CRISIL COMPANY REPORT | 1

Bharat Heavy Electricals Ltd

GICS Industry : Electrical Equipment l Sub Industry : Heavy Electrical Equipment l Website : www.bhel.com
NSE Ticker : BHEL Bloomberg Ticker : BHEL:IN Face value / Share: 10.0 Div. Yield (%): 1.0 CMP (as on 16 Dec 2010 Rs/share): 2308.9 52-week range up to 16 Dec 2010 (Rs)(H/L): 2667.65/2096.85 Market Cap as on 16 Dec 2010 (Rs mn): 1,130,253 Enterprise Value as on 16 Dec 2010 (Rs mn): 1,032,969 Shares outstanding (mn) : 489.5 Free Float (%) : 32.3 Average daily volumes (12 months) : 545,547 Beta (2 year) : 0.9

Key Stock Indicators Bharat Heavy Electricals Ltd (BHEL), one of Indias largest public sector enterprises, was incorporated in 1964-65 under the Ministry of Heavy Industries. The government curre ntly holds around 68 per cent of the companys equity. BHEL has categorized its business under three heads power division, industry division and International division (includes both power and industry business overseas).

KEY HIGHLIGHTS
BHEL enjoys leadership position in Indian power equipment market BHEL is the market leader in the power equipment segment, with a market share of close to 65 per cent. The power sector has witnessed significant capacity additions over the last 3 years, largely driven by the central and state utilities; this led to strong volume growth for BHEL. The company has installed capacities to the tune of 91.7 GW out of Indias total installed capacity of 147.7 GW (excluding renewable energy) by 2009-10. The extent of BHELs dominanc e in the industry can be gauged from the fact that it has installed about two -thirds of the total capacity commissioned in the country over the last several years. Strong order inflow for the industrial segment BHELs industry division caters to process industries, transportation, power transmission and distribution, captive power generation and defense. The division sells products and services such as industrial turbines, compressors, motors and drives to process industries such as fertilizers, refineries, cement, chemicals and steel and contributes 20-25 per cent to its revenues. This division has shown a CAGR of ~18% between FY06-10 Getting into super critical projects The company is a market leader in the domestic power and electric equipment sector, e specially in the sub-critical power projects. As of March 2010, the total installed capacity of utility sets built by BHEL was 91,731 MW, up from 87,636 MW in March 2009. Additionally, its thermal sets achieved a plant load factor (PLF) of 82.2 per cent, w hich is 3-4 per cent higher than the national average. It has entered into a joint venture with several SEBs for setting up super critical thermal power plants. BHEL has tied up for technology with Alstom and Siemens in the super critical segment.

KEY RISKS

Increasing competition Raw material price volatility especially steel Adaptation of new technologies like supercritical technology
YTD 1-m 3-m 12-m BHEL -4 -1 -6 -1 NIFTY 12 -1 2 18 Returns (%)
Note: 1) YTD returns are since April 1, 2010 to Dec 16, 2010. 2) 1-m, 3-m and 12-m returns are up to Dec 16, 2010.

Mar-08 Mar-09 Mar-10 Revenue (Rs mn) 196,713.6 270,282.8 337,787.6 EBITDA margins (%) 16.6 13.3 10.6 PAT (Rs mn) 28,593.4 31,151.8 43,269.2 PAT margins (%) 14.5 11.5 12.8 Gearing (x) - - EPS (Rs /share) 58.4 63.6 88.4 PE (x) 35.3 23.7 26.1 P/BV (x) 9.4 5.8 7.2 RoCE (%) 94.8 48.1 52.3 RoE (%) 53.3 26.6 30.5 EV/EBITDA (x) 28.4 17.8 28.9
n.m. : Not meaningful
Promoter 68% FII 15% DII 11% Others 6% 0 300 600

900 1200 1500 1800 0 20 40 60 80 100 120 140 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 (index) ('000) Volumes (RHS) BHEL NIFTY

Indexed price chart Shareholding (As on September 30, 2010) Key Financial Indicators Stock Performances vis--vis market
CRISIL COMPANY REPORT | 2

