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Bharat Heavy Electricals Ltd.

BSE: 500103 Sector: Engineering
NSE: BHEL ISIN Code: INE257A01026
BSE 00:00 | 18 May 49.75 -0.20
(-0.40%)
OPEN

49.90

HIGH

50.35

LOW

49.40

NSE 00:00 | 18 May 49.80 -0.15
(-0.30%)
OPEN

49.80

HIGH

50.35

LOW

49.40

OPEN 49.90
PREVIOUS CLOSE 49.95
VOLUME 1837078
52-Week high 79.50
52-Week low 44.05
P/E
Mkt Cap.(Rs cr) 17,323
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 49.90
CLOSE 49.95
VOLUME 1837078
52-Week high 79.50
52-Week low 44.05
P/E
Mkt Cap.(Rs cr) 17,323
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Bharat Heavy Electricals Ltd. (BHEL) - Chairman Speech

Company chairman speech

Letter to Shareholders

Dr. Nalin Shinghal
Chairman & Managing Director

Cfi BHEL is on its journey to transform itself into a vibrant andgrowing Global Engineering Organization

Dear Shareholders

The past year has indeed been a year of great challenge with theCOVID-19 pandemic affecting economies across the globe including the Indian economy. Thepandemic also seriously affected your company's performance. However your company hasshown resilience in dealing with the situation and supplemented the national efforts whileat the same time worked towards strengthening its own foundations for long term growth.

From the initial days of the pandemic itself your company has been atthe forefront in ensuring safety and well-being of its employees their families andsupporting the society at large. This continued in the second wave as well with thecompany supplying over 575000 Cu Mtrs i.e. over 80000 cylinders of medical oxygen.BHEL was in fact the major source of emergency medical oxygen for Uttarakhand WesternUP city of Bhopal etc. which resulted in saving many lives. We have futher developedand supplied medical oxygen plants for hospitals in collaboration with CSIR-IIP inrecord time. Your company also developed and manufactured disinfections equipment for masssanitization of towns and cities and upgraded company's hospitals and dispensaries. Inkeeping with its ethos as a caring company BHEL introduced an assistance scheme fortaking care of families of employees who unfortunately succumbed to the pandemic.

While the second wave of COVID has hit the country and your companyhard BHEL has taken steps for ensuring rapid recovery of operations and made efforts formitigating effects of any further waves by taking steps to make workplaces COVID compliantas well as an extensive vaccination campaign at its units as well as project sites. Thecompany is making efforts to ensure vaccination of not just employees and their familiesbut also of all persons working in these premises. To avoid any stoppage of work due tonon-availability of oxygen (as happened in the second wave) as well as to support thecommunity at large in case of any future eventuality we are additionally installingoxygen generation plants in those units which do not have oxygen production facilities atthe moment.

Key performance highlights

Disruptions caused by the first wave of COVID had serious repercussionson the company's operations both in the manufacturing units as well as at project sites.While all efforts were made to subsequently resume activities at normal levels the impactis visible in the annual results.

• Your company secured orders worth 113472Crdespite thesluggishness in ordering by customers on account of COVID related uncertainties. Yourcompany has booked its highest ever orders in hydro power segment and was also successfulin retaining its leadership in engineering and manufacturing of equipment for nuclearpower and emission control business.

• Your company has won its first order for Sulphur Recovery Unit(525 TPD) from IOCL Paradip and its successful completion will establish BHEL as an LSTKplayer for process packages in upcoming opportunities in the Down stream Oil & Gassector.

• The company recorded a turnover of 116296 Cr with a net loss of12717 Cr in 2020-21. The loss includes an additional merit based provisioning of about11800 Cr. made after detailed review of receivables on an exceptional basis which wastaken up by the company as a measure of utmost financial prudence so as to strengthenreceivables management process and improve quality of assets in the balance sheet.Further the loss has been exacerbated due to non-productive expenses during the COVIDperiod (salaries/expenses for which there was no production)

• Your company has taken a major initiative for change of strategyfrom Revenue Centric to Project Centric operations which have impacted the revenues inthe short term but will lead to timely completion of projects and improvement in customersatisfaction as well as significantly improve long term business prospects.

