PREFACE

The major objective of the study is to proper understanding the working capital of BHEL & to suggest measures to overcome the shortfalls if any. Funds needed for short term needs for the purpose like raw materials, payment of wages and other day to day expenses are known as working capital. Decision relating to working capital (Current Assets - Current Liabilities) and short term financing are known as Working Capital Management. It involves the relationship between a firms short term assets and its short term liabilities. By definition, working capital management entails short-term definitions, generally relating to the next one year period. The goal of working capital management is to ensure that firm is able to continue its operation and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses. Working capital is primarily concerned with inventories management, Receivable management, cash management & Payable management. This research report is divided in six chapters and each chapter has its own importance. Together they show the entire picture of financial condition of organization. First, efforts have been focus on introducing BHEL and giving an outline about the history of working. The First chapter deals with the introduction of the topic, which describes the meaning of Working capital. It also describes the profile and history of BHEL. In first chapter I have mentioned the various measuring technique for measuring satisfaction level. This chapter also describes the organizational structure of BHEL. The objective and need of research is also mentioned in section of project work. 1

The second chapter deals with the objectives, importance and scope of the study. The third chapter deals with research methodology. The process of carrying out the whole research problem is defined in it. It contains information about the objectives of the research, methods of data collection, sampling and sample design. Forth chapter is on data analysis and interpretation. This is the most important section of the project work. This section contains the analysis of all the data collected so far and they are interpreted to produce the final conclusion. It contains all the tables and charts which depicts the result. Chapter five contains the finding and recommendation of the research. This is based on the data analyzed and interpreted in the previous chapter. This is the most important section of the research report for a report is evaluated on the validity ad correctness of findings. Chapter six concludes the whole report, that is, gives a brief description of the process employed so far. At last bibliography and annexure is there. It describes the list of sources from where the matter and information is collected. It contains the list of books, authors, web sites use etc. Thus the above mentioned is the overall design of the report and contains a detailed description of preference of brand between to famous brands of biscuits. The prime focus of the report is to find out the factors responsible for job satisfaction.

ACKNOWLEDGEMENT

It is not a single mans effort which is sufficient for the accomplishment of a research. I acknowledge here the names of those people who have been instrumental in preparation of my project. I wish to acknowledge my specific in debtness to director TECHNICAL EDUCATION AND RESEARCH INSTITUTE, who made this opportunity to perform financial training as a part of MBA Course. I wish to extend my Sincere Gratitude towards Mr. Nitin Arora Senior Accounts Officer (BHEL HERP, Varanasi) for accepting me as a summer trainee and assigning this project to me. I am extremely grateful to Mr. RAHUL ANAND (H.O.D.) for their valuable guidance and best possible help during course of study. I am deeply grateful to my parents who have given me every help and moral support and their constant advice which enabled me to pursue my academic aim. Thanks to other summer trainees for their co-operation and suggestions throughout this project.

NEHA RAI

BHARAT HEAVY ELECTRICAL LIMITED

Company background:1956 - Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd. in collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Tricky. The Bhopal Unit was controlled by the company, the other three were under the control of Bharat Heavy Electricals Ltd. - The Company`s object is to manufacture of heavy electrical equipments. 1972 - In July the Operations of all the four plants were integrated. 1974 - In January Heavy electrical (India) Ltd was merged with BHEL. - For the manufacture of a wide variety of products, the company has developed technological infrastructure, skills and quality to meet the stringent requirements of the power plants, transportation, petro chemicals, oil etc. - BHEL has entered into collaboration which are technical in nature. Under these agreements, the collaborators have transferred, furnished the information, documentation, including know-how relating to design, engineering, manufacturing assembly etc. 1982 - BHEL also entered into power equipments, to reduce its dependence on the power sector. BHEL has:1. Installed equipment for over 90000MW of power generation-for utilities, captive and industrial users. 2. Supplied over 225000MW a transformer capacity and other equipment operating in transmission and distribution network up to 400Kv (AC& DC) 3. Supplied over 25000 motors with drive control system to power projects, petro chemicals, refineries, steel, aluminum, fertilizers, cement plants etc. 4

4. Supplied traction electrics and AC/DC locos to power over 12000kms railway network. 5. Supplied over one million valves to power plants and other industries.

THE GOALS/OBJECTIVES OF BHEL

VISION: To become a continuously growing world class company. To harness the growth potential & sustain profitable growth. To deliver high quality & cost competitive products & to be the first choice of customers. Create an inspiring work environment to unleash the creative energy of people. Achieve excellence in enterprise management. Be a respected corporate citizen, ensure clean & green environment & develop vibrant communities.

MISSION:

To be an Indian Multinational Engineering Enterprise providing Total Business Solution through Quality Products, Systems and Services in the fields of Energy, Industry, Transportation, Infrastructure and other potential areas.

VALUES:

Commitment Customer satisfaction 6

Continuous improvement Concern for environment Creativity & innovation

BOARD OF DIRECTORS

CHAIRMAN & MANAGING DIRECTOR

Mr. B.P. RAO

ADDITIONAL SECRETARY & FINANCIAL ADVISER

Mr. Saurabh Chandra

JOINT SECRETARY

Mr. Ambuj Sharma

Mr. Trimbakdas S. Zanwar Mr. V. K. Jairath DIRECTORS Mr. ashok kumar basu Mr. M. A. Pathan Smt. Reva Nayyar Mr. S. Ravi

DIRECTOR (Finance) DIRECTOR (E, R & D)

Mr. P.K. Bajpai Mr. O.P. Bhutani Mr. Anil Sachdev

DIRECTOR (HR) DIRECTOR (POWER) Mr. Atul Saraya

COMPANY SECRETARY

Mr. I.P. Singh

CORPORATE PROFILE

BHEL is the largest engineering and manufacturing enterprise in India in the energy related infrastructure sector BHEL is established more than 4 decades ago ushering in the

indigenous heavy electrical equipment industry in India. BHEL has built over the years, a robust domestic market position by becoming the largest supplier of power plant equipment in India and by developing strong market presence in select segments of the industrial sector and the railways. Currently, 80 % of the nuclear power generated in country is through the BHEL equipment BHEL caters to core sectors of the Indian economy viz., power generation and transmission, industry transportation , renewable energy defiance etc. the wide network of BHEL 14 manufacturing divisions 4 power sector regional centers, 8 service centers, 15 regional office, one subsidiary co. joint venture and a large number of projects sites spread all over India and abroad enables the company to promptly serve its customers and provide them with suitable products, systems and servicers- efficiently and at competitive prices. BHEL where quality systems as per ISO-9000 have taken deep roots has now made significant achievements in total quality management by adopting the CII/EFQM model for business excellence. BHEL become the first public sector company in the country to win the 9

coveted PRIZE through its hardware unit under the CII Exam award Scheme. BHEL Bhopal and JHANSI units and power sector northern and eastern regions have also won the commendation for significant achievement to TQM during 2008-2009 For the third consecutive year, BHEL performance was recognized by the prestigious publication Forbes Asia which featured BHEL in its fourth annual fabulous 50 list of the best of Asia pacifics publically traded company with revenue or market capitalization of a least us $ 5 billion having highest long term profitability and sells and earnings growth significantly BHEL is only Indian PSU top figure on the elite list list since the list was conceived. BHEL and its four unit were awarded ICWAI awards for excellence in cost management for 2008- the highest among both public and private sector companies .BHEL won EEPCs top export award for the eighteen th year in secession Power sector:Power generation sector comprises thermal, gas, hydro and nuclear power plant business. As of 31-3-2004, BHEL supplied sets account for nearly 71,255 MW or 64% of the total installed capacity of 1, 11, 151 MW in the country, as against nil till 1969-70. BHEL has proven turnkey capabilities for executing power projects from concepts to commissioning. It possesses the technology and capability to produce thermal sets with super critical parameters up to 1000 mw unit rating and gas turbine-generator sets of up to 250 mw units rating. Cogeneration and combined-cycle plants have been introduced to achieve higher plant efficiencies. To make efficient use of the high ash-content coal available in India, BHEL supplies circulating fluidized bed combustion boilers to both thermal and combined-cycle power plants. 10