Bharat Heavy Electricals Ltd

BACKGROUND
BHEL, one of Indias largest public sector enterprises, was incorporated in 1964 -65 under the Ministry of Heavy Industries. The government currently holds around 68 per cent of the companys equity. BHEL has categorised its business under three heads - power division, industry division and International division (includes both power and industry business overseas). Under the former, the company supplies power plant equipments and executes power projects, while the industrial division undertakes captive power projects and transmission projects, manufactures power transformers, switchgears, other electrical machinery, locomotiv es, and other transportation machinery. The companys power division, which supplies power plant equipment such as boilers, turbines, generators, accessories and erection services, contributes about 75 -80 per cent to its revenues. BHELs industry division caters to process industries, transportation, power transmission and distribution, captive power generation and defence. The division sells products and services such as industrial turbines, compressors, motors and drives to process industries such a s fertilisers, refineries, cement, chemicals and steel and contributes 20-25 per cent to its revenues. The wide network of BHELs 15 manufacturing divisions, 2 repair units, 4 power sector regions, 8 service centers, 15 regional offices, 1 subsidiary and a large number of Project Sites spread all over India and a broad enables the company to promptly serve its customers and provide them with suitable products, systems and services - efficiently and at competitive prices.

COMPETITIVE POSITION
Peer Comparison

BHEL ABB Jyoti Structures Ltd. Suzlon Energy Ltd. Areva T & D India Ltd. I M P Powers Ltd. Mar-10 Dec-09 Mar-10 Mar-10 Dec-09 Jun-10 Revenue (Rs mn) 337,787.6 62,904.8 21,302.3 207,792.1 35,825.3 1,927.9 EBITDA margins (%) 10.6 10.4 11.7 6.4 12.4 11.7 PAT (Rs mn) 43,269.2 3,546.4 833.9 -9,897.3 1,920.0 45.9 PAT margins (%) 12.8 5.6 3.9 -4.8 5.4 2.4 Gearing (x) - - 0.8 n.m 0.9 0.8 EPS (Rs /share) 88.4 16.7 12.2 -5.6 6.8 6.3 PE (x) 26.1 46.3 10.1 n.m 48.5 11.8 P/BV (x) 7.2 6.9 1.8 1.4 8.1 0.7 RoCE (%) 52.3 27.8 24.8 2.5 21.8 10.5 RoE (%) 30.5 15.8 17.2 n.m 23.1 5.5 EV/EBITDA (x) 28.9 24.2 5.3 14.1 19.1 5.7
n.m: Not meaningful

FINANCIAL PROFILE
Strong growth in top line however margins show a declining trend BHEL has registered a strong top line growth of 31% CAGR between FY08 -10 with the top line growing from Rs 196.7 bn in FY08 to Rs 337.8 bn in FY10. BHEL has seen its operating margins shrinking from 16.6% in FY08 to 10.6% in FY10. The increased wage bill as per the sixth pay commission, and the consequent provisioning of Rs 4.53 bn, owing to the on-going pension scheme negatively impacted margins.

Units Mar-08 Mar-09 Mar-10 Revenue Rs mi l l ion 196,713.6 270,282.8 337,787.6 EBITDA margins Per cent 16.6 13.3 10.6 PAT Rs mi l l ion 28,593.4 31,151.8 43,269.2

PAT margins Per cent 14.5 11.5 12.8 Revenue growth Per cent - 37.4 25.0 EBITDA growth Per cent - 9.7 -0.4 PAT growth Per cent - 8.9 38.9 Gearing Times 0.0 0.0 0.0 RoCE Per cent 94.8 48.1 52.3 RoE Per cent 53.3 26.6 30.5 Key Financial Indicators INDUSTRY PROFILE
Engineering The demand for heavy engineering equipment is derived from user industries such as power, construction, cement, steel, chemicals, petrochemicals and refining. In addition, significant investments in power generation, and transmission and distribution (T&D) have drive n growth of the engineering goods sector. Capital goods in the index of industrial production have seen a 34 per cent growth in the period April to June 2010 over the corresponding period in the previous year. An analysis of the various components of the c apital goods sector suggests that the growth is no longer led by just a few segments such as commercial vehicles. It now extends to segments like diesel engines, industrial machinery, protection systems, ship building and repair, agriculture implements, po wer cables, electric motors, power-driven pumps and material handling equipment. A sharp spurt in the growth of the capital goods sector is an indicator of strong investment activity. Electric equipments The electrical equipment industry comprises several products such as transformers, switchgears, motors and control equipment. In 2009-10, the size of the electrical equipment industry stood at Rs 525 billion. The electrical equipment industry grew at 11.3 per cent during 2009 -10. The main buyers of electrical equipment are power utilities. A typical electric equipment component has a life of 20 -25 years; hence, replacement demand would incrementally add to the growth opportunities. The raw material cost of electrical equipment manufacturers is estimated at 50 -60 per cent of sales. Primary raw materials include copper, aluminium and steel. A few large players dominate the electrical equipment industry. However, several other small and medium -sized players too specialise in specific product lines. In addition, there has been substantial competition from Chinese equipments manufacturers especially in the high voltage category. The electrical equipme nt industry is highly working-capital intensive as it takes 4-5 months to recover payments from SEBs, which are their major clients. CRISIL COMPANY REPORT | 3

