction

By the end of five year plan it was envisaged by the planning commission that the demand for power transformer would raise in the coming years. Anticipating the country’s requirement B.H.E.L. Decided to set up a plant which would manufacture power and other type of transformer in addition to his capacity available at B.H.E.L. Bhopal. The Bhopal plant was engaged in manufacturing of transformer of large rating and jhansi unit would concentrate on power transformer like instrument transformer, traction transformer for railway etc.

This unit of Jhansi was established around 14 Km from the city on the NHNO 26 on Jhansi Lalitpur Road. It was called second generation plant of B.H.E.L. set up in 1974 at at an estimated cost of Rs. 16.22 crores inclusive of Rs. 2.1 crores for township. Its foundation was laid by Late Mrs. India Gandhi, the prime minister on 9th Jan. 1974. The commercial production of the unit began In 1976-77 with an output of Rs. 53 lacks since then there has been no looking back for B.H.E.L. Jhansi. This plant of BHEL is equipped with the most modern manufacturing processing and testing facilities for the manufacture of power, special transformer and instrument transformers. Diesel shunting locomotive and AC/DC locomotive. The layout of the plant is such that it is well streamlined to enable smooth material flow from the raw material stages to finished goods. All the feeders’ bays have been laid perpendicular to main assembly bay and in each feeder bay raw material smoothly gets converted to subassemblies, which after inspection are sent to main assembly bay. The material that is needed for maintenance is used only after through material testing in the testing lab and with strict quality checks at various stages of productions. This unit BHEL is basically engaged in the production and manufacture of transformer of

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various type and capacities. With the growing competition in the transformer section in 1985-88 it under took the repowering of DSNL.

PRODUCT

PROFILE OF

B.H.E.L.

15

THE PRODUCT PROFILE OF B.H.E.L., JHANSI

BHEL has many departments, while production & administrative departments are separate.

Broadly speaking BHEL have three production categories

TRANSFORAMER SECTION

LOCO SECTION

BUS DUCT SECTION

Following three categories of products are Given below :

Power Transformer Up to 220 KV Class 250 MVA

Special Transformer Up to 110 KVA

ESP Transformer 1000 KVA

Freight Loco Transformer 3900 – 5400 KVA&6500KVA(3 Phase)

ACEMU Transformer Up to 1000 KVA25 KVA (1Phase)

Dry Type Transformer Up to 3150 KVA

Bus duct Up to 15.75 KVA(Generating Voltage)

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Instrument Transformer VT and CT to 220 KV

Diesel Electric Locomotive Up to 2600 HP

AC/DC Locomotive Up to 5000HP (25 KV AC/1500V DC)

Well Wagon 200Tone Over Head Equipment Cum Test Car

Dynamic Track Stabilizer

Ballast Cleaning Machine

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GROWTH

OFPRODUCTION

&

MILESTONE

18

GROWTH OF PRODUCTION MILESTONES OFB.H.EL. JHANSIYEAR OUTPUT

Rs.(Crores)

MILESTONE

1976-77 0.5Start of Instrument TransformerProduction

1977-78 3.49Start of Traction Transformer and Power Transformer(Up To132 KV)

1978-79 7.56Start of HFTT type freight Locomotive

1979-80 7.02Commissioning of 2,500 KV DG Set (due to Serer power cuts)

1980-81 15.74Start of ESP Transformer

1981-82 19.78Start of 220 KV Power Transformers

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1982-83 28.54Achieve Break Even

1983-84 37.42Start of Bus duct

1984-85 38.61Start of Dry Type Transformer

1985-86 43.67Re powering of Diesel Locomotive Started

1986-87 51.87Start of new diesel loco

1987-88 65.29Manufacturing Facilities for AC Locomotive

1988-89 109.41Crossed 100 Crore Target

1989-90 128.10Successful Design and Manufacturing of 400 HP 3 Axel Diesel CCI

1990-91 155.82Manufacture of First 2600 HP Diesel for NTPC

1991-92 215.61Successful Design and Development of 5000 HP Thruster Control Locomotive

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1992-93 225.05Unit has been Awarded ISO-19001 Certificate for Quality System

1994-95 215.00240 MVA Power Transformer produced First Time

1995-96 238.00AC/DC Locomotives first time in India

1996-97 328.00Hundredth Loclomotives Manufactured

1997-98 453.002500 MVA Transfer Produced First

1998-99 287.00Devloped Over Head Equipment cum Test car. Exported on DESL loco to Malaysia

1999-00 218.96 Diesel Hydraulic shunting

2000-01 120.71 --

2001-02 169.00 --

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2002-03 248.34ISO 14001 awarded and successful manufacturing of RRV

2003-04 217.00

Manufactured tower car

2004-05 315.00Manufactured Synchronolift

2005-06 440.00Budgeted(First time ever it will Crores Rs. 440 Crores)

2006-07 -- --

2007-08 -- --

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DEPARTMENTS

OF

PRODUCTION

UNIT IN B.H.E.L

23

DEPARTMENTS OF PRODUCTION UNITS

FABRICATION (BAY-0,1,2)

Fabrication shop is the shop which deals with the manufacturing of transformer and locomotive components such as Tanks, Plates, Nuts and Bolts. Fabrication shop is dividend into three parts-

BAY -0

BAY -1

BAY -2

BAY –(0,1,2)

These are fabrication shops established in 1978 and mainly deal with fabrication with fabrication work of transformers and locomotive.

BAY -3

It is split in two parts, half is consist of machine shop and the other half is consist of winding of dry type transformer. Bus duct are used to transformer electricity from the generator to the transformer.

BAY -4Here winding work of the power transformer & dry type transformer is carried out.

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BAY -5

It is core and punch section but in a part of it cast resin coil encapsulation plant is situated. The coils of dry type transformer are casted, cut and finally prepared.

BAY -6

It is also engaged in two processes one half is the traction transfer assembly.

BAY -7

In this bay various types of insulation are prepared which is to be used in transformers.

BAY -8

This bay was established in the year 1974. It is one of the earliest have to setup It involved in the manufacturing of instruments transformer like 132KV and 220KV voltage/ current transformer. ESP transformer is also manufactured here.

BAY -9

This is one of the largest bay in the unit engaged in the assembly of power and rectifier transformer. The time taken for assembly ranges from 4-12 weeks.

TRANSFORMER COMMERCIAL (TRC)

The objective of this department is to interact with the customers. It brings out tenders arid notices and also responds to them. It is department

25

that places the contracts of building the transformer and after delivery further interacts with the customer regarding faults, failure and maintenance is done by this department. All such snags are reported to them and they forward the information to the concerning department.