The company manufactures 235 MW nuclear turbine generator sets and has commenced production of 500 MW nuclear turbine generator sets. Custom-made hydro sets of Francis, Peloton and Kaplan types for different head discharge combinations are also engineered and manufactured by BHEL. In all, orders for more than 700 utility sets of thermal, hydro, gas and nuclear have been placed on the company as on date. The power plant equipment manufactured by BHEL is based on contemporary technology comparable to the best in the world, and is also internationally competitive. The company has proven expertise plant performance improvement through renovation, modernization and upgrading of a variety of power plant equipment, besides specialized know how of residual life assessment, health diagnostics and life extension of plants. Transmission:BHEL also supplies a wide range of transmission products and systems of up to 400KV class. These include high voltage power & instrument transformers, dry type transformers, shunt & series reactors, safe switch gear, 33KV gas insulated substation capacitors, and insulators etc. for economic transmission of bulk power over long distances, High Voltage Direct Current (HVDC) systems are supplied. Series and shunt compensation systems, to minimize transmission loses, have also been supplied Industry sector:BHEL is a major contributor of equipment and systems to industries: cement, sugar, fertilizer, refineries, petrochemicals, steel, paper etc. the range of systems and equipment supplied includes: captive power plants, dg power plants, high speed industrial drive

turbines, industrial boilers and axillaries, waste heat recovery boilers, gas turbines, heat 11

exchangers and pressure vessels, centrifugal compressors, electrical machines, pumps, valves, seamless steel tubes and process controls, control systems for process industries, and control and instrumentation systems for power plants, defense and other applications. The company has commenced manufacture of large scale desalination plants to help augment the supply of drinking water to people. Transportation:Mostly of the trains operated by the Indian railways, including the metro in Calcutta, are equipped with BHELs traction electrics and traction control equipment. The company supplies electric locomotives to Indian Railways and diesel shunting locomotives to various industries. 5000/4600 hp ac/dc locomotives developed and manufactured by BHEL have been supplied to Indian railways. Battery powered road vehicles are also manufactured by the company. BHEL also supplies traction electrics and traction control equipment for electric locos, diesel electric locos, and EMUs/ DEMUs to the railways.

Telecommunication:BHEL also caters to telecommunication sector by way of small, medium, and large switching systems. Renewable energy:Technologies that can be offered by BHEL for exploiting non-conventional and renewable resources of energy include: wind electric generators, solar power based water pumps, lighting and heating systems. The company manufactures wind electric generators of unit size up to 250 KW for wind farms, to meet the growing demand for harnessing wind energy.

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International operations :BHEL has, over the years established its references in over 50 countries of the world, ranging from the United States in the west to new-Zealand in the Far East. These references encompass almost the entire product range of BHEL, covering turnkey power projects of thermal, hydro and gas based type sub-station projects, rehabilitation projects, besides a wide variety of products, like switch gear, transformer, heat exchangers ,insulators, castings and forgings. Apart from over 1100MW of boiler capacity contributed in Malaysia, some of the other major successes achieved by the company have been in Oman, Saudi Arabia, Libya, Greece, Cyprus, Malta, Egypt, Bangladesh, Azerbaijan, Srilanka, Iraq etc. execution of overseas projects has also provided BHEL the experience of working with world renowned consulting organizations and inspection agencies.

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TECHNOLOGY UP GRADATION AND RESEARCH AND DEVELOPMENT

To remain competitive and meet customers expectations, BHEL lays great emphasis on the continuous up gradation of products and related technologies, and development of new products. The company has upgraded its products to contemporary levels through continuous in house efforts as well as through acquisitions of new technologies from leading engineering organizations of the world. The corporate R&D Division at Hyderabad leads BHELs research efforts in a number of areas of importance to BHELs product range. Research and product development centers at each of the manufacturing divisions play a complementary role. Reinforcing its position as a total solution provider BHEL has developed and successfully commissioned a maintenance controller at the western mountain power project, Libya. Based on power packing , software jointly development by BHEL and TCS , this is the system for complete power plant application and takes care of all the maintenance needs of a power station. Internal control system The internal control procedures of the company are prescribed in various codes and manuals issued by the Management covering all important areas of activities viz. Budget, Purchase, Material, Stores, Works, Accounts, Personnel etc. These codes and manuals are updated from time to time. The company has a full-fledged Internal Audit Department at Corporate Office and eleven Internal Audit Cells located at manufacturing units and regional offices of the company which carry out audit as per annual audit programs 14

approved by Director (F)/BLAC and monitored by Corporate Internal Audit. The prime objective of such audits is to check the adequacy and effectiveness of Internal Control System laid down in the prescribed codes and manuals of the company. Functioning of Internal Audit and adequacy of Internal Control System is reviewed by Unit Level Audit Committee.

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OUTLOOK

While the Indian Economy is continuing to grow at slow pace, there are positive impulses like on-going Restructuring and initiative. Reforms in the Power Sector, enhanced focus on Distribution, vie increased outlay for Accelerated Power Development and Reforms Programmed (APDRP), creating regulatory system, new Electricity Bill etc. Governments commitment to enhance private and public investments in the infrastructure is a positive aspect that will spur Industrial Growth and enhance market prospects for industrial products in the coming years. BHEL has put in place a number of initiatives, as follows ,. 1. Strengthening companys core businesses of Power Generation, Transmission & Distribution, Transportation and Industrial Systems & Products, through accelerated project completion and consequent benefits to customers, along with new initiatives in marketing, technology, facility up-gradation and modernization, enhancing operational effectiveness etc. 2. Business Development efforts in related and allied areas utilizing the organizational strengths and forming customer focused specialized business groups e.g. formation of Oil Sector R&M Business Group to address business in Renovation and Modernization of off-shore and on-shore oil platforms, downstream petroleum refining areas and Power Plant Operational Services Group to provide Operations and Maintenance (O&M) , Services for Power Plants.

16

3. After Market Services being the areas for future growth, spares and R&M services business have been integrated into one focused group. R&M for hydro sets is an area having major growth opportunity which BHEL is poised to tap. 4. Exploring Business opportunities in areas like Energy Conservation, Water Management, Pollution Control and Waste Management, Ports, LNG terminals etc. 5. Positioning for Information technology Business leveraging the domain knowledge in Power Sector& Engineering field to provide IT enabled services for Power Sector and software services for Engineering Industry. Sustain and Enhance Exports for products and services through multi-pronged approaches like entering new territories, focus on product sales, entry into IPP segment, offering O&M and LTSA, EPC, becoming a service center for international Original Equipment Manufacturers (OEMs) and setting up of manufacturing assembly and repair centers in the regions of demand etc. BHEL is also taking steps to re-position itself to meet the demands of the new market economy through suitable strategies keeping in view the ultimate objective of enhancing value for its stakeholders.

17

RISKS AND CONCERNS

1. Since most of the projects in industry are being contemplated on BOO/BOOT basis, various issues viz. Business model of the Project, revenue collection, operation and maintenance etc. would need to be suitably addressed to gain entry in the business. 2. Railways have indicated 3% growth in Xth plan as against 6% growth during the IX th plan, which would result in scanty order flow for Electric locos and dip in demand for electrics for Locos. 3. Collaborators are increasingly restricting export territories under license agreements in order to protect their market share in territories outside India particularly where BHEL has built up references and strengths. During the year, the company has received highest ever Private Sector orders of Rs. 25,918 crore for Power Projects. Major orders received during 2009-10 are: Super-critical orders received for 3x660 MW Bara from Prayagraj Power Generation Company Limited (PGCL), a Jaypee Group company. Order for 10 Sets of 270 MW from a single customer i.e. Elena Power and Infrastructure order consist of 5x270 MW for Nasik and 5x270 MW for Amravati. Orders for 16x270 MW, 2x525 MW and 5x600 MW of recently introduced new ratings (270 MW, 525 MW and 600 MW). Repeat order of 4 steam Generators for 700MWe Nuclear Set for Rajasthan Atomic Power Project of Nuclear Power Corporation of India Ltd. Orders for 1739 MW Hydro sets received, which include 3x110 MW for Kishanganga Project of Hindustan Construction Company and 3x99 MW+ 4x96 MW 18

+ 5x121.5 MW for Pranhita Lift Irrigation Scheme Projects of Mega Engineering & Infrastructures Limited. Order for 1x160 MW Gas based Combined Cycle Power Project for Ramgarh of Rajasthan Rajya Vidhyut Utpadan Nigam Ltd (RRVUNL). Order for 6 units of 150 MW from HINDALCO Industries Ltd for their upcoming captive power plant at Aditya Aluminum in Sambalpur district, Orissa. Order for 2x150 MW sets from OPG Power Gujarat and 2x180 Tones per Hour (TPH) Bubbling Fluidized Bed Combustion (BFBC) Boilers from Jindal Steel & Power Limited (JSPL) Angul, Orissa. Order for 150 nos. electric locomotives (25 KV, Type WAG7) from Indian Railways in the transportation segment. Order for 14 Sets Electrics for HHP DEMU from ICF, Chennai and 51 Sets AC EMU Traction Electrics from Railway Board, Delhi. 1st & 2nd orders for 3 nos. 126 MW GTG sets received under price agreement entered during 2008-09 with Petroleum Development, Oman. Overseas order for Gas turbine based cogeneration plant received for 100, 130 MW Co -generation Power Project, Belarus. This is the first ever order from Belarus making an entry in a new country. BHEL has signed Memorandum of Understanding for overseas execution with M/s Power Engineers Contracting Company for 3 combined cycle Projects involving 12 Fr 9E GTs in Iraq, 2 x 125 MW Coal based Power Plant and for 20 MW Gas Turbine based Power Plant in Nigeria. First order for 42 MW Gas Turbine Generator for Iraq has been secured from M/s. Power Engineers (UK) for Nasiriyah Project.