• Concerted efforts for cash collection resulted in liquidationof82% of the current year billing which is thebestinthelast10yearsandthecompanyachieved acash surplus of 1383 Cr. in FY 2020-21 as against a deficit of 13587 Cr. in previousyear.

Improved execution coupled with concerted efforts for cash collectionresulted in the company beingcashsurplusinFY2020-21 as against a deficit of 13587 Cr. inprevious year

Economic &business environment

After the pandemic induced contraction domestic economic activity isnormalizing with the ebbing of the second wave of the virus and the phased reopening ofthe economy. Several high-frequency indicators viz. registration of automobileselectricity consumption non-oil non-gold imports consumer durable sales and hiring ofurban workers suggest that the consumption investment and external demand are regainingtraction.

Investment demand still remains weak. However improving capacityutilization rising steel consumption congenial monetary and fiscal policies and theeconomic packages & other measures announced by the Government are expected tokick-start a long-awaited revival.

Although ordering for new coal-based power generation equipment remainsweak demand for emission control business is strong and growing. Growth in urban mobilityin rail transportation sector thrust on in digenization in defence & aerospacesectors and expected expansion in oil & gas sector will continue to present newopportunities. The Aatma Nirbhar Bharat Initiative of the government is also creatingmultiple opportunities for the company.

Future perspective

While the challenges continue the situation is also throwing up anumber of opportunities. The company believes that timely & high quality delivery ofproducts & projects aggressive efforts in emerging technologies collaborativeworking with government PSUs private industry R&D institutions and academia will bethe foundations for building a strong future. In this situation the company has set outto reinvigorate itself by following a two pronged strategy:

a. in the short run complete & close projects expeditiously whichwill also result in release of cash to meet its operations; expand existing conventionalbusiness through enhanced efforts in pollution control systems spares & services;strengthening of IT and technology base; rebuilding a Quality First culture across theorganization; and vigorous cost cutting for achieving business growth in a competitiveenvironment and

b. in the long run focus on regaining technology leadership andstrengthening diversification initiatives.

The past year has been a year of consolidation for the company whereina number of initiatives taken up in the previous year have come to bear fruit and areplaying a vital role in efforts towards building a BHEL of the future. The company hasfocused on revamping project execution through successful implementation of the IPMS(Integrated Project Management System) supplemented with the ongoing Site DataDigitization project ensuring sequential dispatches closure of punch points andswitching over from Revenue Centric to Project Centric philosophy.

The company has worked aggressively towards realizing its pending duesthrough taking up issues at multiple levels with the state and central governments andtaking required measures for limiting exposure in projects where payments are not beingreceived. This has resulted in stabilizing of the cash situation with the companybecoming cash surplus in 2020-21 despite a net loss of 12717 Cr.

Your company has embarked on a journey for making BHEL a digitallyenabled organization for improving the overall efficiency of the organization manifold aswell as to utilize IT for revenue growth. We have achieved full switch over to e-office amajor step towards a paperless office and introduced secure Work From Home facility toensure seamless work during lockdowns. Multiple initiatives for introducing IT solutionson the shop floor and work places for project execution quality checks etc. are undervarious stages of implementation.

Ensuring quality of products and services is a critical success factorin today's business environment. Towards this end a companywide 'Quality First'initiative was launched in the previous year with focus on inculcating a quality mindsetin all spheres of company's activities. Though the true impact of any major qualityinitiative is usually visible only in the long term initial successes include Platinumrecognition in CII EXIM Bank Awards for Business Excellence 2020 for BHEL's Haridwar unit- received after a gap of 14 years and the 'Golden Peacock National Quality Award' for theyear 2020.

In line with its efforts for achieving profitable growth the companyhas also created a Cost Optimization Group to identify scope for cost cutting in everyaspect of its operations. The slew of cost reduction efforts by the company cover designprocurement overheads inventory control logistics budgetary controls among others.