The works of the commercial department are:

Tenders and notices

Interaction with design department

Place of work

Approximate cost of the work

Earnest money

Place and time where contract document can be seen.

Amount if any to be paid for such document

TENDERS AND NOTICES :

The department response to the tenders calls of companies or organization which requires transformer. Contracts are bagged through negotiations. The department also invites tenders and notices. Before inciting tenders it must be sure that BHEL is ready to undertake the contract and before full knowledge of scope of work is essential.

TESTING

TRANSFORMER TESTING

In this shop testing on the transformer is carried out in on section and for loco in other section. In transformer testing section there are for MG. sets. The electrical specification of the entire test is already given. These tests are done on demand of customer on transformer manufactured, in this unit there are basically of test.

TRANSFORMER ENGINEERING (TRE)

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The transformer manufactured in BHEL Jhansi range from the 10MVA to 240MVA and up to 200 KV. The various transformers manufactured in this unit.

TECHNOLOGY

This department analyses the changes tacking place in the world and suggest changes accordingly. This is very important because the product must not get obsolete in the market otherwise they will be rejected by customer.

BUS DUCT

Bus duct is used as connection between generators and transformer. Busduct are used in power connection over 150 MV. The question now arise that why are bus duct preferred over normal conductors. In high power application, insulations are the major problems and frequent insulation breakdown occurs. If this does happens then possibility of shorting of conductor’s and hence serious damage may occur to both transformer and generators. It has also the separate department BUS DUCT COMMERCIAL.

LOCOMOTIVE

A locomotive is a rail vehicle that provides the motive power for a train.”Loco” means from a place “Motive ” means causing motion. A locomotive has no payload capacity of its own. It is used to move a train.

STORE

There are separate stores for different type of material in the BHEL newly technique has been put name provincial inventory means continuation of maintains inventory.

There are three sections in store :

Control Receiving Section

Custody Section

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Scrap Disposal Section

Funtions : A list of material coming in store is prepared and Quality Control people are called for inspection. If material is found as par standard SRV (Store Receipt Voucher) is issued for each material. A total of 08 SVR’S are prepared. Some materials such as Silicon oil, Transformer oil, insulating material etc are directly stored in the Bays. Scraps are also sold through that unit by a MATERIAL SCRAP TRADING – DELHI

CENTRAL QUALITY SERVICE

First we get acquainted with a few terms concerning this department.

Quality : It is the extent to which product and service satify the customer needs.

Quality assurance : All those plants and systematic action necessary to provide adequate confidence that the product or the serice will satisfy the given requirement is called quality assurance.

Quality control : Activity such as measuring testing, gauging one or more characteristics of product or service and comparing these with specified requirement to determine conformity are termed quality section.

WORK ENGINEERING AND SERVICES (WE&S)

As the name suggest this section deals with services and maintenance. It has following Sections:

Plant Equipment : This has electronics and electrical/mechanical maintenance.

Services : This section deals with air,steam and power equipments.

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Telephone Exchange :

Township Electrical Maintenance :

WE & S Planning

This section deals with stores and new machines procurement and others general things. There are three maintenance centers at Bay 2, Substation and LOCO.

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FINANCE

DEPARTMENT

OF

B.H.E.L

30

FINANCE DEPARTMENTS OF UNITS

B.H.E.L JHANSI.

The finance department is very broad in that unit and has also many sub department under finance department

Adminstration

Pay

Sales and Sales bill

Cash, P.F, T.A

P.S.L

Costing

Budget & books

Miscellaneous expenses

ADMINISTRATION

In this section main focus is to manage the functions of finance section. And to provide the facility to employee working in department.

PAY

31

In this section they credit the salary on every months 25 th the salary calculate under that date 25th of a month up to 24th of next month for crediting the salary in there in 2 modes

1) CASH

2) BANK

To prepare salary accounts section needed some data

1) Staff no

2) Master data

3) Attendance

4) Any bill remaining like medical bill, convence bill

SALES & SUPPLY BILL

Sales is the transfer of property otherwise than by way of pledge, hypothecation, mortgage for cash or deferred payment or other valuable consideration. Sales are two types :-

1) Inter state -> Sales are done by one state to another.

2) Intra state -> Sales with in the state.

It include all sales made in an organization that process started when accounts section gets purchase order SRV’S bills from supplier

Terms of payment of three kinds

1) 10% in advance payment

2) 100% after receipt and acceptance

3) Partial advance and the remaining after receipt and acceptance.

In case of foreign purchase a license is required from DGTD

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This license is of 2 types

1) Quantity base

2) Value base

Value base license changes according to change in market variation but quantity base are fixed for appropriate quantity BHEL have quantity base license

CASE, P.F,T.A

This section is responsible for banking of all the money worth received by the customer and disbursement of all authorized payment on the behalf of the company to suppliers, contractors in the form of cheque, cash, drafts, postal orders etc. Cash section prepares these statements for management information.

DAILY-CASHFLOW > DAILY COLLECTION OF CASH WEEKLY-CASH INFLOW > OUTFLOW – DURING WEEK

Cash flow forecast for 3 months Operating result statement Statement of outstanding letter of credit & bank guaranteeDaily bank transfers statement. P.F. stands for provident fund that was started from 1952 the rate of interest decided by time to time to time rate of reduction is 8.33%-12% that whole amount get by employee at the time of retirement P.F includes same contribution of employee as well as company.

T.A stands travel allowance in this section all convences of tours and travel company runs two thing under this

L.T.C Leave travel concession

L.T.A Leave travel assistance

In this section also check whether paper are appropriate or not

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To check whether the claim is according to company rules or not

PSL

PSL stands for price store ledger through this we get a current status of material in the market we calculate cost of a product and offer product to a customer some terms comes under this are as follows

SRV – Store receipt voucher

MIV –Material issue voucher

SRN - Store return note

MTV-Receipt cum dispatch voucher

RCDV – Store issue voucher

DIV – direct material issue voucher

COST SECTION

This section is responsible for calculating the cost incurred over a product and some expences like

1) Material cost2) Labour cost3) Direct expences4) Overhead

Material cost calculate through that data like

Material cost = MIV * PSL

MIV collect from store and PSL check regularly another departmentLabour cost calculates through collecting labors number on particular job there respective rate and the coast of job. Predetermined overhead matters in it also known as budget shop wise they calculate all expenses according to total job.

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MISCELLANEOUS EXPENSES

This section deals with miscellaneous expenses which are out of routine work like payment of contract worker, gifts.