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EXPANSION OF MANUFACTURING CAPACITY

BHEL has embarked upon a plan of enhancing its manufacturing capacity and capability for preparing itself to meet the countrys power demand, for providing Power to all by 2012 and to contribute fully for meeting the power forecast of the 11th Plan and beyond. Towards this end, BHEL has been augmenting its capacity and capability and has already enhanced its power generating equipment manufacturing from 6000 MW in 1999-2000 to 10,000 MW per annum w.e.f. 1st January, 2008. This manufacturing capacity is planned to be enhanced to 15,000 MW per annum by end of March, 2010. This will further go up to 20,000 MW per annum by March, 2012. A new transformer manufacturing facility at Bhopal Unit to produce an additional 12,000 MVA of transformers per annum was dedicated to the nation by Humble Union Minister HI&PE on 17.11.2009. With this, transformer manufacturing capacity of Bhopal Unit stands enhanced to 30,000 MVA per annum.

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SIGNIFICANT ACHIEVEMENTS & HIGHLIGHTS (09-10)

Scope Moue Excellence Award for the year 2006-07 for the highest growth rate in Market Capitalization. Award presented by Honorable Prime Minister, Dr. Manmohan Singh to CMD BHEL on 15th October, 2009 in New Delhi.

The Centralized Stamping Unit established at Jagdishpur (Uttar Pradesh) was dedicated to the nation by Mr. Rahul Gandhi, Member of Parliament on 17th August, 2009.

For outstanding export performance BHEL has won the Engineering Export Promotion Councils (EEPC) Top Export Award for the 19th year in succession. The award was conferred in the category Star Performer in 2007-08 product group of motors, Generators and Transformers Large Enterprise. The award was presented by the Honorable Union Minister for Commerce and Industry on 29th August, 2009.

BHEL once again made it to the prestigious Fabulous 50 list of Forbes Asia. The list included companies that have revenue and market capitalization of at least $3 billion and a five year record of operating profitability and return on equity.

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 India Pride Gold Award for excellence in Heavy Industries instituted by Dainik Bhaskar Group. Award presented by Honble Union Home Minister, Mr. P. Chidambaram to CMD BHEL on 9th October, 2009 in New Delhi. BHEL was awarded the Dalal Street Investment Journals ( DSIJ) Most Investor Friendly PSU award 2009 for the year 2009 as a reco gnition for its unmatched track record of earning profits and rewarding investors by paying dividends uninterruptedly for over three decades without a break. 2x500 MW Simhadri STPS (NTPC) - Gold Shield Winners for Meritorious Performance in Power Sector BHEL's Centralised Stamping Unit being inaugurated by Sh. Rahul Gandhi on 17.8.09.

BHEL supplied Thermal (Coal-Utility) Sets generated 405793 Million Units (MUs) in 2008-09. BHEL thermal sets have generated 203910 (MUs) upto September, 2009 in 2009-10.

2 nos 42 MW Generator Sets for Ras-Al- Khaimah Power Plant in UAE successfully commissioned

2 nos 126 MW GTG sets for Sulamaniah Power Plant in Iraq successfully synchronized.

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Projects completed up to July, 2010

Design, development and generation of manufacturing drawings for 200 MW Steam Turbine with high back pressure suiting to desert application (Export market). Design and development of Condenser for 660 MW supercritical parameter sets. Development of Thermal and Mechanical design and release of manufacturing drawings for Feed Water Heaters with higher feed water outlet temperature for North Chennai 600 MW TG set. Development of 765 kV / 4000A Gas Insulated Current Transformer for Yard Applications Development of alternate design of Electro Hydraulic Converter for Governing system of Siemens design Steam Turbines of all ratings (210/250/500/525/600 MW). Developed the design and manufactured Special Fixtures mounted on 18-axle road trailer for Transportation of 500 MW Turbo Generator Stator. Successfully upgraded PV Manufacturing Facilities and carried out Process optimization trials successfully achieving competitive solar cell conversion efficiency. Designed and demonstrated Station LAN and Network Security System for NTPC Dadri, Farakka and Korba Projects placing BHEL at par with world Standards of Network Security implementers. Development of new processes of fabricating Ceramic filter candles with integral collars. The developed processes will help the indigenous manufacture of hot gas filter candles required for IGCC applications. 23

 Designed and demonstrated Development of 220-Watts Photovoltaic Modules using 156- mm Size Multi Crystalline Silicon Solar Cells. Designed and manufactured Largest Rating 2150 KW, 6.6 KV, 4 Pole, SCIM Motor in 1RC7638-4 Frame delivering Constant Torque. Development of Simulator for Khaperkheda and Bhusawal (500 MW) Plants. Design, development and generation of manufacturing drawings for 250MVA aircooled Turbo Generator TARI 115/52 for STG application (Export market).

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BHEL AT A GLANCE
(Rs. In crore )

PARTICULARS

2010 11

2009 - 10

Change (%) 13.75 2.49 26.89 40.28 1.02 36.64 39.43 33.65 30.37 42.23 21.59 26.62 27.34 -

Order Outstanding Order Received Turnover Value added Employees(nos.) Profit before tax Profit after tax Dividend Corporate dividend tax Retained earnings Total assets Net worth Total borrowings Debt : equity

164145 60507 43337 18476 46748 9006 6011 1525 249 4237 57097 20154 163 0.01

144300 59037 34154 13171 46274 6591 4311 1141 191 2979 46960 15917 128

0.01 325.16 88.06 26.62 39.45 42.06 2670

25

PER SHARE (In Rs.) -Net worth -Earnings Economic value added

411.71 122.80 3793

GRAPHS -

Fig. 1

Fig. 2

26

Fig. 3

Fig.4

27

Fig.5

Fig.6 28

Fig.7

Fig.8

29

Fig.9

Fig.10

30

Fig.11

Fig.12 31

Balance sheet of Bharat Heavy Electricals Ltd. Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loans Unsecured Loans
TOTAL LIABILITIES

Mar'11 12 Months 489.52

Mar'10 12 Months 489.52

Mar'09 12 Months 489.52

Mar'08 12 Months 489.52

Mar'07 12 Months 244.76 8,543.50 8,788.26 0.00 89.33 8,877.59 4,134.61 3,146.31 988.30 306.58 8.29 4,217.67 9,695.82 5,808.91 5,517.59

19,664.32 15,427.84 12,449.29 10,284.69 20,153.84 15,917.36 12,938.81 10,774.21 0.00 163.35 0.00 127.75 0.00 149.37 0.00 95.18

20,317.19 16,045.11 13,088.18 10,869.39 8,049.30 4,648.82 3,400.48 1,762.62 439.17 10,963.03 9,630.15 13,267.07 6,579.70 4,164.74 2,414.96 1,550.49 79.84 9,235.46 5,224.43 3,754.47 1,469.96 1,212.70 52.34 7,837.02 4,443.03 3,462.21 980.82 658.47 8.29 5,736.40 8,386.02 7,366.17

Assets Gross Block (-) Acc. Depreciation Net Block Capital Work in Progress. Investments. Inventories Sundry Debtors Cash And Bank Loans And Advances Total Current Assets Current Liabilities Provisions Total Current Liabilities NET CURRENT ASSETS Misc. Expenses
TOTAL ASSETS

27,354.62 20,688.75 15,975.50 11,974.87 9,790.08 10,314.67 4,801.24 4,616.67

61,214.87 44,515.53 38,743.86 33,463.46 25,239.99 31,469.58 28,097.73 23,415.10 16,632.97 11,957.32 15,030.37 4,417.98 4,975.58 7,608.68 5,708.25

46,499.95 32,515.71 28,390.68 24,241.65 17,665.57 14,714.92 11,999.82 10,353.18 0.00 0.00 0.00 9,221.81 0.00 7,574.42 0.00 8,877.59

20,317.19 16,045.11 13,088.18 10,869.39

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Income Statement Of Bharat Heavy Electricals Limited

Mar 11 Revenue Cost of Goods Sold Gross Profit Gross Profit Margin SG&A Expense Depreciation & Amortization Operating Income Operating Margin Non operating Income Non operating Expenses Income Before Taxes Income Taxes Net Income After Taxes Continuing Operations Discontinued Operations 9,220.6 5,147.7 4,072.9 44.2% 563.2 -2,008.3 21.8% 1.3 (12.4) 1,997.2 663.6 1,333.6 1,333.6 --

Mar 10 7,363.6 4,633.7 2,729.9 37.1% 482.9 -1,477.1 20.1% 1.6 (8.1) 1,470.5 509.5 961.0 961.0 --

Mar 09 5,078.4 3,774.7 1,303.7 25.7% 249.2 -932.0 18.4% 2.2 (6.7) 927.4 330.3 597.2 597.2 --

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Total Operations Total Net Income Net Profit Margin Diluted EPS from Total Net Income Dividends per Share

1,333.6 1,333.6 14.5% 0.54 0.11

961.0 961.0 13.1% 0.39 0.08

597.2 597.2 11.8% 0.24 0.03

All amounts in millions of US Dollars except per share amounts.

