ASSIGNMENT ON ANALYSIS OF

FINANCIAL STATEMENT OF BHEL

(Financial managment)

SUBMITTED TO :- SUBMITTED BY:-

Mr. Manish ALKESH PARIHAR

Araya Sir MBA (FA) 2nd SEM

Section:- B

ROLL NO:-43207

Brief Background

Established in 1972 and in January 1974 Heavy electrical (India) Ltd was merged with BHEL.

- BHEL is the largest domestic capital goods manufacturer in India

12th largest in the world.

India’s largest automobile company, with turnover of Rs. 275,050 crores

(.275.05bn.)in208-9

over 200 products under 30 major product groups.

Gross Turnover target of Rs. 395,000 Millions has been fixed in 2010-11

The company has 14 manufacturing divisions, 8 service centres and 4 power sector regional centres.

FINANCIAL STATEMENT COMPARISON OF BHEL

1.Income statement

2. Profit & Loss Account

2.Balance sheet

3.cash flow statement

4. Ratio and working capital analysis

5.Conclusion

INCOME STATEMENT OF BHEL (In Millions of Rupee )

2009 2008

Net Sales 253,497 193,660

Growth (%) 30.9 11.8

Total Expenditure 210,561 159,987

Materials Cost 124,213 90,052

Power & Fuel cost 4,056 2,905

Other operating Exp 24,336 17,914

Manpower Exps 38,078 31,469

Others 19,879 17,647

EBIDTA 42,935 33,673

Growth (%) 27.5 -3.2

EBIDTA % 16.9 17.4

Other income 14,460 13,960

Interest 150 350

Depreciation 3,104 2,970

EBT 54,141 44,313

Tax 18,408 15,710

EAT 35,733 28,603

Adjusted PAT 35,733 26,412

Growth (%) 35.3 9.4

EAT (%) 14.1 13.6

INCOME STATEMENT.:- Year over year, BHEL Ltd. has seen their bottom line shrink from a gain of 21.7B to a loss of 25.1B despite an increase in revenues from 356.6B to 709.4B. An increase in the percentage of sales devoted to SGA costs from 11.57% to 17.70% was a key component in the falling bottom line in the face of rising revenues.

Profit & loss account

Mar ' 09 Mar ' 08

Income

Operating income 26,614.3619,541.0

8

Expenses

Material consumed 14,435.89 9,573.36

Manufacturing expenses 2,427.88 1,737.65

Personnel expenses 2,982.63 2,602.30

Selling expenses 291.76 238.55

Adminstrative expenses 2,288.20 1,642.62

Cost of sales 22,426.3615,794.4

8

Operating profit 4,188.00 3,746.60

Other recurring income 989.51 1,068.38

Adjusted PBDIT 5,177.51 4,814.98

Financial expenses 30.71 35.42

Depreciation 334.27 297.21

Adjusted PBT 4,812.53 4,482.35

Tax charges 1,799.31 1,565.06

Adjusted PAT 3,013.22 2,917.29

Non recurring items 28.35 -45.26

Other non cash adjustments 96.64 -12.69

Reported net profit 3,138.21 2,859.34

Earnigs before appropriation 3,567.90 3,302.06

Equity dividend 832.18 746.52

Dividend tax 141.43 126.87

Retained earnings 2,594.29 2,428.67

Balance Sheet of BHEL(In Millions of Rupee)

20092008

Cash 19,558.7 15,110.2

Short Term Investments 83,735.9 68,750.0

Cash and Short Term Investments

103,295.0 83,860.2

Accounts Receivable - Trade, Net

161,498.0120,570.

0

Receivables - Other 16,651.5 9,513.7

Total Receivables, Net 178,150.0130,084.

0

Total Inventory 78,919.9 57,364.0

Prepaid Expenses 3,249.5 --

Other Current Assets, Total 6,237.6 5,739.0

Total Current Assets 369,852.0277,047.

0

Property/Plant/Equipment, Total - Gross

63,050.5 49,389.3

Accumulated Depreciation,

Total(37,113.7)

(33,43300)

Property/Plant/Equipment, Total – Net

25,936.8 15,956.3

Goodwill, Net 1,858.7 --

Intangibles, Net 417.9 432.2

Long Term Investments 59.4 82.9

Other Long Term Assets, Total 18,993.2 13,948.9

Total Assets 417,118.0307,468.