BOOKS AND BUDGET

Budget section deals to with preparing revenue and capital budget and to match all predetermined cost with it’s actual by which regularly maintain balanced nature in organization. Budget is a coordinating agency that provides as a interface with other units as well as corporate.

Book section deals with maintains books of accounts regularly by which they keep records for future. This section also check whole recording of books as per company law act minimum 8 years they have to maintain.Indian companies act 1956, has to allow while preparing the Balance sheet.

Auditing is compulsory for every public as per the company’s Act. It can be Internal or External.

Budgets are the target set for the operation.It can be Revenue Budget and Capital budget.

1) Internal Level:- For the Department Information with in the company.

2) Corporate Level:- Send to corporate office.

3) Government Level:- Send to Government.

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BHEL Defies slowdown;Achieves all-time high Orders Inflow, Turnover, Exports

Supercritical technology business:

Maiden orders for 800 MW supercritical boilers for Krishnapatnam and 660 MW supercritical turbine generator sets for Barh-II, NTPC

JV formed for 2x800 MW supercritical thermal power project with TNEB

JV/MoI signed with KPCL & GSECL for 5 nos. 660/800 MW supercritical thermal power plants in Karnataka & Gujarat

Nuclear field:

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First-ever order for steam generators for new rating 700 MWe Nuclear sets – moving forward to capitalise on emerging business opportunities in the Nuclear sector

MoU signed with NPCIL for formation of JV for conventional island of Nuclear Power Projects. Technology tie-ups being explored for 700/1000/1600 MW TG sets through this JV Company

MoU signed with GE-Hitachi for cooperation in Nuclear island equipments for Power

plants to be set up by NPCIL

Strategic Alliances:

Partnerships forged with NTPC, KEL, HEC and PTC for leveraging equipment sales as well as strengthening the supply chain by developing additional sources for critical inputs

Inorganic Growth:

Acquisition of BHPV as 100% subsidiary. Opportunities being pursued in the areas of Transmission,

Transportation, Nuclear and Renewable energyMoUs signed with GE for Diesel Electric locomotives and

manufacture of propulsion systems for these locomotives

Capacity Expansion:

Manufacturing capacity expansion from 10,000 MW to 15,000 MW p.a. proceeding apace and further augmentation to 20,000 MW p.a. planned by 2011-12

Foundation stone for a new plant in Tirumayam in Pudukottai district of Tamil Nadu laid for manufacture of boiler components

Customer Confidence:

Confidence reposed by Private Sector customers; orders worth Rs.13,317 Crore placed by Jindal Power, Jaiprakash Power Ventures, GVK Power, Hindalco, HPCL Mittal Energy Ltd., Adani Power, Tatas, ACC, among others

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Highest value order of Rs.2,010 Crore received in Industry Sector business segment from Hindalco for 6x150 MW BTG package for Mahan (MP)

First ever order for generator transformers for 800 MW sets and also the largest rating to be installed in India for Mundra UMPP, reinforcing technological and market leadership in transformers

Green Initiatives:

BHEL Space Grade Solar Panels supplied for first satellite export project of ISRO for EADS-Astrium of Europe. The satellite was successfully launched by the European Ariane-5 launch vehicle from French Guyana

MoU signed with BEL for formation of a JV to address Solar Photovoltaic business and for setting up manufacturing facility for silicon wafers, solar cells and modules

Global Forays:

Physical export orders of Rs.3,265 Crore – up 41% from 22 countries in 5 continents

Forays in new markets – Senegal, Rwanda and new market segments in Syria, Tajikistan, Japan and Nigeria

Long term business tie-up – Six-year Rate Contract for 126 MW rated Gas Turbine Generating Sets from Oman – one of its kind in the world

MoU signed with TGR, Hungary for exploring opportunities for conventional boilers and R&M of boilers in European and CIS countries

Technology Edge:

BHEL becomes sole supplier in the world for 420 kN/320 kN porcelain insulators for +800kV HVDC transmission lines, following successful testing at STRI, Sweden; firstconsignment for PGCIL flagged-off

R&D spend at Rs.650 Crore - 40% higher than the previous year; 29% growth in BHEL’s IPR capital with 202 patents/copyrights filed taking the total number to 857

An understanding has been reached with Sheffield Forgemasters International Ltd., UK for technology transfer in the area of Forgings

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required for Advanced class Gas Turbines,Hydro Turbines and Thermal & Nuclear sets up to 1,000 MW rating

MoU for TCA signed with Nuovo Pignone S.p.A Italy for Centrifugal Compressors

Equipment Performance:

All 6 thermal power stations awarded with Govt. of India’s Meritorious Productivity Awards are equipped with BHEL equipment, reinforcing the reliability and quality of BHEL’s equipment

BHEL built sets contributed 73% of the power generated in the country during the year

All-time high Operating Availability of BHEL thermal sets; PLF higher than the national average

Other Initiatives:

• HR initiatives - Manpower ramped up by 4,500 persons in 2008-09 as a capability building measure

• On-line project monitoring system introduced – implemented in Dadri and Mejia

• In a bid to maintain complete transparency in its major contracts and procurement, BHEL adopts ‘Integrity Pact’ and signs MoU with Transparency International India (TII)

Accolades:

For the third year running, only PSU in Forbes Asia ‘Fabulous 50’ list of the best of Asia-Pacific's publicly-traded companies with revenues or market capitalisation of at least US$ 5 billion

BHEL and its units were awarded 4 ‘ICWAI Awards for Excellence in Cost Management’ for 2008 – the highest among public and private sector companies

FINANCIAL PERFORMANCE

During 2008-09, BHEL recorded the highest-ever turnover of Rs.27,505 Crore, up by 29%, compared to Rs.21,401 Crore of the previous year.

The company's Net Profit (PAT) went up by 6% at Rs.3,039 Crore against Rs.2,859 Crore in the previous fiscal. Profit Before Tax (PBT) also rose by 2% at Rs.4,530 Crore, during the year. With this,

39

BHEL maintained its track record of earning profits uninterruptedly since 1971-72.

The growth in PBT and PAT after neutralising the impact of wage revision provision is 21% and 25%, respectively.

An interim equity dividend of 90% on the enhanced post-bonus equity capital has already been paid for fiscal 2008-09.

Earnings Per Share (EPS), during the year, stood at Rs.62.1 – an increase of 6% over 2007-08.

Economic Value Added (EVA) rose 8% at Rs.1,955 Crore over that of Rs.1,810 Crore in 2007-08.

Net Asset Value (NAV) per share increased to Rs.263.3, from Rs.220.1 in the previous year, reflecting the intrinsic strength of the company, while Value Added per employee went up to Rs.21.24 lakh from Rs.19.07 lakh in 2007-08.