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Cash Flow Statement of Bharat Heavy Electricals Limited

Mar 11 Net Operating Cash Flow Net Investing Cash Flow Net Financing Cash Flow Net Change in Cash Depreciation & Amortization Capital Expenditures Cash Dividends Paid (481.6) (324.7) 595 (317.1) (310.6) (33.0)

Mar 10 362 (209.2) (257.9) (105.1)

Mar 09 664 89.6 203.6 370.7

(383.8) (245.7)

(260.0) (171.5)

All amounts in millions of US Dollars except per share amounts.

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FINANCIALS OF BHEL

Particulars Mar 2012 Mar 2011 Mar 2010 Mar 2009 Mar 2008 Operational & Financial Ratios Earnings Per Share (Rs) 28.76 122.80 88.06 64.11 58.41 CEPS(Rs) 32.03 26.78 19.48 14.19 12.90 DPS(Rs) 6.40 31.15 23.30 17.00 15.25 Book NAV/Share(Rs) 103.67 411.71 325.16 264.32 220.10 Tax Rate(%) 31.67 33.25 34.59 35.28 35.46 Margin Ratios Core EBITDA Margin(%) 18.04 17.52 9.64 12.16 14.45 EBIT Margin(%) 20.60 20.58 19.12 17.09 20.46 Pre Tax Margin(%) 20.50 20.46 19.02 16.99 20.30 PAT Margin (%) 14.01 13.66 12.44 10.99 13.10 Cash Profit Margin (%) 15.60 14.89 13.76 12.16 14.46 Performance Ratios ROA(%) 15.98 23.87 29.59 26.20 28.96 ROE(%) 30.93 33.33 29.88 26.47 29.23 ROCE(%) 45.14 49.84 45.47 40.74 45.23 Asset Turnover(x) 1.14 1.75 2.38 2.38 2.21 Sales/Fixed Asset(x) 5.66 6.02 5.87 5.91 5.09 Working Capital/Sales(x) 2.51 2.40 3.31 3.33 2.77 Efficiency Ratios Fixed Capital/Sales(x) 0.18 0.17 0.17 0.17 0.20 Receivable days 168.63 169.13 193.13 178.68 180.53 Inventory Days 88.22 83.28 89.93 86.77 83.24 Payable days 92.32 93.50 88.21 89.24 96.14 Valuation Parameters PER(x) PCE(x) Price/Book(x) Yield(%) EV/Net Sales(x) EV/Core EBITDA(x) EV/EBIT(x) 8.93 8.02 2.48 2.49 1.18 5.06 5.45 3.36 15.39 5.01 1.51 2.17 9.52 10.09 5.42 24.49 7.34 0.98 3.22 15.12 16.17 4.69 21.21 5.69 1.13 2.38 12.17 13.01 7.04 31.89 9.34 0.74 4.72 19.40 20.69 36

EV/CE(x) M Cap / Sales Growth Ratio Net Sales Growth(%) Core EBITDA Growth(%) EBIT Growth(%) PAT Growth(%) EPS Growth(%) Financial Stability Ratios Total Debt/Equity(x) Current Ratio(x) Quick Ratio(x) Interest Cover(x) Total Debt/Mcap(x)

1.05 1.32 13.54 16.13 14.28 17.11 -76.58 0.01 1.70 1.23 201.90 0.00

2.66 2.40 26.39 35.61 36.77 39.45 39.45 0.01 1.74 1.30 165.54 0.01

6.68 3.51 24.76 35.83 35.75 37.36 37.36 0.01 1.29 1.03 197.74 0.01

4.85 2.76 36.09 9.46 9.26 9.75 9.75 0.01 1.25 1.02 158.89 0.01

8.50 5.14 12.45 17.54 18.16 18.41 -40.79 0.01 1.32 1.09 126.08 0.00

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SWOT analysis of BHEL:

Strength

Weakness

Opportunities

Threat

Strengths: Sound engineering base and ability to assimilate relatively stable industrial relationship Access to contemporary technologies with the support from renowned collaborators. Ability to set up power plants on turnkey basis, Complete know- how for manufacture of entire equipment is available with the company.

38

 Ability to manufacture or procure to supply spares. Fully equipped to take capital maintenance and servicing of the power plants. Largest source of domestic business leading to major presence and influence in the market. Ability to successfully overhaul and renovate power stations equipment of different international companies. Low labour cost. For non- BHEL products, services and spares are not easily available and if they are, price charged are very high. Sound financial position in terms of profitability and solvency. Low debt equity ratio (even lower than 0.5:1) for all the years under study, enabling company to raise capital.

Weaknesses: Difficulty in keeping up the commitments on the product delivery and sired sequence of supplies. Larger delivery cycles in comparison with international suppliers of similar equipment. Inability to provide suppliers credit, soft loans and financing of power projects. 39

 Lack of effective marketing infrastructure. 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. Being a public sector company BHEL is suffering from sub optimality of control due to: 1. Displacement of social objectives by political objectives, which may lead to redundant costs and also rising costs. 2. Direct political intervention in managerial decision over an arm length relationship that would restrict governments task of setting appropriate managerial incentive structure. 3. Private goals that lead to budget growth and employment growth.

Opportunities: Demand for power and hence plant equipment is expected to grow. Private sector power plants to offer expanded market as utilities suffers resource crunch. Ageing power plants would give rise to more spares and services business. Life expansion program for old power stations. Export opportunities.

40

Easy processing of joint ventures / collaboration / import/ acquisition of new

technology. Financial and operational autonomy for profit making public sector enterprises. To

make the public sector more efficient government has decided to grant enhanced autonomy and delegation of powers to the profit making public sector enterprises.

Threats: Increased competition both national and international. More concessions to private sector and not to government owned utilities like NTPC

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

41

BHEL: HERP (Heavy Equipment Repair Plant)

Varanasi is endowed with five universities; Lord Buddhas first preaching center and many religion / cultural centers, situated near the holy Ganga, with Lord Kashi Vishwanath Temple at the heart of it. HERP is located at Shivpur, 11 Kms from main railway station and 15 Kms from Varanasi Airport. HERP is also situated at the center of the largest power belt of northern region. This power belt supplies 10650 MW of power to the country. In the line with BHELs of providing constant service at their doorsteps, the idea of establishing repair shop in the vicinity of power station was mooted objective. Accordingly, two repair plants at Bombay & Varanasi came into existence; the foundation equipment repair plant sprawling in 29.8 acre area at Varanasi was laid on 20th September 1984 by Chief Minister of U.P. Shri Narayan Dutt Tiwari within a short span of 21 month much before the schedule. Starting a manufacturer of O&M spares for the boiler and boiler auxiliaries, repair activities got a real break in 1990 and TG set bearing was taken up in the plant. Since than rebabitting of different type of bearing including an unconventional synchronous condenser has been carried out to the entire satisfaction of the customers. Now HERP manufactures turbine spares, tools & tackles complete spares of bowl mill XRP 623,803,883 & 1003. The unit has a plan to add Constant load hanger, Variable load hanger & condensate polishing unit in near future.

42

Through small in size, HERP has been in adequate attention to all the facts of plant operation like computerization, inventory control, quality assurance. In order to channelize the creative energy of employees suggestion scheme and quality circle and productivity improvement project are in operation. HERP takes pride in being one of the best among BHEL unit in term of value added per employee. It has a track reward of continuing harmonious industrial relations. Being a public sector, HERP is aware of social responsibility as a corporate citizen as quality of like for the residents of nearby area.

