1. Review and Analysis
Prepared by
XLRI GMP Class of 2012 – Section A – Group 2
Abhishek Kumar Singh (G11002)
Ananth Prabhu (G11008)
Bhaskar Chatterjee (G11014)
Hrishikesh Chennakesavula (G11020)
Mrinamya Ranjan Kr Mishra (G11026)
Prasanna Chandran Ramachandran (G11032)

2. Company Profile
 BHEL is the largest engineering and
manufacturing enterprise in India in the energy
related/infrastructure sector today.
 BHEL has a strong presence in domestic and
international markets as a major supplier of
power plant equipment besides establishing
substantial inroads in select segment of
products in Industrial sector and Railways.
 Currently, 74% of the total power generated in
the country is through BHEL sets.

3. Significant Achievements
From the Director’s report and the Chairman’s Speech
 BHEL has increased its turnover by three times and net profit
by four times in the last five years. The top line in 2009-10
grew by 22% with turnover reaching 34,154 Crore.
 Profit before Tax was 6,591 Crore, a 36% YOY growth and Net
Profit rose to 4,311 Crore, a 37% YOY growth.
 Earning per share (EPS) increased to 88.06 against previous
years 764.11.
 A final dividend of 123% has been recommended by Board, in
addition to the interim dividend of 110% for the year, making
a total of 233% for the year.
 Economic Value Addition (EVA) reached 2670 Crore, a 33%
increase over that of 2008 Crore in the year before.

4. Auditors Report
Auditors have issued clean chit audit report to the company
for 2009-10.
“In our opinion and to the best of our information and according to the
explanations given to us, the said accounts read together with the
accounting Policies and Explanatory Notes in Schedule-19, give the
information required by the Companies Act, 1956, in the manner so
required and give a true and fair view in conformity with the accounting
principles generally accepted in India:
(i) In the case of the Balance Sheet, of the state of affairs of the Company as
at March 31, 2010; and
(ii) In case of Profit & Loss Account of the profit for the year ended on that
date; and
(iii) In the case of Cash Flow Statements of the cash flows for the year ended
on that date. “

5. Key Accounting Standards ( 1 of 2)
 The financial statements have been prepared on the historical cost
convention basis and on accrual method of accounting.
 Depreciation on fixed assets is charged up to the total cost of the
assets on straight line method as per the rates prescribed in
Schedule XIV of the Companies Act, 1956.
 The company has changed the accounting practice of provision for
doubtful debts during the year. As against earlier practice of
creating provision on a case to case basis, the company has revised
it that wherever trial operation has been conducted and the debtors
are outstanding for more than three years from the date of trial
operation, provisions (including contractual obligations) shall be
equal to the debtors as prevalent on that date.

6. Key Accounting Standards ( 2 of 2)
 Long–term investments are carried at cost. Current investments are carried
at cost or quoted/fair value whichever is lower. Unquoted current
investments are carried at cost.
 Valuation of Inventory
 Inventory is valued at actual/estimated cost or net realizable value, whichever is
lower.
 Finished goods in Plant and work in progress involving Hydro and Thermal sets
including gas based power plants, boilers, boiler auxiliaries, compressors and
industrial turbo sets are valued at actual/estimated factory cost or at 97.5% of the
realizable value, whichever is lower.
 In respect of valuation of finished goods in plant and work-in-progress, cost means
factory cost; actual/estimated factory cost includes excise duty payable on
manufactured goods.

7. Strengths of BHEL (1 of 2)
Based on Profitability Ratios
 The ROI of 24.88 % can be as considered one of biggest strengths for a
manufacturing set up like BHEL.
 Increased by 4 % as compared to last year.
 Increase in the percentage can be attributed to the increase in net sales
from 26212.33 Cr in year 08-09 to 32861.44 Cr in year 09-10
 GP Ratio is 26%, which is above industry average.
 Only a marginal percentage decrease from 28 % of sales to 26 % of sales.
Difference can be attributed to the expense made in the purchase of
material worth 20672.32 Cr in financial year 09-10 as compared to
17620.05 Cr in FY 08-09.
Profitability Ratios
Ratio Formula 2009-10 2008-09
Profit After Tax / (FIXED
ASSETS + WORKING
ROI CAPITAL) 24.88% 20.90%
GP ratio GROSS PROFIT/SALES 25.70% 28.41%