Total export turnover (Physical + Deemed) was also at an all-time

high of Rs.8,406 Crore during the year, accounting for over 31% of the company’s turnover during the year.

This performance is significant in the backdrop of the subdued economic environment in the country and demand contraction in the industrial segment, adversely affecting the entire manufacturing sector. During the year, provisioning of Rs.1,728 Crore has been done for the impending wage revision (due w.e.f. 1.1.2007) which has impacted the net profit of the company. The company withstood all these pressures because of its inherent strength and strong fundamentals.

ORDERS INFLOW

Operating in an intensely competitive environment, BHEL obtained a record order inflow of Rs.59,687 Crore, during the year. Fiscal 2008-09 has ended with a cumulative order book for execution in 2009-10 and beyond, of Rs.1,17,000 Crore – the highest-ever in physical as well as financial terms.

40

In the Power Sector business segment, BHEL secured orders worth Rs.44,407 Crore, for 17,020 MW of power plants. Major highlights of the year included the first-ever orders for 800 MW supercritical boilers, 660 MW supercritical turbine generator sets and largest number of orders for 8 sets of 600 MW. Significantly, 100% share of the R&M market for thermal sets was retained for the third successive year with orders of Rs.2,770 Crore including the supply of spares and services.

Significant orders received in the Power Sector include:

• Maiden order for 2x800 MW Supercritical SG Package for APPDCL, Krishnapatnam

• First order for 2x660 MW Supercritical TG Package for NTPC, Barh Stage-II

• First-ever order for 4 nos. steam generators for new rating 700 MWe Nuclear sets from NPCIL for KAPP

• PPCL Pragati-III CCPP (1371 MW) and OTPC Pallantana CCPP (726.6 MW) on EPC basis with Advanced class 9FA Gas Turbines

• Highest value single order for 4x600 MW OP Jindal STPP, Raigarh, besides orders for 4 Nos. 600 MW sets from MPPGCL; TNEB and APGENCO

• 500 MW sets - 13 Nos. from NTPC; MSPGCL; NTPL; CSEB and DVC

• 250/270 MW sets - 7 Nos. from GVK Power Ltd.; Bina Power Supply Company Ltd.; RRVUNL and MSPGCL

• Highest-value hydro order for Rampur HEP (6x68.7 MW) of SJVNL

In the Industry Sector business segment also, BHEL secured record orders worth Rs.10,254 Crore - a growth of 30% over the previous year, in Captive Power, Transportation, Power Transmission, Oil & Gas and other industrial segments.

41

Transmission Projects group, after its consolidation during 2007-08, has turned around and achieved highest-ever revenue and profits.

Significant orders received in the Industry Sector include:• Highest-value order ever received from Hindalco for 6x150

MW BTG package for Mahan (MP)• Highest-value order received in the refinery segment from

HMEL (JV of HPCL & Mittal Energy Ltd.) for 153 MW Combined cycle CPP on

LSTK basis. Orders for highest-rating slow-speed pressurised synchronous Motors also

won for the same project• First order for 2x150 MW BTG package from OPG Power

Gujarat Pvt. Ltd.• EPC order for 68 MW Cogeneration Captive Power Plant

Package from MRPL• STG sets from various process industries viz. Meghalaya

Power, Century Pulp and Paper, Lokmangal Agro Industries, Lokmangal Mauli Industries, Krishnaveni Sugars, Siruguppa Sugars & Chemicals Ltd. and ACC Ltd., Chanda

• BHEL’s leadership in transformer business reaffirmed with bulk order for 40 Transformers from Coastal Gujarat Power Ltd. for Mundra UMPP, involving country’s highest-rating Generator Transformers (930 MVA, 400 KV, 3 phase banks). BHEL will also supply Busducts and largest vertical Motors for CWP application for the same project

• Maiden order for Generator Transformers for 660 MW sets and highest-rating BFP motors from NTPC for Barh Stage-II followed by order for Generator Transformers for Tirora Project of Adani Power (3x360MW)

26 nos. 400 KV Shunt Reactors from PGCIL - largest shunt reactor order ever placed in India

42

Upgradation & Refurbishment of 12 onshore drilling rigs and upgradation of existing advanced instrumentation system for 53 onshore rigs from ONGC

Highest-ever orders for Compressors from HMEL-Bhatinda, HPCL-Mumbai, BRPL-Bongaigaon & MRPL-Mangalore; Turbo Blower Package from SAIL, Rourkela Steel Plant

All-time high orders for Well Heads and X-mas trees from PSUs - ONGC, OIL & private companies

Developmental order for 765 KV Transformer, Reactor, CT, CVT & CB from PGCIL

Traction Electrics for Kolkata Metro, after nearly two decades, from ICF Chennai

First-ever order in Defence business for supply of ACS/IPMS (Auxiliary Control Systems-Integrated Platform Management System) from Mazagon Dock Ltd.

PV Modules of various ratings from BEL, Bangalore; Alps Environmental echnologies, CREDA, Chhattisgarh and other customers

Continued focus on After Sales Services led to orders for Spares & Services from Oman, Saudi Arabia, Indonesia, New Zealand, USA, Cyprus, Sri Lanka, UAE, Nepal, Sudan and Libya

43

Gross Sales (Turnover) (Rs. Million) 310,000Gross Margin (Rs. Million) 64,270PBDIT to Total Employment (Rs. Million) 1.384Gross Margin to Gross Block (%) 93.75Gross Profit to Capital Employed (at year end) (%) 50.11Net Profit to Net Worth (at year end) (%) 24.70Added Value to Gross Sales (%) 16.91

BHEL’s expected performance for the year 2009-10

Further, a stretch Turnover target of Rs. 320,000 Million has been fixed under Excellent' rating.

In addition, a large number of Dynamic Parameters, Sector specific and Enterprise pecific parameters covering areas such as Improvement in Customer Satisfaction Index, Human Resource management, Employees satisfaction survey, Timely completion of Projects under Modernisation and Expansion, Achievement of Delivery Index of on time deliveries in Customer Projects, Engineering and R&D, Globalisation Through entry into new market segment, Corporate social Responsibilities and Environmental Improvement projects have been identified with specific targets for each of them to be achieved during the year.

44

BHARAT HEAVY ELECTRICAL LIMITEDAUDIT FINANCIAL RESULTS

FOR THE YEAR /QUARTER ENDED 31ST MARCH 2009 (Rs. Millions)

Sl.No.

