Business Strategies of BHEL

Submitted to Prof. Mate
Submitted by Group 2 (sec a) Ashini Mody Mohit Agnihotri Raghunath Bhushan Shrikhande Samanta Saha Santosh Singh Saurabh saxena Sulagna chatterjee Content Contributions

Introduction: Ashini Mody Operational Strategies: Mohit Agnihotri Supercritical Orders: Santosh Singh PESTEL Analysis: Raghunath Bhushan Shrikhande SWOT Analysis: Saurabh Saxena BCG Matrix: Sulagna Chatterjee GE Nine Cell Matrix: Samanta Saha Recommendations: Santosh Singh

BHARAT HEAVY ELECTRICALS LIMITED: INTRODUCTION

BHEL or Bharat Heavy Electricals Limited is the largest engineering and manufacturing enterprise in India in the energy-related/infrastructure sector. BHEL is one of the nine large Public Sector Undertakings known as Navratnas or nine jewels. BHEL offers over 180 products and provides systems and services to meet the needs of core sectors like: power, transmission, industry, transportation, oil & gas, non-conventional energy sources and telecommunication. BHEL is the largest engineering and manufacturing enterprise in India in the energy-related / infrastructure sector. BHEL manufactures over 180 products under 30 major product groups and caters to some of the core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. It has a wide network of 14 manufacturing divisions, 4 Power Sector regional centers, with 100 project sites, 8 service centers and 18 regional offices. It has got three Segments:

Segments

Power

Transportation

Industry

Renewable EenergyOil and Gas International Business

BHEL have diversified their business in Power, Transportation, Industry, Renewable Energy. Oil and Gas and International Business sectors. Integration BHEL is more of a vertically integrated company with a captive foundry and forge plant, seamless steel type plant, and specialized facilities for 800 kV transformers are also being established. As almost all products are customized, horizontal integration is practically nonexistent and is not envisaged in the near future.

CORPORATE VISION, MISSION AND VALUES Vision A world class engineering enterprise committed to enhancing stakeholder value. Mission

TO be an Indian Multinational Engineering Enterprise providing total business solutions through quality products, systems and services in the field of energy, infrastructure, industry, transportation and other potential areas. Values •

• • • • •

Zeal to excel and Zest for change Integrity and fairness in all matters. Respect for dignity and potential of individuals. Strict adherence to commitments. Ensure speed of response. Faster learning, creativity and team work. Loyalty and pride in the company.

Work-Culture and Philosophy The BHEL philosophy of professional excellence through continuous striving for state-of-the-art technology is embodied by a strong team of 62,500 employees, including over 11,000 highly qualified engineers. Continuous training and retraining, a positive work culture and participative style of management have resulted in the development of a committed and motivated work force, ready to meet the challenges of tomorrow. Workers' participation at all levels (even at the Board); encouragement to all employees to participate in cultural, sports, educational and other activities; and dedication to excel, coupled with safety habits, are other hallmarks of the BHEL culture. The BHEL units are decentralized, independent and bureaucratic structure of work organization is almost non-existent. Flexibility, rather than red-tapism is the norm in day-to-day working. Quality Strategy The quality strategy at BHEL is to achieve highest international standards of quality at every stage of operation through implementation of quality management systems and procedures in consonance with international standards and practices. This is evidenced through state-of-the-art design and technology adapted from world- renowned collaborators. BHEL has an independent corporate quality department at its corporate office in New Delhi and all its 14 plants are ISOrated (ISO 9002 and ISO 9004). The first ISO certification for a few of its plants was acquired in 1989 and now even some of its offices are ISO-rated. SERVICES BHEL provides with certain services: (a) Project Engineering: The total engineering for thermal power stations is undertaken by a core group project engineering management. With over 500 engineers and supporting staff, this division offers specialized service in different technical disciplines.