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Bharat Heavy Electricals Limited - A Corporate Giant

BHEL was established nearly 40 years ago to become the most important symbol of Heavy Electrical Equipment Industry in India and ranks amongst the first few in the world. It is the largest heavy engineering and manufacturing enterprise of its kind in India with a wellrecognized track record of performance, making profits continuously since 1971-72. The company achieved a turnover of Rs. 8610 crores and PBT of Rs 947 crore in 2003-04. BHEL caters to core sectors of the Indian economy viz. Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewal Energy, Defense etc. The wide network of BHEL's 14 manufacturing divisions, 4 power sector regional centers, over 100 project sites & 8 service centers and 18 regional offices enable the company to be closer to its customer and provide them with suitable products, systems and services at competitive prices. Having attained ISO 9001, 14001 certifications in all major Units, BHEL is now on its journey towards TQM. The company's inherent potential coupled with its strong performance over the years has resulted in it being chosen as one of the Navratna PSUs, which enjoy the support from the government in their endeavors to become global players. With its prudent financial management BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance.

44

Heavy Equipment Repair Plant, Varanasi

Heavy Equipment Repair Plant, Varanasi has highly skilled & dedicated technicians, engineers & specialist catering the requirements of various power plants of their mill and turbine O&M spares. HERP has contributed a lot in refurbishing of various units of NTPC after taking it over from SEBs and is a major player in Govt. of India PIE program.

Historical Profile
In line with BHEL's objective of providing consistent service at doorstep, HERP was established in the vicinity of power stations, thus laid at Varanasi. The foundation stone of HERP sprawling in 29.8 acres area at Varanasi was laid on 26th September 1984. Within a short span of 21 months, production activities were started in the plant from 1st April'1986. Having achieved break-even point in the second year of its existence itself, HERP progressed by leaps & bounds. Starting as a manufacturer of O&M spares for boiler auxiliaries, repair activities took off on firm footing in 1990 when rebabbiting of TG set bearings was taken up. Since then, rebabbiting of different kinds of bearings including import substitution (NCL Bearings) as well as bearings of unconventional synchronous condenser have been carried out to the entire satisfaction of the customers. HERP Varanasi has taken up various critical jobs from nearby power plants viz: NTPC Tanda, Unchahar, UPRVUNL Obra, Anpara, Parichha and helped them to achieve maximum availability of their units.

45

Total Quality Focus

HERP has achieved certification of ISO 9001, ISO 14001 & OHSAS 18001 and targeted TQM score during 03-04. Unit level TQ council is committed towards improvement on regular basis in line with the organizational goals. The other apex level committee like HMC, PQC & PEC is also having meetings as per schedule for review as per agenda keeping in view, the interests of our Stakeholders.

Business Policy

"In line with Company's Vision, Mission and Values, we dedicate ourselves to sustained growth with increasing Positive Economic Value Addition and Customer focused business leadership in the Power & Industry Sector" One of the major strengths of HERP Varanasi is its free, open and consistent work culture for making continuous improvement. To recognize employees participation & valued suggestions HERP has always been recognizing their good efforts. Felicitation letters are distributed on 15th August & 26th January regularly.

Range Of Products/Services Provided By HERP:

Bowl Mill XRP/XRS 623, 703HP, 783, 803, 803HP, 883, 1003 spares Turbine fasteners

46

Repair/Rebeting of TG bearings Rotor machining Spares for Boiler Auxiliaries like Coal Burners, Fuel Piping, ESP, Air Preheater R.C. Feeder etc. &

1.

Hydro Turbine component machining like Guide Vanes, Guide Bearings. Tools & Tackles of Steam Turbines Limiter Assembly, Oil Filter Assembly & Speed Changer Assembly of Governing System.

47

BALANCE SHEET, BHEL (HERP), VARANASI

BALANCE SHEET (AS ON 31 MARCH 2010) Rs. In lakhs As 31-03-10 As 31-03-09 Sources of funds Shareholders fund share capital Funds from Head office Funds TO &From Corp. Off ccc A/C (cr. Balance) Reserves and surplus Loan Funds Secured Loan Unsecured loan Deffered tax liability Application of funds Fixed assets Gross block Less DEP. /Amortisation to date Add/ deduct: lease adjustment account less :Impairment loss Net Block Capital work in Progress Investment Inter division a/c (Dr. balance) Current assets , Loans And Advances Current assets Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances less: Current Laiblities And provision Laiblities Provisions Net current assets Profit and loss account (Dr. balance ) NIL 10650.63

48.82 130.99 19034.37

19214.18

48.82 214.13 13599.27

51.17 19265.35
13899.87

2565.19 1381.78 1183.41

2298.01 1210.65 1087.36

1183.41 9.15 1192.56 NIL

1087.36 61.83

5828.46 9800.98 1.08 224.48 15855

4402.23 4259.27 2.12 367.83 9031.45

7251.99 1180.85 8432.84 7422.16 19265.35

4476.3 1751.03 6227.33

13899.87

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Products:-

Thermal Power Plants

Steam turbines, boilers and generators of up to 800 MW capacity for utility and combined-cycle applications; Capacity to manufacture boilers and steam turbines with supercritical system cycle parameter and matching generator up to 1000 MW unit size.

Steam turbines, boilers and generators of CPP applications; capacity to manufacture

condensing, extraction, back pressure, injection or any combination of these types of steam turbines.

Nuclear Power Plants Steam generator & Turbine generator up to 700 MW capacities.

Gas-Based Power Plants

Gas turbines of up to 280 MW (ISO) advance class rating. Gas turbine-based co-generation and combined-cycle systems of industry and utility applications.

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THERE ARE OTHER PRODUCTS GIVEN AS FOLLOWS

Hydro Power Plants DG Power Plants Industrial Sets Boiler Boiler Auxiliaries Piping System Heat Exchangers and Pressure Vessels Pumps Power Station Control Equipment Switchgear Bus Ducts Transformers Insulators Industrial and Special Ceramics Capacitors Electrical Machines Compressors Control Gear Silicon Rectifiers Power Devices 50

Transportation Equipment Oil Field Equipment Seamless Steel Tubes Systems and Services

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WORKING CAPITAL MANAGEMENT

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). The life blood of business, as is evident signified funds required for day to day operations of the firm. The management of working capital assumes great importance because shortage of working capital funds is perhaps the biggest possible cause of failure of many business units in recent times. There it is of great importance on the part of management to pay particular attention to the planning and control of working capital. An attempt has been made to make critical study of the various dimensions of working capital management of BHEL.

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

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Defining Working Capital

Working capital refers to the cash a business requires for day-to-day operations, or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength.

The term working capital refers to the amount of capital which is readily available to an organization. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities).

Thus:

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of working capital are reported under the following headings:

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Current Assets

Liquid Assets (cash and bank deposits) Inventory Debtors and Receivables

Current Liabilities

Bank Overdraft Creditors and Payables Other Short Term Liabilities

There are basically two concepts of working capital:1. Gross working capital 2. Net working capital

Gross Working Capital refers to the firms investment in current assets. Net Working Capital refers to the difference between current assets and current liabilities.

1) Gross working capital

Gross working capital refers to the firms investment I current assets. Current assets are the assets which can be convert in to cash within year includes cash, short term securities, debtors, bills receivable and inventory. 54

2) Net working capital

Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative efficient working capital management requires that firms should operate with some amount of net working capital, the exact amount varying from firm to firm and depending, among other things; on the nature of industries.net working capital is necessary because the cash outflows and inflows do not coincide. The cash outflows resulting from payment of current liabilities are relatively predictable. The cash inflow are however difficult to predict. The more predictable the cash inflows are, the less net working capital will be required. The concept of working capital was, first evolved by Karl Marx.

Marx used the term variable capital means outlays for payrolls advanced to workers before the completion of work. He compared this with constant capital which according to him is nothing but dead labour. This variable capital is nothing wage fund which remains blocked in terms of financial management, in work-in-process along with other operating expenses until it is released through sale of finished goods. Although Marx did not mentioned that workers also gave credit to the firm by accepting periodical payment of wages which funded a portioned of W.I.P, the concept of working capital, as we understand today was embedded in his variable capital.

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Current assets are those which can be converted into cash within an accounting year and include cash, short-term securities, and debtors, bills receivables (accounts receivables or book debts) and stock (inventory). Current liabilities are those claim of outsiders which are expected to mature for payment with in an accounting year and include creditors (accounts payable), bills payable and outstanding expenses.

Gross working capital:-it refers to the firms investment in current assets. Net working capital:-it refers to the difference between current assets and current liabilities.