(1)

PARTICULARS

(2)

3 MonthsEnded31.03.2009*

(3)

3Months in thepreviousyear ended31.03.2008

(4)

CurrentYear Ended

31.03.2009*(Audited)

(5)

Previousear ended31.03.2008Audited)

(6)

Consolidated Results

for the year ended31.03.2009 (Audited) (7)

1.

2.3.

4.5. a)

b) c) d) e) 6.

7.8.9.10.11.

12.13.

14.15.

16.

17.

Sales / Income from Operations Less:ExciseDuty/Service Tax Net sales/income from operations Value of production (Net of Excise duty/Service Tax)Other Operating Income Total Expenditure (Increase)/decrease in stock-in-trade and work in progressConsumption of raw materials Staff Cost Depreciation Other expenditure Profit from operations before other income, interest & taxation (2+4-5) Other incomeProfit before interest & taxation (6+7) Interest Profit Before Tax (8-9) a)Provision for Taxation (incl deferred tax)b)Prior period tax c)Fringe Benefit Tax Net Profit (10-11) Paid-up Equity Share Capital (Face Value per Share (Rs.)) Reserves excluding revaluation reserves Earnings per Share BasicandDiluted (not annualised) (Rs.)Public shareholdingNo. of Shares Percentage of shareholding Promoters and promoter group Shareholdinga) Pledged/Encumbered-No. of Shares -Percentage of shares (as a % of the total shareholding of promoter and promoter group)-Percentage of shares (as a % of the total share capital of the company)

111344 5943 105401 107220

3100 89447 -1722

69227 14075 1008 6859 19054

1972 21026 81 20945 8166

- 862 166 13475 4895 (10)

27.53

158009600 32.28%

NIL

79599 7579 72020 75576

2464 59214 -3931

41943 11661 827 8714 15270

1778 17048 42 17006 5989

-192 100 11109 4895 (10)

22.69

158008800 32.28%

NIL

280895 18553 262342 273514

6245 227671 -11515

171204 41128 3343 23511 40916

7880 48796 307 48489 17478

-771 400 31382 4895 (10) 124493 64.11

158009600 32.28%

NIL

214977 21322 193655 200904

4927 162959 -8273

114895 31459 2972 21906 35623

9035 44658 354 44304 15322

118 271 28593 4895 (10) 102847 58.41

158008800 32.28%

NIL

283752 18620 265132 276432

6308 230556 -11640

173367 41486 3431 23912 40884

7847 48731 351 48380 17593

-768 403 31152 4895 (10) 124332 63.64

158009600 32.28%

NIL

45

b) Non-Encumbered-No. of Shares -Percentage of shares (as a % of the total shareholding of promoter and promoter group)-Percentage of shares (as a % of the total share capital of the company)

331510400 100%

67.72%

331511200 100%

67.72%

331510400 100%

67.72%

331511200 100%

67.72%

331510400 100%

67.72%

Segmentwise Revenue, Results and Capital Employed (Rs. Millions)

Sl. No.

PARTICULARS 3 Months Ended 31.03.2009*

3 Months inthe previous year ended31.03.2008

CurrentYear Ended 31.03.2009* (Audited)

Previous Year ended 31.03.2008 (Audited)

Consolidated Results for the year ended 31.03.2009 (Audited)

1.

2.

3.

Segment Revenue

A. Power B. Industry Total Inter segmental revenue Sales / Income from operations

Segment Results (Profit before Tax and interest)

A. Power B. Industry Total Less Interest Other un-allocable expenditure net of income

Total Profit before Tax

Capital EmployedSegment Assets - Segment Liabilities)

A. PowerB. IndustryCapital Employed (including unallocable common)

86079 27161 113240 1896 111344

17308 5844 23152 81

2126

20945

5674024133808731274

79599

177416304

2404542

6997

17006

21344472495

2859395044

280895

386181214650774

307

1968

48489

-57121387081404

15918860106

2192944317

214977

393101086350173

354

5515

44304

37461247673624

21558073216

2887965044

283752

389681175550723

352

1991

48380

-54321342981355

*Subject to audit u/s 619(4) of the Companies Act, 1956 by the C&AG of India

The figures have been regrouped, wherever necessary.

Notes:-

1 Details of Investor Complaints :-

Pending as on Received Resolved Pending as on 01.01.2009 during the during the 31.03.2009

46

quarter quarter

Nil 183 183 NIL

2 . The consolidated figures include results in respect of the subsidiary - M/s Bharat Heavy Plate & Vessels Ltd. and Joint venture entities-BHEL-GE Gas Turbine Services Pvt Ltd., NTPC-BHEL Power Projects Pvt. Ltd., Udangudi Power Corporation Ltd. and Barak Power Pvt.Ltd. Being the first year, consolidated figures for the previous year ended 31.03.2008 has not been given, in line with the transitionalprovision of AS-21 issued by ICAI.

3 . Pay revision of employees is due w.e.f. 1.1.2007. Pending finalisation, the company has provided for a sum of Rs. 25470 millions for theperiod from 01.01.07 to 31.03.09. Out of this , Rs. 17290 millions has been provided in the current year.

4. The Board of Directors have recommended a final dividend of 80% in addition to the interim dividend of 90% paid during the year.

5. The above results have been reviewed by the Audit Committee and were taken on record by the Board of Directors in their meeting held on 27th May, 2009.

For Bharat Heavy Electricals Limited

Sd\-

Place : New Delhi (C. S. Verma)Dated : 27.5.2009 Director (Finance)

47

48

Working Capital

Also known as net working capital. It is a financial metric, which represents the amount of day-by-day operating liquidity available to a business. Along with fixed assets such as plant and equipment,working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. A company can be endowed with assets and profitablility, but short of liquidly, if these assets cannot readily be converted into cash.

Current assets and current liabilities: include three account that are of special importance. These accounts represent the areas of the business where managers have the most direct impact :

- Accounts receivable(current assets)- Inventory(current assets), and- Account payable(current liability)

The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long-term asets. Common types of short-term debt are bank loans and lines of credit.

An increase in working capital indicates that the business has either increased current assets(that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors.

49

Current Assets – Current Liabilities excluding deferred tax assets/liabilities ,excess cash, surplus assets and/or deposit balances.