b) Constructions Management: BHEL has a full-fledged construction management division to undertake erection work. This division well organized with over 500 experienced engineers,1000 technicians and 1300 skilled workers besides construction equipment valued at over 40 million US Dollars. c) Service After sales: Renovation modernization and rehabilitation works of aged power stations are also undertaken. BHEL has a separate spare group response for insuring ready availability of essential spares to Power stations. d) Projects Management: Entrusted with the overall coordination of the project the division initiates, directs coordinates, supervises and control all activities that are necessary for the performance of the project right from the conception stage until the contractual obligations are fully discharged. BHEL offers a wide spectrum of products and services for core sectors like power transmission industry, transportation, oil & gas telecommunication etc, deseeds supply of non-conventional energy systems. It has also embarked it to other areas including defense & aviation. Major Achievements of BHEL: • Acquired certifications for Quality Management Systems (ISO 9001), Environmental Management Systems (ISO 14001) and Occupational Health & Safety Management Systems (OHSAS 18001). Installed equipment for over 90,000 MW of power generation. Supplied over 2,25,000 MVA transformer capacity and other equipment operating in Transmission & Distribution network up to 400 kV (AC & DC). Supplied over 25,000 Motors with Drive Control System to Power projects, Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc. Supplied Traction electrics and AC/DC locos to power over 12,000 km Railway network. Supplied over one million Valves to Power Plants and other Industries.

• • • • •

Operational Strategies
Manufacturing Units: 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 Trichy. 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. ANALYSING THE BUSINESS ENVOIRNMENT Doubling capacity to 20GW by FY12 Generation capacity addition in the country has suffered in the past as BHEL was constrained for capacity. BHEL enhanced its capacity to 10,000MW in FY07 from 6,000MW in FY06. However, majority of this addition was for hydro generation sets (2.5GW) while the rest was due to the commencement of a third shift of operations. In order to overcome such delays in future, BHEL has charted out a 2-phase capacity expansion plan for its power division. In phase-I it will add 5,000MW which is expected to commission by Q3 FY10 and further add another 5,000MW by FY12, thus doubling its total installed capacity. This should enable BHEL to overcome delays going forward. However, as the addition will happen over a period of time, we have factored in some delays into our estimates. In order to overcome supply chain issues, BHEL has entered into joint ventures with NTPC, Heavy Engineering Corp Ltd, Toshiba, and NPCIL. Ventures entered into by BHEL JV / MoU NTPC Toshiba Heavy Engineering Corp Ltd Venture details Power equipments Transmission equipments Supply of castings and forgings Sheffield, UK Power equipments Nuclear power equipments Super-critical thermal power plant GE Diesel locomotive

NPCIL TNEB

Rs1.1trn order book provides strong visibility: Robust investments in the power sector coupled with BHEL’s dominance in the power equipment space translated into a robust order book. BHEL ’s order book of Rs1.1trn, grew by 3.5x over the past five years, is 5.3x FY08 gross s revenues provides strong revenue visibility. In order to avoid dela ys, it is doubling capacity to 20,000MW by FY12. Since majority of the orders are from the Government and NTPC, BHEL is insulated from lower payment risk and order cancellations. We believe BHEL’s order book will continue to grow as fresh investments are announced in the power sector. Lower commodity prices w ill positively impact margin: In order to overcome supply chain issues, BHEL stocks its key raw materials for a period of four-six months. For the 9M FY09

steel prices were higher by ~48% yoy, thus negatively impacting margins for the year. However with prices correcting by 51% over the past 7 months and BHEL consuming its high cost inventory in Q4 FY09. Also its staff cost will increase marginally as the full impact of sixth pay commission will be accounted for in FY09. Beneficiary of robust investments in the power sector BHEL being the largest power equipment supplier in the country is a direct beneficiary of the robust investments planned in the power sector. Apart from gaining orders for BTG, it will also benefit from EPC orders for generation, transmission and distribution. Robust investments in the overall infrastructure space will enable BHEL’s earnings to witness 33% CAGR over FY09-11. Supercritical orders put BHEL in the big league: In the past BHEL has been unable to bag any supercritical orders. Of the three UMPP ’s that were awarded to Tata Power (Mundra) and Reliance Power (Sasan and Krishnapatnam), non have been awarded to BHEL. Tata Power awarded the main plant package to Toshiba-Doosan while Reliance Power awarded it to Shanghai Electric for its Sasan UMPP. Reliance Power is yet to award contracts for its Krishnapatnam UMPP. However, BHEL has been successful in breaking the jinx as it bagged orders for 600MW and 800MW turbines from NTPC ’s Barh, APGENCO ’s Krishnapatnam and TNEB, thus putting it into the big league. We believe BHEL will continue to receive more such orders as the Chinese players cannot bid for the 565 super heat and 593 reheat supercritical machines. Moreover, BHEL is insulated by the rupee depreciation which gives it a ~25% cushion against imports. Supercritical orders awarded to BHEL