Bharat Heavy Electricals Ltd

ANNUAL RESULTS Income Statement Balance sheet (Rs million ) Mar-08 Mar-09 Mar-10 (Rs million ) Mar-08 Mar-09 Mar-10 Net Sales 188,081.6 258,330.1 330,702.0 Equi ty share capital 4,895.2 4,895.2 4,895.2 Operating Income 196,713.6 270,282.8 337,787.6 Reserves and surplus 102,396.7 122,040.2 151,714.2 Tangible net worth 107,291.9 126,935.4 156,609.4 EBITDA 32,660.0 35,841.0 35,697.2 Deferred tax liablity:|asset| -13,379.3 -18,410.0 -15,286.2 EBITDA Margin 16.6 13.3 10.6 Long-term debt 566.0 997.5 748.8 Short-term-debt 344.6 489.7 531.3 Depreciation 2,972.1 3,430.7 4,602.6 Total debt 910.6 1,487.2 1,280.1 Interest 770.1 86.4 -516.6 Current l iabi lities 165,805.7 235,882.4 282,315.0 Other Income 9,531.5 8,365.1 8,660.8 Total provisions 35,194.2 50,564.4 45,111.8 Total liabilities 295,823.1 396,459.4 470,030.1 PBT 44,186.2 49,148.0 66,600.9 Gross block 38,433.2 45,067.2 60,256.6 PAT 28,593.4 31,151.8 43,269.2 Net fixed assets 16,220.8 24,620.1 39,285.1 Investments 82.9 59.4 59.4 PAT Margin 14.5 11.5 12.8 Current assets 279,519.4 369,921.3 430,685.6 Receivables 119,748.7 160,715.2 207,926.1 No. of shares (Mn No.) 489.5 489.5 489.5 Inve ntories 57,823.6 79,542.6 93,500.8 Cash 83,860.2 103,294.6 98,564.2 Earnings per share (EPS) 58.4 63.6 88.4 Total assets 295,823.1 394,600.8 470,030.1 Cash flow Ratio (Rs million ) Mar-08 Mar-09 Mar-10 Mar-08 Mar-09 Mar-10 Pre-tax profit 38,449.3 40,689.0 40,272.0 Revenue growth (%) - 37.4 25.0 Total tax paid -28,972.1 -23,026.9 -20,207.9 EBITDA growth(%) - 9.7 -0.4 Depreciation 2,972.1 3,430.7 4,602.6 PAT growth(%) - 8.9 38.9 Change in working capi tal 5,340.7 14,479.4 -24,514.7 EBITDA margins(%) 16.6 13.3 10.6 Cash flow from operating activities 17,790.0 35,572.2 152.0 Tax rate (%) 44.4 46.8 30.3 Capi tal Expenditure -19,643.1 -13,671.7 -19,326.1 PAT margins (%) 14.5 11.5 12.8 Investments and others -82.9 23.5 0.0 Dividend payout (%) 26.1 27.1 26.7 Cash flow from investing activities -19,726.0 -13,648.2 -19,326.1 Return on Equi ty (%) 53.3 26.6 30.5 Equity raised/(repaid) 4,895.2 0.0 0.0 Return on capi tal employed (%) 94.8 48.1 52.3 Debt raised/(repaid) 910.6 576.6 -207.1 Dividend (incl. tax) -8,733.9 -9,868.5 -13,499.0 Gearing (x) 0.0 0.0 0.0 Others (incl extraordinaries) 88,724.3 8,660.9 26,291.2 Interest coverage (x) 42.4 414.8 0.0 Debt/EBITDA (x) 0.0 0.0 0.0