Working capital is the difference between current assets and current liabilities

Working CapitalCurrent Assets Current Liabilities

Cash

Marketing Securities

Accounts Receivable Inventory

Prepaid Expenses

Short-term Debt

Current Portion of Long-Term Debt

Accounts Payable

Accrued Liabilities

Cash Conversion Cycle

The cash conversion cycle is a measure of working capital efficiency,often giving valuable clues about the underlying health of a business. The cycle measures the average number of days that working capital is invested in the operating cycle. Its starts by adding days inventory outstanding (DIO) to days sales outstanding (DSO). This is because a company “invests” its cash to acquire/build inventory,but does not collect cash until the inventory is sold and the accounts receivable are finally collected. Receivables are essentially loans extended to customers that consume working capital; therefore, greater levels of DIC and DSO consume more working capital. However, day’s payables outstanding (DPO), which essentially represent loans from vendors to the company, are subtracted to help offset working capital needs. In summary, the cash conversion cycle is measured in days and equals DIO+DSO-DPO:

50

+ Days Inventory Out. + Days Sales (DIO) (DSO)

Cash Conversion - Payables Cycle(CCC) (DPO)

51

Working Capital Management

Decisions relating to working capital and short term financing are referred to as working capital management . These involve managing the relationship between a firm’s short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short –term debt and upcoming operational expenses.

Decision Criteria

By definition, working capital management entails short-term decisions generally, relating to the next one-year period – which are “reversible”.These decisions are therefore not taken on the same basis as Capital Investment Decision(NPV or related) rather they will be based on cash flows and or profitability.

- One measure of cash flow is provided by the cash

Conversion Cycle – The net number of days from the outlay of cash for away material to receiving payment from the customer. As a management tool, this metric makes explicit the interrelatedness of decisions relsting to inventories, accounts receivable and payable, and cash.

- In this context, the most useful measure of profitablility is

Return On Capital(ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return On Equity(ROE)shows this result for the firm’s shareholders.Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions.ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decisions making.

52

Management of Working Capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital.These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors ) and the short term financing, such that cash flows and returns are acceptable.

- Cash Management – identify the cash balance, which allows for the business to meet day-to-day expenses, but reduces cash holding costs.

- Inventory Management – identify the level of inventory, which allows for uninterrupted production but reduces the investment in raw materials – and minimizes recording costs – and hence increase cash flow; see supply chain management; Just In Time(JIT); Economic Order Quantity(EOQ); Economic Production Quantity(EPQ).

- Debtors Management – identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital(or vice versa); see Discounts and allowances.

- Short term financing – identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however,it may be necessary to utilize a bank loan (or overdraft), or to “convert debtors to cash” through “factoring”.

53

WORKING CAPITAL TURNOVER

A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capitalTo generate sales.

Working Capital Turnover = Sales Working Capital

A company uses working capital (current assets – current liabilities) to fund operation and purchase inventory.These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

For example, if a company has currents of $10 million and current liabilities of $9 million, its working capital is $1 million.When comparedto sales of $15 million, the working capital turnoer ration for the period is 15($15M/$1M). When used in fundamental analysis, this ration can be compared to that of similar companies or to the company’s this ration can be compared to that of similar companies or to the company’s own historical working capital turnovers:

54

CASH MANAGEMENT

INTRODUCTION

Cash is an important current asset for the operation of the business. Cash is the basic input needed to keep the business running on a continuation basis. It is also the ultimate output realized by selling the services or product manufactured by the firm. Cash is the most liquid of all the current assets. Higher cash and bank balance indicate high liquidity position result in lower profitability,as idle cash fetches no return. Thus a major function of finance manager is to maintain sound cash position.

Cash management is concerned with managing of –

- Cash flows in and out of the firm.

- Cash flows within the firm.

Cash balance held by the firm at a point of time by financing deficit or investing surplus cash.

OBJECTIVES OF CASH MANAGEMET

- To meet day-to-day business requirement.

- To provide for schedule major payment i.e. capital expenditure.

- To face unexpected cash drain.

- To maintain image of credit worthiness.

- To seize potential opportunities for profitable long-term investment.

- To meet requirement of bank relationships.

Efficient cash management functions calls for cash planning, evaluation of benefits and cost of policies, sound procedures and practices and synchronization of cash inflow and outflows. Thus for achieving goals and objectives of cash management, finance manager has to plan cash needs of the firm followed by cash flow management, derermination of optimum level of cash and finally investment of suplus.

55

CASH MANAGEMENT IN BHEL, JHANSI

In BHEL, the centralize cash credit system is followed. From 24-07-75 all the banking transaction of the company has been centralize at corporate office, New Delhi. Under this system all the sale proceeds of the unit are deposited in the centralize account. This account no is universal for all unity at RODs. They have to deposit the sale process if this account withdraws money from it. Only the corporate offices operate it.

For meeting day-to-day expenses, the unit has to prepare the estimate of such expenses, which are then sent to corporate office weakly or monthly, or both. At unit level, the cash budget is prepared on yearly basis for estimating the expected cash in flows and out flows. The yearly budget is broken down into monthly and weakly interval the inflow and out flow are estimate on following basis.

The only source of cash inflow for units is the corporate office. The sale proceed cannot be directly utilize. Based on the above requisition, the corporate office allocates the funds.For cash credit, corporate office will negotiate with consortium of bank for total cash credit required for the company as a whole. A consortium deed for hypothecation of stock and store of company is executed by corporate offece. All the information, document etc. required in this connection will be called for by corporate offece from the division.

Arrangement has already been made state bank of India , HDFC bank, Canara bank, and bank of Baroda and Indian overseas bank for centralizing total cash limit at New Delhi.

Under this scheme, the units have furnished the required information under the following documents. The units will send estimated, monthly cash flow statement to the corporate office by 18 of every month.

56

Based on these cash flow statements the corporate office will allocate the sub limits will be transferred to the consortium the banks buy 25 of the month. The unit can utilize the fund. The actual cash flow statement will be sending to corporate office monthly i.e. 1 of succeeding month.

The units are also required to send the weekly report of daily bank transactions, to the corporate office. These reports show the details of daily debit & credit transaction appearing in bankbook of the company, enabling posting of corporate bankbooks as well as verification of bank statement received form banks. These are sent to corporate office on –

1st (showing the transaction from 25th to 30th of the previous month)8th (showing the transaction from 1st to 7th of current month)16th (showing the transaction from 8th to 15th of the current months)25th (showing the transaction from 16th to 21st if current month)

The units are required to send the comparative statement of estimated and annual cash flow of the preceding month. This report will be sent quarterly after inter-unit reconciliation meeting. The total interest payable on cash credit availed by corporate office is to be allocated among the units in the ratio of utilization of funds. Thus cash forecast & budget are the priciples tools of cash management. Forecasting helps manager to know how much will be held in balance, to what extent the firm should rely on bank financing & how much to invest in marketable securities.

57

Inventory Management

Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stand idle for lack of materials.

The reasons for keeping stock:

There are three basic reasons for keeping an inventory:

1. Time- the time lags present in the supply chain, from supplier to user at every stage, requires that you marinating certain amount of inventory to use in the “lead time”.