Your company is cognizant of the ongoing energy transition and subduedeconomic growth in its current areas of operations. Accordingly definitive steps arebeing taken both for maintaining growth in the existing portfolios as well as targetingopportunities in the new non-coal based businesses. As a result the company retained itsdominant position in the nuclear hydro and thermal emission control businesses bookinghighest-ever orders of more than 13000 Cr. in hydro sector maintaining market leadershipas the sole Indian supplier of nuclear steam turbines in the nuclear sector as well asretaining highest market share in the FGD and SCR segment. Company's efforts towardsincreasing contribution of non-coal business are also bearing fruit with the receipt offirst order in the downstream oil and gas segment. Further concerted efforts are alsobeing made for developing a range of new products systems and solutions for railwaysurban mobility defence aerospace among others.

In the long term the company is targeting to regain its technologylead by investing in technologies of the future including various elements of the Hydrogeneconomy (generation storage utilization) for which a separate business vertical hasbeen created. This business group is tasked with the objective of identifyingopportunities for BHEL in the Hydrogen economy and to take up technology manufacturingas well as business development efforts for the same on fast-track basis. We believethat going forward Additive Manufacturing is going to disrupt all areas of manufacturingfor which another team has been set up to identify early opportunities in this area. Otherareas where dedicated teams have been deployed are Industry 4.0 solutions for processindustries (remote monitoring & diagnostics spares & services business IIoT forinternal operations) Coal to Methanol Upstream Solar Value Chain and Battery EnergySystems.

From a long term organisational & national perspective BHEL isworking on futuristic technologies such as Hydrogen economy Additive ManufacturingIndustry 4.0 solutions Coal to Methanol Upstream Solar Value Chain and Battery EnergySystems

However existence of vast coal reserves in the country and imperativesto keep imports under control coupled with the need to retire old generating sets whichhave lower efficiency higher pollution and are at end of life stage are expected to leadto opportunities in the thermal sector in the medium to long term with focus onenvironment friendly clean coal technologies including gasification/ Coal to MethanolCarbon Capture etc. which your company is poised to capitalize upon. The successfulcompletion of more efficient and greener Advanced Ultra Supercritical (AUSC) technology isa step in this direction and will further reinforce our technological prowess in thethermal business.

Keeping with our philosophy that employees are the biggest assets ofour company a number of initiatives for re-skilling of the workforce leadershipdevelopment strengthening of internal communication and knowledge sharing simplifyingpolicies and various digital-enabled workplace solutions are being implemented for betterproductivity and engagement of employees.

These efforts will support your company in its journey to transformitself into a vibrant Global Engineering Organization.

Capitalizing opportunities under the AatmaNirbhar Bharat initiatiue

The present geopolitical situation and the AatmaNirbhar Bharatinitiative give us an opportunity to again take the lead in manufacturing in the country -albeit in different products & technologies - which would be more relevant to theIndia of the future.

A number of steps have been taken in this direction through formationof Make In India Business Development Group which is targeting to indigenize 50% of ourmanufactured imports (excluding those under technology collaboration agreements) in thenear term partnering with other PSUs for indigenous development of items imported bythem as well as in-house development and manufacture of major items in the country'sengineering imports basket. Through these efforts BHEL is already getting developmentalorders from various customers providing twin benefit of increasing capacity utilizationof the company as well as help reduce imports in the country. In addition your company isalso working closely with local industries / suppliers to develop their capabilities andthus replace imports.

BHEL is focusing on capitalizing opportunities under the AatmaNirbharBharat initiative providing twin benefits of increasing capacity utilization as well ashelping reduce imports in the country

Acknowledgement

The company is steadily moving forward on its various initiativesdespite the numerous challenges it faces which would not be possible without the supportof various stakeholders. I would like to express sincere thanks and gratitude to ourvalued customers as well as other business partners for their continued confidence ouremployees for their engagement passion and perseverance members of the Board for theirguidance and you our esteemed shareholders for your support and trust in the company.

I would like to thank various Ministries of Government of Indiaparticularly the Ministry of Heavy Industries for their valuable guidance and support inall our endeavours.

I am confident that multiple initiatives currently under implementationwill help us to overcome the immediate challenges and build a strong base for long-termsustained and profitable growth of your company.

With best wishes
New Delhi (Dr. Nalin Shinghal)
August 27 2021 Chairman & Managing Director

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