Net working capital is positive When current assets >current liabilities

Net working capital is negative When current asset<current liabilities

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WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

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Each component of working capital (namely inventory, receivables and payables) has two dimensions. TIME and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales

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If We
Collect receivables (debtors) faster

Then
You release cash from the cycle

Collect receivables (debtors) slower

Your receivables soak up cash

Get better credit (in terms of duration or amount) from suppliers

You increase your cash resources

Shift inventory (stocks) faster

You free up cash

Move inventory (stocks) slower

You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plug hole, they remove liquidity from the business

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Sources of working capital

Working capital can be financed with the help of the three type of sources. They are as follows:

Sources of working capital

Long Term Sources (Regular Working Capital)

Short Term Sources (Seasonal Working capital)

Internal Sources Retained Earnings Sales of FAs

External Sources Issue of Equity Shares Issue of Preference Shares Issue of Debentures Loans from FIs Security from Employees Security from Customers

Internal Sources External Sources Accrual Accounts Depreciation Funds Trade Credits Public Deposits

Customer Advances Credit Papers Indigenous Bankers Bank Credits Business Finance Cos

Commercial Papers Zero Coupon Bonds Factoring (Resource and Non Resources)

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Determinants of working capital

There are not set rules or formulae to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. The importance of factors also changes for a firm over time. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors which generally influence the working capital requirements of firms.

1. Nature of business
Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy varied and continuous demands of their customers. A large departmental store like wall-mart may carry, say, over 20,000 items. Some manufacturing businesses, such as tobacco manufacturers and construction firms, also have to invest substantially in working capital and a nominal amount in fixed assets. In contrast, public utilities may have limited need for working capital and have to invest abundantly in fixed assets. Their working capital requirements are normal because they may have only cash sales and supply services, not products. Thus no funds will be tied up in debtors and stock (inventories). For the working capital requirements most of the manufacturing companies will fall between the two extreme requirements of trading firms and public

61

utilities. Such concerns have to make adequate investment in current assets depending upon the total assets structure and other variables.

2. Market and demand conditions

The working capital needs of a firm are related to its sales. However, it is difficult to precisely determine the relationship between volumes of sales and working capital needs. In practice, current assets will have to be employed before growth takes place. it is therefore necessary to make advance planning of working capital for a growing firm on continuous basis. Growing firms may need to invest funds in fixed assets in order to sustain growing production and sales. This will, in turn, increase investment in current assets to support enlarged scale of operations. Growing firms need funds continuously. They use external sources as well as internal sources to meet increasing needs of funds. These firms face further problems when they retain substantial portion of profits, as they will not be able to pay dividends to shareholders. It is therefore imperative that such firms do proper planning to finance their increasing needs of working capital. Sales depend upon demand conditions. Large number of firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirement, specially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase; correspondingly, the firms investment in inventories and debtors will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of firms will require additions of working capital. To meet their 62

requirements of funds for fixed assets and current assets under boom period, firms generally resort to substantial borrowing. On the other hand, when there is decline in the economy, sales will fall and consequently, levels of inventories and debtors will also fall. Under recession, firm try to reduce their short term borrowings. The increasing level of inventories during the slack season will require increasing funds to be tied up in the working capital for some months. Unlike cyclical fluctuations, seasonal fluctuations generally conform to a steady pattern. Therefore, financial arrangements for seasonal working capital requirements can be made in advance.

3. Technology and manufacturing policy

The manufacturing cycle comprise of the purchase and use of raw materials and the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. Therefore the technological process with the shortest manufacturing cycle may be chosen. Once a manufacturing technology has been selected, it should be ensured that manufacturing cycle must be completed within the specified period. This is necessary proper planning and coordination at all levels of activity. Any delay in the manufacturing process will result in the accumulation of WIP and waste of time. In order to minimize their investment in working capital, some firms, specifically those manufacturing industrial products, have a policy of asking for advance payments from their customers. Non manufacturing firms, services and financial enterprises do not have a manufacturing cycle.

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4. Credit policy
The credit policy of the firm affects the working capital by influencing the level of debtors. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. The firm should use discretion in granting credit terms to its customers. Depending upon the individual case, different terms may be given to different customers. A liberal credit policy, without rating the credit worthiness of customers, will be detrimental to the firm and will create a problem of collection later on. The firm should be prompt in making collections. A high collection period will mean tie up of large funds in debtors. Slack collection procedures can increase the chance of bad debts. In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy based on the credit standing of customers and other relevant factors. The firm should evaluate the credit standing of new customers and periodically review the credit worthiness of the existing customers. The case of delayed payments should be thoroughly investigated.

5. Availability of credit from suppliers

The working capital requirements of a firm are also affected by credit terms granted by its suppliers. A firm will needless working capital if liberal credit terms are available to it from suppliers. Suppliers credit finances the firms inventories and reduces the cash conversion cycle. In the absence of suppliers credit the firm will borrow funds for bank. The availability of credit at reasonable cost from banks is crucial. It influences the working capital policy of the firm. A firm without the suppliers credit, but which can get bank credit 64

easily on favorable conditions, will be able to finance its inventories and debtors without much difficulty.

6. Operating efficiency
The operating efficiency of the firm relates to the optimum utilization of all its resources at minimum costs. The efficiency in controlling operating costs and utilizing fixed and current assets leads to operating efficiency. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and thus, helps in releasing the pressure on working capital. Although it may not be possible for a firm to control prices of materials or wages of labour, it can certainly ensure efficient and effective utilization of materials, labour and other resources.

7. Price level changes

The increasing shift in price level make functions of financial manager difficult. He should anticipate the effect of price level changes on working capital requirement of the firm. Generally, rising price levels will require a firm to maintain a higher amount of working capital. Same levels of current assets will need increased investment when prices are increasing. However, companies that can immediately revise their product prices with rising price levels will not face a severe working capital problem. Further, Firms will feel effects of increasing general price level differently as prices of individual Products move differently. Thus, it is possible that some companies may not be affected by rising prices while others may be badly hit.

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THE IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

Working capital constitutes part of the Crown's investment in a department. Associated with this is an opportunity cost to the Crown. (Money invested in one area may "cost" opportunities for investment in other areas.) If a department is operating with more working capital than is necessary, this over-investment represents an unnecessary cost to the Crown.

From a department's point of view, excess working capital means operating inefficiencies. In addition, unnecessary working capital increases the amount of the capital charge which departments are required to meet from 1 July 1991.

There are many aspects of working capital management which make it an important function of the financial manager. 1. TIME: working capital management requires much of the financial managers time. 2. INVESTMENT: working capital represents a large portion of the total investments in assets. 66

3. CRITICALITY: working capital management has great signifance for all firms but it is very critical for small firms. 4. GROWTH: the need for working capital is directly related to the firms growth.

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OBJECTIVES OF THEV STUDY

The following are the main objective which has been undertaken in the present study :

1. To determine the amount of working capital requirement and to calculate various ratios relating to working capital.

2. To make an item wise study of the component of working capital.

3. To suggest the steps to be taken to increase the efficiency in management of working capital.

SCOPE OF THE STUDY

The project study is carried out at the finance department of BHEL (HERP) is located at Shivpur , Varanasi. The study is undertaken as a part of the MBA curriculum from 11 JUNE 2012 to 11 AUG 2012 in the form of summer training. The scope of the study is identified after and during the study is conducted. The study of working capital is based on tools like trend analysis, ratio analysis, working capital leverage, operating cycle etc. Further the study is based on last two years Annual report of BHEL. And the factors like competitors analysis, industry analysis were not considered while making this project.

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IMPORTANCE OF THE STUDY

The management of working capital plays an important role in maintaining the financial health of the firm during the normal course of the business. This report is helpful for the company to know its current liquidity position in the market and the area in which they have to make efforts. Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

Working capital constitutes part of the company's investment in a department. Associated with this is an opportunity cost to the company. (Money invested in one area may "cost" opportunities for investment in other areas.) If a department is operating with more working capital than is necessary, this over-investment represents an unnecessary cost to the company.

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RESEARCH METHODOLOGY
Research methodology used for data collection includes both primary& secondary sources of data.

Data collection
Data collection refers to the gathering of data from various sources, these sources of data are: Primary Data Sources & Secondary data Sources.

Primary data sources

These are the original source of data i.e. the sources from which researcher directly collects data & this data has been not previously collected.

Secondary data sources

These are sources containing data that have been collected and compiled for another purpose. These data are readymade & readily available. The secondary data in this research is obtained from internet, books etc. However most of study is conducted based on secondary sources. Secondary sources of data mainly include annual reports of BHEL. Statement of changes in working capital for the past 5 years is done using the data taken from these financial reports. Similarly time series analysis of operating cycle and calculations of ratios is done. Apart from this, the website of BHEL is referred to know the products, product facilities, network etc.