Cash flow from financing activities 85,796.2 -631.0 12,585.1 Change in cash position 83,860.2 21,293.0 -6,589.0 Asset turnover (x) 10.2 6.5 6.4 Opening cash 0.0 83,860.2 103,294.6 Current ratio (x) 1.4 1.3 1.3 Closing cash 83,860.2 103,294.6 98,564.2 Gross current assets (days) 507 490 458
n.m : Not meaningful;

QUARTERLY RESULTS Sep-10 % of Rev Sep-09 % of Rev Jun-10 % of Rev Sep-10 % of Rev Sep-09 % of Rev No of Months 3 3 3 6 6 Revenue 8 6,526.4 1 00.0 6 9,230.2 1 00.0 6 7,645.0 1 00.0 1 54,171.3 1 00.0 1 28,215.3 100.0 EBITDA 17,943.8 20.7 1 4,273.4 20.6 1 1,284.8 16.7 2 9,228.5 1 9.0 2 2,463. 9 17.5 Interes t 59.3 0 .1 45.2 0 .1 38.3 0 .1 97.6 0 .1 88.0 0 .1 Depreciation 1 ,341.0 1.5 9 34.1 1 .3 1 ,268.9 1.9 2 ,609.9 1 .7 1 ,895.1 1.5 PBT 16,543.5 19.1 1 3,294.1 19.2 9 ,977.6 1 4.7 2 6,521.0 1 7.2 2 0,480.8 16.0 PAT 11,422.8 13.2 8 ,578.8 1 2.4 6 ,676.6 9.9 1 8,099.3 1 1.7 1 3,284.7 10.4 Profit and loss account
CRISIL COMPANY REPORT | 4

Bharat Heavy Electricals Ltd

FOCUS CHARTS & TABLES Dec 2009 Mar 2010 Jun 2010 Sep 2010 Promoter 67.7 67.7 67.7 67.7 FII 15.5 15.2 14.9 14.7 DII 10.8 11.1 1 1.3 11.2 Others 6.0 6.0 6.1 6.4 Shareholding Pattern (Per cent) Director Name Designation Rajiv Bansal (Mr.) Part-Time Offi cial Di rector Ashok Kumar Basu (Mr.) Part-Time Non-Offi cial Di rector Saurabh Chandra (Mr.) Part-Time Offi cial Di rector Vinesh Kumar Madan Lal Jai rath (Mr.) Part-Time Non-Offi cial Di rector O.P. Bhutani (Mr.) Di rector Reva Nayyar (Ms .) Part -Time Non-Offi cial Di rector M.A. Pathan (Mr.) Part-Time Non-Offi cial Di rector B.P. Rao (Mr.) Chai rman & Managing Di rector Ani l Sachdev (Mr.) Di rector Atul Saraya (Mr.) Di rector Trimbakdas S. Zanwar (Mr.) Part-Time Non-Offi cial Di rector Board of Directors
Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer This report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accu rate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use madeof this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the auth orised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this report. For information please contact 'Client Servicing' at +91-22-33423561, or via e-mail: clientservicing@crisil.com.

0 5 10 15 20 25 30 35 40 45 50 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Rs mn Quarterly

sales & y-o-y growth Per cent

Sales Sales growth y-o-y (RHS)

-20 -10 0 10 20 30 40 50 0 5,000 10,000 15,000 20,000 25,000 Dec 07 Mar 08 Ju n 08 S e p08 Dec 08 Mar 09 Ju n 09 S e p09 Dec 09 Mar 10 Ju n 10 S e p10 Rs mn Quarterly PAT 0 5 10 15 20 25 30 35 40 45 Dec-07 Mar-08

& y-o-y growth Per cent

Net Profit Net profit growth y -o-y (RHS)

Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Rs/share EPS 0 5 10 15 20 25 30 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Per cent Movement in operating and net margins
OPM NPM