0

Accounts Payable 58,981.1 44,240.0

Accrued Expenses 677.4 527.2

Notes Payable/Short Term Debt

671.4 598.3

Other Current liabilities, Total 225,316.0152,843.

0

Total Current Liabilities 285,646.0198,208.

0

Long Term Debt 48.2 23.3

Capital Lease Obligations 1,439.0 928.5

Total Long Term Debt 1,487.2 951.8

Total Debt 2,158.6 1,550.1

Deferred Income Tax 578.8 565.2

Other Liabilities, Total 178.4 --

Total Liabilities 287,890.0199,725.

0

Common Stock, Total 4,895.2 4,895.2

Additional Paid-In Capital 27.4 27.4

Retained Earnings (Accumulated Deficit)

124,305.0102,820.

0

Other Equity, Total 0.1 --

Total Equity 129,227.0107,742.

0

Total Liabilities & Shareholders' Equity

417,118.0307,468.

0

CONCLUSION

BALANCE SHEET :- BHEL Ltd. may have more financial risk than other companies in the Machinery industry as it is one of the most highly leveraged with a Debt to Total Capital ratio of 84.65%. This ratio actually increased over the last year. Additionally, an

examination of near-term assets and liabilities shows that there are not enough liquid assets to satisfy current obligations. Accounts Receivable are among the industry's worst with 27.65 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, BHEL Ltd. is among the least efficient in its industry at managing inventories, with 43.27 days of its Cost of Goods Sold tied up in Inventories.

Cash Flow Statement

In Millions of Rupee2009 2008

Net Income/Starting Line 48,379.5 44,303.9

Depreciation/Depletion 3,431.4 2,972.4

Non-Cash Items (8,110.8) (8,756.6)

Changes in Working Capital (9,068.3) (3,740.7)

Cash from Operating Activities

34,631.8 34,779.0

Capital Expenditures (13,561.7) (7,029.7)

Other Investing Cash Flow Items, Total

8,886.8 6,904.3

Cash from Investing Activities

(4,674.9) (125.4)

Financing Cash Flow Items (343.5) (344.6)

Total Cash Dividends Paid (8,945.7) (8,588.9)

Issuance (Retirement) of Debt, Net

(1,331.5) 51.0

Cash from Financing Activities

(10,620.7) (8,882.5)

Net Change in Cash 19,336.2 25,771.1

RATIO ANALYSIS

Liquidity ratioCurrent ratio = Current assets / Current liability 2009 2008Current Assets 369,842 277047Current Liability 285,646 198,208

Current Ratio (2009) 369,842/ 277047 = 1.36Current Ratio (2008) 285,646/ 198,208 = 1.44

Quick Ratio (2008) C.A. - Invent. / C.L.192,673.5 – 369,842-83735.9/ 285646 = 1.0Quick Ratio (2007) 277047-68750/198208 = 1.05

Interval measure - Current assets-inven. / avg. daily cash oper. ExpFor 2009-Avg. daily cash oper. Exp - Total cash exp./ 36597,663.1/ 365 = 267.5Interval measure – 369,842 – 83735.9 / 185.3 = 1069.56 days

For 2008Avg. daily cash oper. Exp - 86,050.6/ 365 = 237Interval measure - 277047- 68750 / 237 = 879 days

Leverage Ratio

Total debt ratio =Total debt / capital employedFor 2009Total debt – 2,158.6Capital employed = Net worth + borrowingOr Share capital + debt.106,975.2+ 2,158.6= 109133.82,158.6/ 109133.8 = .019

For 2008Total debt – 1550.1Capital employed - 67,216.7 + 1550.1= 68766.8(shr. cap) (debt)1550.1 / 68766.8 = .022

Debt equity ratio = Net worth / total debtNet worth = share cap.For 2009 78,975.2/2158.6 = 36.58For 2008 97,216.7 /1550.1 = 62.7

Capital equity ratio = Capital employed / net worthFor 2009 250320.7 / 78975.2= 3.717For 2008 145910.3 / 97216.7 = 1.50

Interest coverage ratio = EBIT + depreciation / Interest 2009 2008Earning before 54141 44313Add- Interest 150 350 54291 44663

For 2009 - 54291 + 3104/150 = 382.63For 2008 - 44663 + 2970 / 350 = 136.09

Activity RatioInventory Turnover Ratio:- Cost of goods sold / Inventory (2009) (2008)Cost of goods sold 22426.36 15794.48Inventory 78919.9 57364For 2009:- 22426.36 / 15794.48 = 1.42For 2008 :- 78919.9 / 57364 = 1.375