Client NTPC APGENCO TNEB

Location barh Krishnapatnam Tuticorin

Capacity 2x660 1x600 2x800

Order Value (Rs bn) 14 13 87

Huge opportunity in the power sector India will continue to be a power deficient country for the next few years. Thus it makes it imperative for the country to add more capacity to suffice its ever growing demand. In order to meet the mission of “Power for all by 2012 ”the country plans to add ~160GW over the FY0817. This translates into ~US$150bn opportunity for the power equipment players. BHEL being the largest player controlling 65% of the domestic market is a direct beneficiary of this

opportunity. BHEL’s equipments are form 64% of the country ’s genera ting assets. BHEL will also benefit from R&M orders of ageing plants across the country. In addition, BHEL will also benefit as competition from Chinese and Korean players remains low. It recently outbid its international counterparts under the international competitive bidding to win an order for 2 sets of 600MW in Madhya Pradesh. This should enable BHEL to grow its order book going forward and reap benefits of higher investment in the sector. We expect BHEL to continue to maintain its 64% market share going forward. Key Success Factors 1) Power projects are typically awarded through the International Competitive Bidding (ICB) route, where pricing is an important criterion in awarding the contract. Cost competitiveness is dependent on factors such as access to technology at low costs, local manufacturing facilities resulting in lower freight costs, low manpower costs and efficient procurement and processing practices. 2) As the share of IPPs in new capacity additions increases over the long term, the ability to provide finance and take up equity stakes in these projects will influence the competitive position of Power plant equipment manufacturers. 3) Power projects are long gestation projects involving significant risks relating to project completion and implementation. The past track record of the PPE manufacturer in the country and in international markets also plays an important role in winning project bids. 4) The PPE industry is technology intensive, with significant investments required in R&D to improve efficiency and performance, and keep pace with technological developments in the sector. The ability and resources to invest in research is a significant competitive advantage for global leaders in the PPE industry. PESTEL ANALYSIS Political Factors: BHEL being a public sector undertaking is greatly influenced by the political forces. There is a change in policies every time the government changes. The business decisions are steered to a great extent based on the individual preferences of the new leadership. The company does big business overseas and these projects are directly dependent on the incumbent ruler’s international trade policies. BHEL has, over the years, established its references in more than 70 countries across the world, encompassing almost the entire range of BHEL products and services, covering Thermal, Hydro and Gas-based turnkey power projects, Substation projects, besides a wide variety of products like: Transformers, Compressors, and Heat Exchangers etc. The government policies and regulations relating the company’s client industries can largely affect the future of its business with these customers. For example, power sector has seen a massive growth in the last few years and has been at the top of the political agenda. Now power

companies are the major clients of BHEL. Promotion of the sector augers well for the organization as it can crack heavy deals with these companies. Moreover, the power sector was deregulated in 2003, which opened doors for the entry of private players in the market. Such entrants can also be potential customers for the company. Being a PSU, it is the preferred choice for the other state-run entities and also the defense services. It developed the Automatic storage & retrieval system (ASRS) for storage and inventory management system of the Indian Army. The Company has signed a MoU with APGENCO for setting up a 125 MW IGCC (Integrated Gasification Combined Cycle) technology plant at Vijayawada. This is an eco-friendly, clean coal technology. Economic Factors: The economic boom in India particularly in the last one decade has played a significant role in charting the success of the company. Lot of Industrialization has been brought about, which has always been a catalyst for BHEL’s sprinting growth. Businesses are dependent on each other for their survival and help themselves flourish mutually. When the economy does well all businesses ride up the rising wave. Power Generation is one of the primary indices of a country’s economic development. As of 31.3.2008, BHEL- supplied sets accounted for nearly 64% of the total installed capacity in the country, contributing 73% of the total power generated in the country. BHEL manufactures and supplies major capital equipment and systems like captive power plants, compressors, industrial boilers, gas turbines, pumps, heat exchangers, electrical machines etc. to a number of industries like, metallurgical, mining, cement, paper, fertilizers, refineries & petro-chemicals, etc., other than power utilities. The growth of these industries has multiplied the turnover of the company leaps and bounds in the last few years. Turn key projects are the need of the hour and BHEL has proven turnkey capabilities for executing power projects from Concept-to Commissioning. In the area of urban transportation, BHEL is geared up for turnkey execution of electric trolley bus systems, light rail systems and metro systems. Mass transport systems are a must for a growing economy. Social Factors: In India the whole country and its people are poised for a giant leap towards economic growth and prosperity. People have realized how important it is for the economy to develop for their own betterment. Levels of awareness have gone up drastically and people are much more open to industrial growth. However, having said that BHEL should also ensure that the company’s actions do not come in the way of any of the stakeholders, its decisions are ethical and don’t encroach upon the rights of the society. The company should not be negligent towards societal interests and rights.