2. Uncertainly- Inentories are maintained as buffers to meet uncertainties in demand, supply and movement of goods.

3. Economic of scale- Ideal condition of “one unit at a time at a place where user needs it, when he needs it” principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement and storing brings in economics of scale, thus inventory.

Special terms used in dealing with inventory:

Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory.

-Stock out means running out of the inventory of an SKU. “New old stock” (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale which was manufactured long ago but that has never been used. Such merchandise many not be produced any

58

more and the new old stock may represent the only market source of a particular item at the present time.

Whilst the reasons for holding stock are covered earlier, most manufacturing organizations usually divide their “goods for sale” inventory into:

- Raw materials – material and components scheduled for use in making a product.

- Work in process, WIP – materials and components that have begun their transformation to finished goods.

- Finished goods – goods ready for sale to customers.

- Goods for resale- returned goods that are salable.

- Spare parts.Inventory Turnover:

A ratio showing how many times a company’s inventory is sold and replaced over a period.

Generally calculated as: = Sales

Inventory

However, it may also be calculated as = Cost of Goods Sold Average Inventory

59

Inventory turnover

1. Cost of beginning inventory at the start of the period+inventory purchases within the period + cost of production within the period +cost of production within the period = cost of goods

2. Cost of goods – cost of ending inventory at the end of the period = cost of goods sold

Method used for inventory control

In BHEL planning and control of inventory is done by using two method-

ABC analysis slow moving and non-moving goods analysis.

Budgeting material requirements

Fixation of raw material levels

Variety reduction

Condification of materials

Control of work in progress

ABC Analysis

60

In case of manufacturing company like BHEL,the number o fitems of raw into thousands(67000 in BHEL, JHANSI) from the point of view of monitoring information for control, it becomes extremely difficult to consider each of these items.

In this case ABC ANALYSIS become useful and enables management to concentrate attention and keeps a close watch on relatively less number of items, which account for a hegh percentage of annual usage of all items of inventory.

Documents used for inventory control

The various documents used for control of inventory are discussed below

- STORE RECEIPT VOUCHER:

This is issued when raw material purchased reaches the store. It is issued by store in charge.

- MATERIAL ISSUED VOUCHER:

This is an authorization to the storekeeper to issue raw material,Any material ordered for a specific work order will be recorded MIV details of material requisition is entered on the BIN CARD.

- MATERIAL TRANSFER NOTE:

This is issued when the material booked to one particular order is transferred to another work order.

- MATERIAL RETURN NOTE:

This an authorization to the storekeeper regarding, raw material, finished parts of or other stores no longer required by the factory. The various stock records and cost accounts are adjusted in due course from the details given on the form.

- Material is kept in appropriate bin and draws:

61

For each king of material a bin card is maintained showing details. A bin card assists the storekeeper to control the stock.

The bin card incorporates all information viz. opening balance of materials, materials ordered, material allocated and closing balance of materials like the order of few supplies, allocation of material to jobs, receipt and issued of material, stock in hand and balance available.

Inventory Accounting:

The body of accounting that deals with valuing and accounting for changing in inventoried assets. Changes in value can occur for a number of reasons including depreciation, deterioration, obsolescence, change in customer taste, increased demand, decreased market supply and so on.

It is requirement of GAAP that inventory be properly accounted for according to a very particular set of standards, so as to limit the potential of overstating profit by understating inventory value, and to limit the potential to overstate a company’s value by overstating the value of inventory which has in fact materially depreciated in value.

The basis of Inventory accounting :

Inventory needs to be accounted where it is held across accounting period boundaries since generally expenses should be matched against the results of that expense within the same period. When processes were simple and short then inventories were small but with more complex processes then inventories became larger and significant valued items on the balance sheets. This need to value unsold and imcomplete goods has driven many new behaviors into management practice. Perhaps most significant of these are the complexities of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs.this, supposedly, precluded “anticipating income” or “declaring dividends out of capital”. It is one of the intangible benefits of Lean and the TPS that process times shorten and stock levels decline to the point where the importance of this activity is hugely reduced and therefore effort, especially managerial; to achieve it can be minimized.

RECEIVABLE MANAGEMENT62

Receivables

An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivable are recorded by a company’s accountants and reported on the balance sheet, and they include in all debts owed to the company, even if the debts are not currently due the company records receivables as an asset because it expects to receive payment for the outstanding amounts soon. Long-term receivables, which do not come due for a significant length of time, are recorded as long-term receivables are considered part of a company’s current assets.

Receivables Turnover Ratio:

An accounting measure used to quantity a firm’s effectiveness in extending credit as well as collecting debts. The receivable turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Formula:

Accounts Receivable Turnover = Net Credit Sales

Average Accounts Receivable

63

Some company’s reports will only show sales – this can affect the ratio depending on the size of cash sales.By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.

A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

Analysis of working capital

64

The analysis working capital is primarily a test of short-term solvency.there are dangers in having too little or too much working capital. Therefore the financial manager has to be very vigilant all throughout about the trends in the items that make up working capital. The question to be studied and answered in connection with the analysis of working capital include the following –

- Is the management utilizing working capital effectively?- Is the amount of working capital adequate, excessive or

insufficient?- Does the firm have a favourable credit rating - Is the current financial position improving ?

Objectives of analysis :

- To maintain adequate working capital at every time. - To minimize the cost of short-term financing.- To plant the various sources of short-term finance well in

advances in case of the need.- To study the trends in the working capital positions.- To assess the effectiveness of management of the current

assets.- To maximize the return on investment of equity shareholder.

Tools of working capital analysis :

- working capital ratio analysis.- Movement of working capital statement.- Fund flow analysis.- Working capital budget.- Working capital report.

We are using the technique of ratio analysis as a means of checking upon the efficiency with which working capital is being used in the company. These ratios would measure the pulse of working capital management.