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Industry analysis is done based on the information gathered from newspapers and websites of Indian steel ministry & other sector related websites. The use of primary sources is limited to interviews with some of the employees in finance department. The reason being, it is against the companys policies & producers to reveal the sensitive financial information. During the course of research for a researcher for analysis and interpretation of data is given below has applied various tools. Ratio Analysis Comparative Balance sheet Trend Analysis

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KEY RATIO LEVELS

Particulars

Low Risk

Medium Risk

High Risk

Current Ratio

>1.40

1.20-1.40

<1.20

TOL/TNW

<2.00

2.00-3.50

<3.50

Interest Coverage

>3.50

2.00-3.50

<2.00

PAT/Sales %

>10.00

4.00-10.00

<4.00

Inventory (No. of Days)

<60

60-90

>90

Debtors (No. of Days)

<45

45-90

>90

Debt.-Equity Ratio

<1.25

1.25-1.75

>1.75

DSCR ( For TL)

>2.00

1.25-2.00

<1.25

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Data Analysis & Interpretation

Here an analysis of the annual reports of the last four fiscal years (2007 to 2011) has been done. Various ratios have been calculated to find out the profitability and leverage of the firm. Various working capital ratios has been calculated to observe the working capital changes and comparisons have been made to the last four years. A thorough study has been made about the Inventory management system of the company and an effort has been made to find out how well the company manages its inventories. Researcher has tried to evaluate the firms performance by using the past data of the firm with the present data, by the time series analysis over the period of 3 to 4 years.

RATIO ANALYSIS OF BHEL

Ratio analysis is the process of comparision of one figure against another which make a ratio and the appraisal of the ratio to make proper analysis about strength and weakness of the firms operation. It is very powerful tool useful for finding performance of an organization.

The ratio analysis helps the management to analyse the past performance of the firm and to make further projection. Ratio analysis allows interested parties like shareholders, investors, creditors, government to make an evaluation of certain aspect of firms performance.

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A. CURRENT RATIO:

This ratio indicates the extent of soundness of the current financial positions of the safety provided to the short term creditors.

CURRENT ASSET CURRENT LIABILITY 31-03-2011 CURRENT RATIO CURRENT ASSET CURRENT LIABILITY RATIO 61214.87 46499.95 1.31 44515.53 32515.71 1.37 38743.86 28390.68 1.36 33463.46 24241.65 1.38 31-03-2010 31-03-2009 31-03-2008

1.4 1.38 1.36 1.34 1.32 1.3 1.28 1.26 2008 2009 2010 2011

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Data Analysis and Interpretation:

In the years entire ratios is greater than 1 which indicates that short term creditors are safe. There is constant increase in the ratio and company should try to utilize its short term resources more effectively.

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B. QUICK RATIO:

This ratio is an indicator of a companys short term liquidity. The quick ratio measures a companys ability to meet its short term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. This ratio is more conservative than the current ratio because it exclude inventory and other current assets. (Rs in lakhs) C.A.-INVENTORY C.L. QUICK RATIO C.A.-INVENTORY
CURRENT LIABILITY

31-03-2011 50251.84 46499.95 1.08

31-03-2010 35280.07 32515.71 1.08

31-03-2009 30906.84 28390.68 1.09

31-03-2008 27727.06 24241.65 1.14

RATIO

1.15 1.14 1.13 1.12 1.11 1.1 1.09 1.08 1.07 1.06 1.05 2008 2009 2010 2011

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Data Analysis and Interpretation:

The quick ratio has coming down from (1.14 to 1.08) which shows that short term liquidity of the company is not so good. But in the interest of the company it appears that short term credits are not fully utilized, and because of decrease in liquidity position of the company risk will also increases. So the company should make effort for maintaining the liquidity position.

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C. STOCK TURNOVER RATIO:

A considerable amount of a companys capital may be tied up in the raw material, work in progress and finished goods. It is important to ensure that the level of stock is kept as low as possible, consistent with the need fulfill customer order in time. The higher the stock turnover rate or the lower the stock turnover period is better, although the ratio will varies between companies.

COST OF GOODS SOLD AVERAGE INVENTORY STOCK TURNOVER RATIO

COST OF GOODS SOLD AVERAGE INVENTORY

31-03-2011 51477 10963 4.7

31-03-2010 46337 9235.47 4.01

31-03-2009 37747 5736.40 3.58

RATIO

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2009 2010 2011

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Data analysis and Interpretation:

It was observed that inventory turnover ratio indicates maximum sales achieved with the minimum investment in the inventory. As such, the general rule high inventory turnover is desirable but high inventory turnover ratio may not necessary indicates the profitable situation. An organization in order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.

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D. INVENTORIES TO CURRENT ASSETS RATIO:

INVENTORY C.A.
INVENTORIES TO C.A.

31-03-2011 10963.03 61214.87 0.17

31-03-2010 9235.46 44515.53 0.20

31-03-2009 7837.02 38743.86 0.20

31-03-2008 5736.40 33463.46 0.17

INVENTORY CURRENT ASSETS RATIO

0.205 0.2 0.195 0.19 0.185 0.18 0.175 0.17 0.165 0.16 0.155 2008 2009 2010 2011

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Data analysis and Interpretation:

From the table it is known that the inventories to current assets ratio register a fluctuating trend during the entire study period. The average ratio is 0.18 times and thus it is found that the investment in inventories is kept at the considerable level.

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E. WORKING CAPITAL TURNOVER RATIO

It signifies that for an amount of sales, a related amount of working capital is needed. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management to maintain the adequate level of working capital. The ratio measures the efficiency with which the working capital is being used by a firm. It may thus compute net working capital turnover by dividing sales by working capital.

SALES NET WORKING CAPITAL

W.C.TURNOVER RATIO

31-03-2011 42022.76 14714.92 2.85

31-03-2010 33226.25 11999.82 2.76

31-03-2009 26614.36 10353.18 2.57

31-03-2008 19541.08 7574.42 2.48

SALES NET W.C. RATIO

9 8 7 6 5 4 3 2 1 0 2008 2009 2010 2011

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Data analysis and Interpretation:

High working capital ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in working capital. Companys working capital ratio shows mostly more than two. In the year 2011 the ratio was around 3, it indicates that the capability of the company to achieve maximum sales with the minimum investment in working capital.

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F. CURRENT ASSETS TURNOVER RATIO

Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current assets .current assets includes the assets like inventories, sundry debtors, bills receivable, cash in hand or bank, marketable securities, prepaid expenses and short term loans and advances. This ratio includes the efficiency with which current assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm.

SALES CURRENT ASSETS

C.A. TURNOVER RATIO

31-03-2011 42022.76 61214.87 0.68

31-03-2010 33226.25 44515.71 0.74

31-03-2009 26614.36 38743.86 0.68

31-03-2008 19541.08 33463.46 0.58

SALES CURRENT ASSETS RATIO

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0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2008 2009 2010 2011

Data analysis and Interpretation:

It was observed that current assets turnover ratio does not indicate any trend over the period of time. Turnover ratio was 0.58 in the year 2008 and increase to 0.68 and 0.74 in the year 2009 and 2010 respectively, but it decreased in the year 2011, because of high cash balance. Cash did not help to increase in sales volume, as cash is non earning asset.

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G. SOLVENCY RATIO:

Solvency is a state where the company is supposed to be financially sound and capable of meeting its liability out of its assets. This ratio indicates the relationship between total liabilities and total assets of the business.

CURRENT LIABILITY CURRENT ASSETS SOLVENCY RATIO CURRENT ASSET CURRENT LIABILITY RATIO 31-03-2011 61214.87 46499.95 0.75 31-03-2010 44515.53 32515.71 0.73 31-03-2009 38743.86 28390.68 0.73 31-03-2008 33463.46 24241.65 0.72

0.755 0.75 0.745 0.74 0.735 0.73 0.725 0.72 0.715 0.71 0.705 2008 2009 2010 2011

Series 1 Series 2

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Data analysis and Interpretation:

Here from the data and the ratios of last four years it is clear that the companys financial position is sound and is capable to meeting its liabilities out of its total assets but it becomes unsound slowly. From the last four years data we see that the solvency ratio is increasing continuously that means company should make efforts.

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SIGNIFICANCE OF THE RATIO ANALYSIS

Ratio as a tool of financial analysis provides symptoms with the help of which an analyst is in a position to diagnose the financial health of the unit. Financial analysis can be compared with biopsy conducted by the doctor on the patient in order to diagnose the cases of illness so that treatment may be prescribed to the patient to help in recover. As there are different groups of interested parties so significance to them are different.

MANAGEMENT

Management needs information regarding the profitability, operational efficiency and financial soundness of the business, so that weakness of the business may be identified and effective business plans may be formulated. Ratio analysis helps the management in decision making, financial forecasting and planning. It helps in communicating the desired information to the relevant parties and facilitates coordination. Ratios provide actual basis, which can be compared with the standards, thus helps in effective control.

SHAREHOLDERS

The shareholders, the virtual owners of business corporate units have an interest in the welfare and progress of business. They want to know about the profitability and future prospects of the enterprise. The requisite information is available from the analysis of financial statements. 88

 WORKERS

Employees of the business are interested in the profit of business. Workers in the business are paid bonus on the basis of productivity and profitability, so they have an interest in the financial analysis of the business.