Companies are taking more interest in corporate social responsibility these days and steps have been taken by BHEL too to further the same. Its contributions towards CSR till date include adoption of villages, free medical camps/charitable dispensaries, schools for the underprivileged and handicapped children, ban on child labor, disaster/natural calamity aid, Employment for handicapped, Widow resettlement, Employment for Ex-serviceman, irrigation using treated sewage, pollution checking camps, plantation of millions of trees, energy saving and conservation of natural resources through environmental management. Companies that are sensitive to the needs and development of the society normally draw people’s attention and respect faster and can create a superior moral image in the minds of their partners and clients, the same showing more interest in working with an ethical and socially conscious group. BHEL has established the Human Resource Development Institute in Noida, which forms a cornerstone of BHEL’s learning infrastructure. The centre through various HRD efforts ensures that Human Capital - is “Always in a state of Readiness” to meet the dynamic challenges posed by a fast changing environment. This not only helps in achieving the organizational goals, but it also serves as a platform to train aspiring and competent youth of the nation.

Technological Factors: BHEL being an engineering and manufacturing giant is to a great degree driven by technological developments and innovations and has its earnest efforts directed towards improving its technological prowess to meet the changing requirements of a growing economy. At the same time the company has to keep pace with the developments happening in its business areas, else it will be knocked out by the competitors. BHEL has been a leader always and the fact that India’s first underground metro at Kolkata runs on drives and controls supplied by BHEL is a testimony to this. The government is setting up supercritical thermal power plants in the country, each generating around 2500-4000 MW and has plans to come up with many more in the near future. BHEL has developed the technology and capability to produce large capacity thermal sets with super critical parameters to gear up for this requirement. The Company has proven expertise in Plant Performance Improvement through renovation and up-rating of a variety of power plant equipments to improve the performance of existing plants. It has also emerged as a major supplier of controls and instrumentation systems for various power plants and industries. For enhancing the power transfer capability and reducing transmission losses in 400 kV lines BHEL has indigenously developed a state-of-the-art 400 kV Controlled Shunt Reactor for reactive power management of long transmission lines. R&D plays a big role in technological development and BHEL attaches a lot of importance to it all the same. BHEL’s investment in R&D is among the highest in the corporate sector in India.