Working Capital65

A measure of both a company’s efficiency and its short-term financial health. If a company’s current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, its accounts receivables number continues to get smaller and smaller. The working capital is calculated as :

Working Capital = Current Assets – Current Liabilities

66

BALANCE SHEET Unit :Jhansi (Rs. In Lakhs)

 Actuals 2004-05

Actuals 2005-06

Actuals 2006-07

Actuals 2007-08

Actuals 2008-09

B.E. 2009-10

RESOURCES :            OWN :            Funds from Head Office   901 901 901 1801 1801 1801Reserves and Surplus   11 11 11 11 11 11 Inter Unit Balances(Net)   27420 27770 35527 38770 37830 33027Secured loans (direct)              SUB-TOTAL A 28332 28682 36439 40582 39642 34839OUTSIDE :Secured loans   0 0 0 0 0 0Unsecured Loans   0 0 0 0 0 0Deffered Credits   0 0 0 324 279 175SUB-TOTAL B 0 0 0 324 279 175SUB-TOTAL A+B 28332 28682 36439 40907 39922 35014UTILISATION OF RESOURCES              FIXED ASSETS :              Gross Block   9183 9621 9871 10570 11997 17406Less Cum Depreciation   7174 7510 7852 8195 8580 9241Net Block : C 2009 2112 2019 2376 3417 8165Capital Work In Progress D 193 174 335 476 477 6792Investments E - - - - - 0Intagible Assets F - - - - - 0Deffered Tax Assets G - - - - - 0Current Assets :              Inventories   10539 13243 18330 19291 24236 19291Book Debts Collectible   20393 21588 27510 36900 36005 21534

Deferred Debts & others 4838 6592 9469 11495 20661 12860Cash/Bank Balances   7 8 5 9 8 8Loans & Advances   2213 2039 2912 4776 5899 6418 Others   597 2067 1817 1915 2020 1730Total : H 38587 45537 60044 74385 88831 61841Current Liabilities :              Advances from Customers   6757 7078 9882 17034 24342 17936Sundry Creditors   5229 7698 8964 11621 12594 11030Other Liabilities - Statutory   1155 1289 948 1317 1170 1525Provision   6252 7895 8827 13568 22581 18302Total : I 19393 23961 28621 43540 60686 48793NET CURRENT ASSETS J=(H-I)   19194 21576 31423 30846 28144 13048Deffered Revenue Expenditure K 0 0 0 0 0 0Profit & Loss Account(DR.) L 6936 4820 2663 7209 7884 7009Total : M(C+D+E+F+G+J+K+L)   28332 28682 36439 40907 39922 35014 DIFFERENCE              

CAPITAL EMPLOYED N=(C+E+J) 21203 23688 33442 33221 31561 21213

OPERATING RESULTS Unit : Jhansi (Rs. Lakh)

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Actuals Actuals

Actuals

Actuals

Actuals BE

2004-05 2005-06 2006-07

2007-08

2008-09

2009-10

Turnover -BHEL 4215 7376 4870 3522 3976 1822 -Non-BHEL 26994 34670 45405 59046 61395 87206 Total Turnover : 31209 42046 50275 62568 65371 89028Changes in WIP/FG 1167 1260 4153 686 1822 1057Export Incentives 839 97 307 39 23 0Gross Turnover 33215 43403 54735 63292 67215 90085 Less: Excise Duty 4524 5145 6598 6066 5688 4601GTO net of Excise 28691 38258 48137 57227 61527 85484 Direct Materials- BHEL 3230 4343 4983 4907 4392 8949 - Non BHEL 14944 19901 28443 34159 33965 50131Expenses on Sub Contracts 400 593 427 199 98 513Transfer in services 0 54 36 17 18 25Power & Fuel 522 540 534 546 625 765 Sub Total : 19096 25431 34424 39828 39097 60383Value Added 9595 12827 13713 17399 22430 25101Personnel Payments 5471 6089 7352 8952 14143 13543Indirect Materials 552 586 710 919 852 1130Other Expenses -BHEL 355 376 530 777 710 837 -NON BHEL 2002 2658 2834 6205 6295 6180Provisions (Net) 919 1311 169 1529 2344 1359Exchange Variation 24 5 3 -132 -1101 0Less : - Scrap Sales -248 -199 -785 -410 -434 -590Other Misc. Income -813 -1132 -1396 -2042 -2315 -2151Interest income -2 -2 -1 -5 -7 -1Sub Total 8260 9691 9415 15793 20487 20307Gross Margin(PBDIT) 1335 3136 4298 1606 1942 4798Depreciation 295 323 347 356 387 713Gross Profit(PBIT) 1029 2814 3951 1250 1555 4080Interest (cost)- Direct 18 21 40 32 47 55 - Corp . Alloc 209 200 300 214 0 408Profit before Tax(PBT) 802 2592 3612 1004 1508 3617% of G. Mat cons on GTO-ED 64.74 65.06 70.40 68.64 62.53 69.74% OF VALUE ADDED 33.44 33.53 28.49 30.40 36.45 29.36

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Turnover

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Year

Turnover

WORKING CAPITAL TURNOVER

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A company uses working capital(current assets – current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company.the working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

Working Capital Turnover = Sales Working Capital

Year 2004-05 2005-06 2006-07 2007-08 2008-09WCT 1.62 1.91 1.62 2.02 2.53

Current ratio :

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This ratio is obtained by dividing the ‘Total Current Assets’ of a company by its ‘Total Current Liabilities’. The ratio is regarded as a test of liquidity for a company. it expresses the ‘working capital’ relationship of current assets available to meet the company’s current obligations.

Current Ratio = Total Current Assets/Total Current Liabilities

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10CurrentYear 1.99 1.90 2.10 1.71 1.46 1.27

Comment:-

AS a conventional rule a current ratio of 2:1 or more is considered satisfactory. So, here ratios are almost satisfactory but in 2008-09 it is a bit on lower side because of huge advances from customers received against future supplies.

Quick Ratio :

This ratio is obtained by dividing the ‘Total Quick Assets’of a company by its ‘Total Current Liabilities’. Sometimes a company could be carrying heavy inventory as part of its current assets, which might be obsolete or

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slow moving. Thus eliminating inventory from current assets and then doing the liquidity test is measured by this ratio. The ratio is regarded as an acid test of liquidity for a company.It expresses the true ‘working capital’ relationship of its cash, accounts receivables, prepaid and notes receivable to meet the company’s current obligations.

Quick Ratio = Total Quick Assets / Total Current Liabilities

Quick Assets = Total Current Assets(minus) Inventory

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Liquid Ratio 1.45 1.35 1.46 1.27 1.06 1.15

Comment:-

Generally a quick ratio of 1:1 is considered to represent a satisfactory liquidity condition. But in BHEL Jhansi the ratio is relatively more because of huge outstanding from customers.

Return On Capital Employed – ROCE

A ratio that indicates the efficiency and profitability of a company’s capital investments calculated as:

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= Capital employed * 100 EBIT

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10ROCE 4.85% 11.88% 11.82% 3.76 4.93 19.23

Same analysis of Gross margin ratio is valid for ROI also. Add to that is reason of increase in capital emplyoed due to increase in Inventory and Debtors.

BIBLIOGRAPHY

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www.bhel.com

www.investopedia.com

www.wikinpedia.com

www.creditguru.com

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