8. Strengths of BHEL (2 of 2)
Based on Coverage Ratios
 Dividend Coverage Ratio is 3.77 which is the same as the last fiscal year.
 For allocation of dividend to the shareholders, this ratio is the same and hence it
shows goodwill towards shareholder.
 DSCR is 47.32 in FY 09-10 where as it was 107.17 in FY 08-09.
 Company has generated some funds from loan market.
 Lot of potential of generating more long term loans which is a positive cue for any
banker.
 Generating long term loan will help the company to decrease its current liability
which will eventually help the company attain a better quick ratio i.e. better
borrowing capacity.
Coverage Ratios
Ratio Formula 2009-10 2008-09
Profit After
Dividend Coverage Tax/PROPOSED
Ratio DIVIDEND 3.7793 3.7711
CGFO/DEBT SERVICE
DSCR OBLIGATION 47.3152 107.1674

9. Weaknesses of BHEL (1 of 2)
Based on Solvency Ratios
 The current ratio is 1.32 for FY 09-10 and 1.30 for FY 08-09.
 Shows companies sedate approach towards generating long term funds.
 Lot of dependency on current liabilities.
 Company should pump in more cash through long term sources.
 Debt –Equity ratio is .008 for FY 09-10 and .01 FY 08-09.
 Company is currently not using Loan Funding.
 Represents lost opportunity in loan interest tax savings. Ideal industry
standard is 2:1 to 3:1.
Solvency Ratios
Ratio Formula 2009-10 2008-09
CURRENT ASSETS /
Current Ratio CURRENT LIABILITIES 1.3234 1.3024
Debt Equity Ratio DEBTS / EQUITY 0.0080 0.0115

10. Weaknesses of BHEL (2 of 2)
Based on Performance Ratios
 Debtor velocity is 221 days in FY 09-10 where as it was 208 days in FY 08-09.
 Company has longer cash conversion cycle as compared to the other competitors like
Larsen & Toubro in the same sector which is 104 days and Bharat Earth Movers
Limited (BEML) which is maintaining it at 145 days.
 BHEL has enough potential to improve this ratio.
 Creditor Velocity is 143 days in FY 09-10 where as it was 137 days in FY08-09.
 Shows promptness towards supplier payment but the same is not shown for
collections(DV).
 Stock Velocity is 150 in FY 09-10 where it was 140 days in FY08-09.
 Working capital is blocked in terms of inventories 20688.75 Cr. (FY 09-10) and
15975.50 (FY 08-09).
Performance Ratios
Ratio Formula 2009-10 2008-09
Debtors Velocity DEBTORS / SALES 221.0999 208.0055
Creditors Velocity CREDITORS / PURCHASES 143.5428 137.6526
Stock Velocity AVG STOCK / COST OF SALES X MF 150.7198 140.5870

11. Remedial Measures to Improve Financial Performance
Improve Cash Conversion Cycle
The cash conversion cycle is 150+221-143 = 228 days. We recommend decreasing the CCC.
BHEL can improve this by decreasing Inventory Holdings and Debtors Holdings.

12. Remedial Measures to Improve Financial Performance
Generate funds from Long Term loans
 The current ratio is 1.32 for FY 09-10 and 1.30 for FY 08-09. The
Debt- Equity ratio is 0.008. Both these ratio Shows BHEL’s
conservative approach towards utilizing long term funds.
 They should employ more long term financing to finance fixed
assets and permanent current assets and should only use short
term financing to finance temporary or variable current assets.
There is a lot of dependency on Current Liabilities. The
company should pump in cash through long term sources.

13. Altman Z Score Model
 A predictive model that combines five different financial ratios to determine
the likelihood of bankruptcy.
 The lower the score, it is accepted that the odds of bankruptcy are higher.
Companies with Z-Scores above 3 are considered to be healthy and,
therefore, unlikely to enter bankruptcy. Scores in between 1.8 and 3 lie in a
grey area.
Altman Z Score Model
1.2*X1 + 1.4*X2 + 3.3*X3 +
Altman Z Score Model 0.6*X4 + 1.0*X5 3.8429 4.0264
X1 Working Capital / Total Assets 0.3075 0.3270
Cumulative Retained Earnings
X2 / Total Assets 0.3182 0.3006
Earnings Before Interest and
X3 Tax / Total Assets 0.1366 0.1178
Market Value of Equity / Book
X4 Value of Total Liabilities 3.1220 3.5795
X5 Sales / Total Assets 0.7044 0.6768
BHEL has a score of more than 3 and is a healthy company.

14. You can find a copy of this presentation at
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