Products developed in-house during the last five years contributed 13.80% to the revenues in 2007-08. Besides this, the company has developed many eco-friendly technologies to serve the environment conscious. Environmental Factors: BHEL is an environment friendly company in all its activities, products and services besides providing safe and healthy working environment to all its stakeholders. The depleting water and energy resources are a cause of concern for all. BHEL has taken certain measures to conserve these precious resources. It has set up rainwater Harvesting Plants and Energy Conservation Projects utilizing efficient technologies. Proper disposal of Chemical and other wastes is also a major concern for which the company has put up Chemical storage and disposal plants. All these projects helped in creating pollution free environment, conservation of precious resources like energy, water, fuel oil, coolant besides installation of proper system for storage/handling of chemical waste. The company has made the principles of the Global Compact program of the United Nations a part of its strategy, culture and day-to-day operations. Global Compact is a partnership between the United Nations, the business community, international labor and NGOs and has a set of core values enshrined in its ten principles on human rights, labor standards, environment and anticorruption. BHEL has been manufacturing and supplying a range of Renewable Energy products and systems. BHEL is actively associated with the development and adoption of Hydel, Wind Power and Concentrated Solar Power (CSP) projects in India and abroad. It has developed a technology for reduction of NOx gases from coal-based thermal power plant. The company is also taking active interest in CDM (Clean Development Mechanism) Projects and activities. Legal Factors: BHEL has attained ISO - 9001 certification for quality management and all its manufacturing units/divisions have been upgraded to the latest ISO-9001: 2000 version. All the major units/divisions of BHEL have been awarded ISO -14001 certification for environmental management systems and OHSAS-18001 certification for occupational health and safety management systems. The company has to adhere to the scores of legal rules and regulations, the acts, particularly the Companies Act 1956, The Factories Act, the Environmental Protection Act, Sale of Goods Act etc. These days no company wants to be unethical in its activities and be on the wrong side of the law books, as the media in India is very active and the smallest of irregularities noticed and reported by them can ruin the image of the company hugely. SWOT ANALYSIS

Strengths ➢ Good corporate image ➢ Complete range of products for transmission and distribution ➢ Established Brand Name ➢ Considered to be having design ability Weakness ➢ ➢ ➢ ➢ The procurement process in the company is cumbersome and subject to auditing Low exposure to the needs and dynamics of distribution business Role clarity on the requirement of being an equipment supplier or a solution provider Acceptance of customers to execute low value high volumes jobs

Opportunities ➢ ➢ ➢ ➢ ➢ ➢ Huge investment leading to greater demand of goods and services Demand leading to industry operating at full and over capacity Better price realizations Earl birds to learn faster and achieve repeat orders Formation of business groups and tie ups for joint bidding Healthier working environment and increased private sector participation in operation of distribution circles also.

Threats ➢ ➢ ➢ ➢ Purchased preference may be extended to distribution sector Increased in number of small contractors leading to price wars Emergence of new players in the market. Political pulls and pressures may jeopardize the hole process, raising alarm about the privatization and being anti-people

Strategies to capitalize the strengths ➢ Having a good brand image and product portfolio, they should aggressively defend and increase the market share. ➢ Improve internal efficiency and productivity of the employees. Strategies to improve the weakness ➢ Improve the speed and quality of purchases as the competition in this range is with small contractors ➢ To create channel partners rather than operate as individual companies Strengths opportunities (SO) strategies ➢ Increase market share aggressively

➢ Present a better way of performing the jobs in tune with the established brand name ➢ To address the demand in all the parts of nation to gain wide spread experience and exploit the opportunities ➢ To offer design solutions to the customers ➢ Invest money in the process to have financial advantage Weakness opportunities (WO) strategies ➢ Improve procurement cycle and reduce the process difficulties ➢ Execute pilot projects to gain experiences and minimize risks Strengths Threats (ST) strategies ➢ To increase lobbing with the government to prevent extension of purchases preference and maintaining level playing field in the segment. ➢ To check the emergence of new players and be well prepared to counter them ➢ To be cautious in the event of change of the government and the process of reforms falling off the track. Weakness Threats (WT) strategies ➢ Reduce costs to increase margins ➢ To train manpower to counter the threats of enhanced competition and to execute the job efficiently BHEL in order to get considerable and profitable share in the increasing competitive market, we need greater emphasis on the following areas ➢ Increasing market share- aim to increase penetration. ➢ Price Competitiveness ➢ Brand building exercise- To gain customers confidence in the distribution business also This above can be achieved through
➢ Pre tendering activities to help customers developing specifications calling for superior

quality products.
➢ Increased level of public relations with the customer through dedicated marketing and ➢ ➢ ➢ ➢

sales team. Improving the flow of information and speed of response towards the customers. Cost cutting exercises within the organization to improve realizations. Awareness about the market development and competitors strategies. Innovative ideas like life enhancement of the old equipments, retrofitting old equipments etc. This will in increasing the customer’s confidence.