CREDITORS

Creditors of the enterprise are interested in the short term and long term financial soundness of the business. They want to ensure themselves, whether their funds are safe and secure and the business is capable of making payment of interest regularly.

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OTHER PARAMETERS OF BHEL (HERP), VARANASI

06-07 ACTUAL TURNOVER (%growth over/year) Spare Turnover BHEL NON BHEL BHEL 3384 7026 3284 6955

07-08 ACTUAL 4481 8688 4481 8631

08-09 ACTUAL 10824 9292 10772 9209

09-10 ACTUAL 9277.84 14822 9000 14900

10-11 BUD 12500 17500 12500 17400

NON (%growth over/year) BHEL Order received BHEL NON BHEL

4514 9461

7438 6509

7008 13779

8302 16030

10000 20000

2843 BHEL Order outstanding NON BHEL Profit before tax (PBT) Inventory NET WORKING CAPITAL Manpower Sundry Debtors Value added Cash flow Inflow Outflow 8327 3389 2194 1420 119 1466 4482 10543 5725

6458 4702

3097 10163

7960 12335

6412 16167

3936 2385 2537 132 3760 5221 11353

6522 4407 2803 138 4404 8493 20066

8017 4696 2941 159 4332 10348 24921

9873 5836 3904 163 5017 12861 30387

9125

13982

16883

21230

Capital expenditure

340

411

85

212

1264 90

FINDINGS

There is no change in share capital during the year 2010-2011.

The reserve and surplus increased by Rs 4237 crore during 2010-2011 after addition of retained earnings.

There is constant increase in the current ratio and company should try to utilize its short term resources more efficiently

The quick ratio has coming down and the short term liquidity of the company is not so good so the company should make efforts.

Long term trade investments have increased mainly on account of equity participation in joint venture companies and subsidiary company. The data of solvency ratio shows that the company is able to meet its current liabilities but the solvency ratio increase continuously so the firm should make efforts.

The assets turnover ratio does not indicate any trend over the period of time. This ratio includes the efficiency with which current assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. 91

 Companys working capital ratio shows mostly more than two. In the year 2011 the ratio was around 3, it indicates that the capability of the company to achieve maximum sales with the minimum investment in working capital.

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RECOMMENDATIONS AND SUGGESTIONS

There is a great need for effective management of working capital in any firm. There is no precise way to determine the exact amount of gross or net working capital for any firm. The data and problems of each company should be analyzed to determine the working capital. There is no specific rule as to how current assets should be financed. It is not feasible in practice to finance current assets by short-term sources only. Keeping in view the constraints of the company, a judicious mix of short and long term finances should be invested in current assets. Since current assets involve cost of funds, they should be put to productive use. During my project period, I have studied the working capital management in BHEL (HERP), Varanasi. On the basis of my study I am putting forward some suggestions. Implementation of which may certainly improve the efficiency of working capital management in the unit.

Due to order base work in unit the inventories are determined after the order is received. It takes time to inform the requirement for the inventories to higher authority .unit should arrange the raw material in advance which may reduce the time and leads to overcome the outstanding orders problem and defiantly help in the expansion of capacity production.

Outstanding orders of recent past years are in increasing mode these orders should be minimize as far as possible. It shows the capacity of production of any company but 93

with reference of past data available with us the production turnover is also increasing thus it clearly seems that the order receiving one in financial year is somewhere higher than increased production capacity.

Storage capacity should be made more reliable so that the storage of materials can be made in safe manner which leads to faster production.

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Conclusion

Any change in the working capital will have an effect on a business's cash flows. A positive change in working capital indicates that the business has paid out cash, for example in purchasing or converting inventory, paying creditors etc. Hence, an increase in working capital will have a negative effect on the business's cash holding. However, a negative change in working capital indicates lower funds to pay off short term liabilities (current liabilities), which may have bad repercussions to the future of the company. The Company is focusing strict eye watch on cash management now days. The WC is also showing an increasing trend which is attributed to the increasing profits. Net working capital increased year on year. The factors contributing to the increase are: a) Increase in Sundry Debtors due to relaxing of the credit policy , although the AR days has remained more or less constant b) Increase in Inventory. c) Increase in Other Current Assets and Loans and Advances. However, increase in Current Liabilities and Provisions has offset the increase in Current Assets.

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The Current and Quick ratio are around 2.18 and 1.38 respectively indicating that the firm is highly liquid and would be able to meet its short term liabilities effectively. Working capital is the capital required for maintenance of day-to-day business operations. The present day competitive market environment calls for an efficient management of working capital. The reason for this is attributed to the fact that an ineffective working capital management may force the firm to stop its business operations, may even lead to bankruptcy. Hence the goal of working capital management is not just concerned with the management of current assets & current liabilities but also in maintaining a satisfactory level of working capital. Holding of current assets in substantial amount strengthens the liquidity position & reduces the riskiness but only at the expense of profitability. Therefore achieving risk-return trade off is significant in holding of current assets. While cash outflows are predictable it runs contrary in case of cash inflows. Sales program of any business concern does not bring back cash immediately. There is a time lag that exists between sale of goods & sales realization. The capital requirement during this time lag is maintained by working capital in the form of current assets. The whole process of this conversion is explained by the operating cycle concept. This study gives in detail the working capital management practices in BHEL. Management of each current asset namely inventory management, cash management, accounts receivable management is studied perm. Similarly management of accounts payable is studied to understand the managing of current liabilities. A part from this concept of operating cycle is studied.

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The research methodology adopted for this study is mainly from secondary sources of data which include annual reports of BHEL & website of the company. The use of primary sources is limited to interviews with few of the employees in finance department.

The study of working capital management has shown that BHEL has a strong working capital position. The company is also enjoying reasonable profits. BHEL has corporate tie up with maximum leading Banks in India for providing short and medium term finance to the company. For financial requirement of projects outside India, BHEL has arranged forex funds. BHEL sales position is also very good. Its excellent performance is attributed to reduced cost of product The overall position of BHEL is good & the same is expected by continuum of existing management policies, checking exchange rate risk, competing with domestic and global players in terms of quality & quantity.

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Limitations of the study :-

Although every effort has been made to study the Working Capital Management in detail, in an organization of BHEL size, it is not possible to make an exhaustive study in a limited duration.

It is not possible to include data of 2011- 12 as the audited financial report has not come yet (at the time of preparation of this report). However data of 2010 11 is included partially from the un-audited financial reports of BHEL.

Apart from the above constraint, one serious limitation of the study is, that it is not possible to reveal some of the financial data owing to the policies and procedures laid down by BHEL. However the available data is analyzed with great effort to get an insight into Working Capital Management in BHEL.

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Bibliography

Pandey, I. M. Financial management, 2008 Chandra, Presanna, Financial management, 2010 Pandey, I.M. ,Working Capital Management, Vikas publication, 9th edition. Rustagi, R.P. , Financial management, Galgotia, 2000,2nd revised edition. Annual Reports of BHEL 2011-12 General Articles of BHEL (HERP), Varanasi Website: www.bhel.com, www.indianinfoline.com Newspapers: Economic Times of India, The Hindu.

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ANNEXURE

KEY WORKING CAPITAL RATIOS

The following, easily calculated, ratios are important measures of working capital utilization. Ratio Formulae Result Interpretation On average, you turn over the value of your entire stock every x days. You may need to Stock Turnover (in days) Average Stock * 365/ = break this down into product groups for x effective stock management.

Cost of Goods days Sold

Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days. It take you on average x days to collect monies

Receivables Ratio (in days)

due to you. If your official credit terms are 45 Debtors * 365/ = Sales days x day and it takes you 65 days... why? One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days. On average, you pay your suppliers every x days. If you negotiate better credit terms this

Payables Ratio (in days)

Creditors * 365/

x will increase. If you pay earlier, say, to get a Cost of Sales (or discount this will decline. If you simply defer days Purchases) paying your suppliers (without agreement) this = will also increase - but your reputation, the quality of service and any flexibility provided 100

by your suppliers may suffer.

Current Assets are assets that you can readily turn in to cash or will do so within 12 months in Total Current Ratio Assets/ Total Current = Current x times the course of business. Current Liabilities are amount you are due to pay within the coming 12 months. For example, 1.5 times means that you should be able to lay your hands on $1.50 for every $1.00 you owe. Less than 1 time e.g. 0.75 means that you could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

Liabilities

(Total Assets

Current =x times Similar to the Current Ratio but takes account of the fact that it may take time to convert inventory into cash.

Quick Ratio Inventory)/ Total Current

Liabilities (Inventory Receivables Payables)/ Sales + - As Sales % A high percentage means that working capital needs are high relative to your sales.

Working Capital Ratio

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