Market Dominance in the Indian Power Sector - The Company has a formidable success record in bidding for projects implemented by state owned NTPC and SEBs. BHEL has adopted

several technologies to suit Indian conditions. The company has demonstrated the ability to implement projects successfully without time and cost overruns. All these factors make BHEL a strong player in the Indian market. Cost Competitiveness - The company's cost competitiveness results mainly from the its depreciated plants, the domestic manufacturing facilities and the low employee costs. Strong Presence in other Core Sectors in the Industrial Segment - In order to reduce volatility in its revenue stream from the power sector, BHEL has developed and successfully sold products to cater to the industrial sectors like oil refining, petrochemicals, paper, defence and transport sectors, leveraging its manufacturing facilities and technical skills. Areas of concern Financing Capability - Though BHEL is competitive with the international majors in terms of cost, delivery and equipment in the domestic market, the company ’s inability to match financial packages provided by the multinationals (MNCs) has been one of its major weaknesses. EXPECTED INCREASE IN INTERNATIONAL MARKET AND OPPOTUNITY FOR BHEL Bharat Heavy Electricals Ltd is planning to triple export orders to Rs10300 crore by 2012. Bhel currently has orders worth Rs1.10 trillion. Its international projects contributed Rs 3,200 crore till date to Rs 24,000 crore worth of orders generated in the fiscal year that began in April. While organic growth is expected to contribute Rs 6200 crore to its order book by 2012, the remaining Rs 4,100 crore will come from acquisitions and joint ventures. This is expected to go up to Rs 8,000 crore each (through organic and inorganic growth) by 2017.

BCG MATRIX BHEL has its contribution are 6 sectors. These sectors are as follows: 1. 2. 3. 4. 5. Power Transmission Industries: Petrochemicals Refineries, Cement etc. Oil and Gas 6. Non-Conventional energies 7. Transportation

The breakup of the two major sectors diagrammatically can be represented as follows: Business Mix Industry Segment Break-up

Power sector: The power sector consists of turbines SBU and Boilers SBU. BHEL is the topmost producer of boilers with two third market share and even turbines and generators are manufactured the most by them again making them the market leader. But the Indian power sector is not growing uniformly and government wishes to have a double increase in growth. Thus Indian power sector is a steady and non uniform growth sector and not grown enough to match the demand. Hence it’s a slow growth sector. Thus the SBUs come in the cash cow segment of BCG matrix

Mar ket gro wth rate

Stars

Question marks

Dogs
Boilers Turbines

High

Market share of the SBU

low high low

In this case, it is clear why BHEL is more involved in this sector as it can gain huge profits by investing comparatively low. Thus it is the most profitable sector for BHEL and is the net supplier of resources.

Transmission sector: The transmission sector comes under the industry segment which caters to 22% of BHEL’s industry segment. It consists of gas insulated substation SBU and transformation SBU which holds a good market share and the growth in this sector is much more than power sector which is 40% y-o-y. Thus these are the question mark products of BHEL and should be invested upon more to bring it to star position. It should invest more in technology to sustain competition in this sector and saving it from becoming a dog product.

Mar ket gro wth rate

Stars
Gas substation transformation

Cash cows

Dogs

High

Market share of the SBU

Low High low

Industrial sector: The industrial equipment sector consists of control system and instrumentation SBUs and comprises of 62% share of the industry sector of BHEL. This sector has recorded a reduced growth rate of 9.2% compared to last year but BHEL holds a healthy market share of around 70% in these SBUs. Thus due to high market share and low growth it is also a cash cow sector for BHEL and profitable for improving the business of other sectors. The BCG matrix of this sector looks like

Mar ket gro wth rate

Stars marks

Question

Dogs
Control system instrumentation High

Low

High low

Market share of the SBU

Refineries and cement sector: The cement sector does not have any individual player who accounts for more than 12% of market share. But the growth of cement sector has dropped to 10.43%. Hence, BHEL with a small market share in a slow growth market is a dog SBU. The refineries SBU takes a good share of the market and it is growing rapidly in India at 62% which accounts to a high growth. Thus with a high market share and high growth this is a star SBU for BHEL and it should reap upon the most on it. The BCG matrix looks as follows:

Mar ket gro wth rate

Refineries

Question marks

Cash cow

Cement

high

low High low
Market share of the SBU

Oil and Gas sector: The oil and gas sector is growing by 45% in which the major contribution is of gas sector. Since BHEL is one of the oldest producers of drilling equipments it has a good market share in its supply. But due to cheap and technologically better equipments supply from international level, BHEL has lost significant market share. Due to the high growth market and decreasing market share it is a question mark product now and BHEL should decide fast whether to invest more and improvise market share or divest from this sector. The BCG matrix can be presented as follows:

Mar ket gro wth rate

Star
Oil gas

Cash cow

Dog

high

low high
Market share of the SBU

low

Non conventional energies: The renewable energy sector especially wind energy is seeing a massive growth y-o-y. Thus it’s a highly growing market. But due to many producers of equipments and foreign competition BHEL has not succeeded to secure a high market share. In fact all producers hold more or less similar market share. But due to the overseas expansions of BHEL it has a high market share in this sector. Thus this is on the verge of becoming a star product for BHEL.

Mar ket gro wth rate

Question mark
Renewable energy SBU

Cash cow

Dog

high

low High Low
Market share of the SBU

Transportation sector: BHEL is the largest supplier of locomotives to Indian railways thus holding a huge market share. Moreover, this sector is expanding by leaps and bounds. Hence this SBU is also a star product for BHEL and it should improvise on this by implementing high technology and newer products.

Mar ket gro wth rate

Question mark
Renewable energy SBU

Cash cow

Dog

high

low high low
Market share of the SBU

The GE Nine-Cell Planning Grid 1. Turbine and Boiler SBU Table 1.1 Industry Attractiveness Factor Industry Attractiveness Factor Weight Rating Score

Market size 30 .5 Projected market 30 1 growth Technological 30 1 requirements Concentration 10 0 Total 100 High/Favourable = 1; Medium = .5 Low/Unfavourable = 0 Table 1.2. Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total Weight 20 Rating 1

15 30 30 0 65

Score 20

20 10 10 25

.5 1 .5 1

10 10 5 25

15 100

1

15 85

2. Control system and Instrumentation SBU

Table 2.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological requirements Concentration Total Weight Rating Score

30 30 30 10 100

1 1 1 0

30 30 30 0 90

Table 2.2 Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total 3. Railway SBU Table 3.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological Weight Rating Score Weight 20 Rating 1 Score 20

20 10 10 25

.5 1 .5 1

10 10 5 25

15 100

1

15 85

20 30 30

.5 1 1

10 30 30

requirements Concentration Total

20 100

.5

10 80

Table 3.2 Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total Weight 20 Rating .5 Score 10

20 10 10 25

.5 1 .5 1

10 10 5 25

15 100

.5

7.5 65.5

4. Solar energy SBU Table 4.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological requirements Concentration Total Weight Rating Score

30 20 30 20 100

.5 .5 1 0

15 10 30 0 55

Table 4.2 Business Strength Factor Business Weight Rating Score

strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total 5. Drilling SBU Table 5.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological requirements Concentration Total Weight Rating Score 20 1 20

20 10 10 25

.5 .5 1 1

10 5 10 25

15 100

1

15 85

30 20 30 20 100

.5 .5 1 0

15 10 30 0 55

Table 5.2 Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Weight 30 Rating .5 Score 15

10 10 10

1 .5 0

10 5 0

Technological capability Marketing Sales organization Total

25

.5

12

15 100

.5

8 50

6. Transformer SBU Table 6.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological requirements Concentration Total Weight Rating Score

30 30 30 10 100

1 1 1 0

30 30 30 0 90

Table 6.2 Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total Weight 30 Rating 1 Score 30

10 10 10 30

1 .5 0 .5

10 5 0 15

10 100

1

10 70

7. Thermal SBU

Table 7.1 Industry Attractiveness Factor Industry Attractiveness Factor Market size Projected market growth Technological requirements Concentration Total Weight Rating Score

30 30 30 10 100

0 .5 .5 0

30 15 15 0 60

Table 7.2 Business Strength Factor Business strength factor Relative market share Production Capacity Efficiency Location Technological capability Marketing Sales organization Total Weight 30 Rating .5 Score 15

10 10 10 30

1 .5 0 .5

10 5 0 15

10 100

.5

5 50

The GE Nine-Cell Planning Grid Market size Projected market growth Technological Requirements Concentration Industry Attractiveness High
Relative market share. Capacity From the above matrix we can conclude that Efficiency Strategy Technologival Invest/Grow capability Sales organization Invest selectively

Medium

Low

SBU Turbine and boiler SBU, control system and instrumentation SBU and Drilling SBU Railway SBU, Solar energy SBU and Transformer SBU None

Divest

RECOMMENDATIONS: BHEL is a dominant player in the Indian Power Plant Equipment industry (PPE), with a sales turnover of Rs. 21,401 crores in 2008-09. The company is the market leader in the power equipment business and BHEL sets now account for around 65% of the country’s total installed power generating capacity. The company also enjoys leadership in electrical equipment such as motors, transformers and High Tension (HT) switchgear. The company is the only player in the Indian market to be able to supply the entire range of power plant equipment with local manufacturing facilities. BHEL has a cost advantage over any other player planning to set up new facilities in India, due to depreciated plants, and existing infrastructure at several locations. The company is

also better positioned to supply PPE within the country as compared to equipment imports due to lower freight costs, especially of high volume equipment. Local manufacturing facilities also facilitate lower transportation lead times and thereby shorter delivery schedules. However the PSU status of the company and the consequent emphasis on elaborate procedures does not permit quick commercial decisions, essential for efficient functioning in a competitive environment. BHEL ’products are technology intensive, with continuous developments taking place in various segments in PPE, power transmission and transportation equipment. In the past, the company has entered into a number of technological collaborations with international majors for most products, and has successfully adapted technology for Indian conditions. While other players are global, BHEL's capacity is less than 10 per cent of global capacity and its sales are restricted mainly to the Indian market, with exports accounting for less than 5% of sales. BHEL’s relatively small size of operations limits its ability to make the necessary investments in R&D to keep pace with the international majors in technological developments in the sector. The company, therefore, has been relying primarily on technological collaborations/licensing arrangements with several overseas companies to meet its technology needs. However, there is a need to step up investment in R&D within BHEL to improve the quality of its PPE and Industrial products in order to compete more effectively in the market on their own. The ability of PPE manufacturers and EPC contractors to provide financial support to the project plays an important role in the award of contracts. BHEL's competitiveness in relation to its global competitors has been adversely affected by its inability to match the financial packages offered by MNCs along with equipment supply offers. BHEL has not been able to secure more contracts abroad partly due to lack of global track record but mainly due to its inability to offer competitive financing packages. Its presence abroad is, therefore, marginal. The company would need adequate project and equipment financing capabilities if it has to gain a competitive edge over its MNC competitors, both in India and abroad. Though BHEL enjoys a dominating market position in most of its products, in regard to supplies to State and Central sector power utilities, the presence of a large number of players including private sector and Multi-National players and the forces of competition in the power sector have made the market fully contestable. IPPs have sourced their equipment from foreign suppliers who have taken equity and arranged cheap credit from their financial sources and BHEL has got a very small share of their orders. With the increasing share of new capacity envisaged to be set up by IPPs in the future, BHEL has to become more competitive in a comprehensive manner in an increasingly competitive market. The Commission is of the view that low cost of production is a valuable strength for BHEL. Additionally, BHEL also needs flexibility, autonomy and financial support to consolidate its market position in the country and expand its international operations. While autonomy could be provided to the company by reduction of Government’s equity stake in BHEL below 51%, support from financial institutions would be critical for enhancing the financing capability of the company and enabling it to compete successfully with MNCs, both in India and abroad. A strategic partnership of one of the global major power equipment manufacturers with BHEL would, on one hand, help through a better access to technology for the related

products but, on the other hand, could lead to possible conflict of interest with the partner’s global consolidation strategy and could undermine BHEL’s market position in the products that are part of the partner’s product range. Based on the recommendations made above the business of BHEL can be expected to rise as follows:

BIBLIOGRAPHY

www.bhel.com www.steelguru.com www.ntpc.co.in www.economictimes.com www.businessstandard.com www.machinist.in www.thehindubusinessline.com www.wikipedia.org www.iloveindia.com The Economist Business Today

Sign up to vote on this title
UsefulNot useful