Debtor Turnover Ratio :- Sales / debtorFor 2009 :- 253497 (sales) / 1487.2 (debtor) = 170.45For 2008 :- 193660 (sales) / 951.8 (debtor) = 203.467

Average collection period (2009) = 360 / 4.67 = 77 daysAverage collection period (2008) = 360 / 4.20 = 86 days

Assets Turnover Ratio :- Sales / Net assets or capital employedFor 2009 :- 253497 (sales) / 417118 (c.e.) = .607For 2008 :- 193660 (sales) / 307468 (c.e.) = .629

Working Capital Turnover Ratio:- Sales / Net working capitalNet Working Capital = Current assets – Current liabilityFor 2009 = 369842- 277047 = 84206For 2008 = 277047 - 198208 = 78839

For 2009 :- 5558,086.0 (sales) / 84206 (N.W.C.) = 66.13For 2008 :- 4325,143.8 (sales) / 78839 (N.W.C) = 58.86

Profitability Ratio

Gross Margin = Gross profit / SalesGross Margin (2009) = 4188/ 253497 = .016Gross Margin (2008) = 3746.60 / 193660 = .019

EBIT Ratio = PAT / EBITFor 2009 = 3013.22 / 54291 = .3055For 2008 = 2917.29 / 44663 = .065

Return on investment = EBIT / Capital employedFor 2009 = 54291 / 250320.7 = .216For 2008 = 44663/ 145910.3 = .306

Return on equity = PAT / Net worthFor 2009 = 3013.22 / 78975.2= .038For 2008 = 2917.29 / 97216.7 = .030

CONCLUSION

LIQUIDITY RATIO:- we observe that current ratio in 2009 is less in comparison of 2008. it means companies efficiency decreases in paying current liability. And in quick ratio, it also decreases. In 2009, regular cash meet was 1069.56 days in comparison of 879 of 2008. It means firms ability to pay its daily exp. is Increases.

LEVERAGE RATIO:- In 2009, the long term financial position getting strong than 2008. Capability of paying long term debt. is increases. As we seen, debt ratio increases. And the contribution of debt is increases in 2009 than 2008. and the part of share capital is also increases in total capital employed than 2008. it means company is increasing its capital through shares.

ACTIVITY RATIO:- As we seen, company’s efficiency of using its assets is increasing in 2009 than2008. The inventory turnover ratio which shows its efficiency of selling product is increasing. Average collection period is decreasing means company is selling its product more on cash basis in 2009 than 2008. but company’s assets turnover ratio is decreasing means sales is not growing according to its capital employed and working capital.

PROFITABILITY RATIO:- In profitability ratio, the gross profit ratio is increasing in 2009 than 2007. It means its profit is growing in sales. But company’s EBIT ratio is decreasing means interest on capital and tax rate is increased in 2009 than 2008 which is responsible in decreasing its PAT. And company’s return on investment is decreased that indicates that its earning on capital employed is decreased in 2009 than 2008. And its ROE is also decreases means its PAT on its share capital is decreased .

FUTURE PLANS

India has been one of the fastest growing economies in emerging markets. Indian economy has posted more than 9% growth for three years consecutively and has seen a decade of more than 7% growth. One of the key factors behind any growing country is the energy requirement and supply in that country. The Indian power sector has historically been characterized by energy shortages which have been increasing over the years. In the period from April 2009 to Dec 2009, peak energy deficit has been 11%. Due to inadequate supply and distribution infrastructure, the per capita consumption of energy in India is extremely low in comparison to most other parts of the world. According to the 17th Electric Power Survey, India’s peak demand will reach approximately 153 GW with an energy requirement of approximately 969 billion units by fiscal year 2012. By the fiscal year 2017, peak demand is expected to reach 218 GW with an energy requirement of 1,392 billion units. ther parts of the world.

BHEL is the largest manufacturer of power equipment in the country. The company has been expanding its capacities on back of the increased capacities coming up during the 11th and 12th Plan. Several super-critical orders are awaited to be released which is expected to provide further impetus to BHEL’s already robust order book. BHEL has also increased its order book from industry segment which could enable it to continue the pace of its growth in the future. We expect the sales of the company to grow at a CAGR of 24% in next three years. BHEL will be able to improve its margins by 521 bps by FY12. At CMP of Rs.2406 the stock is trading 23x FY11 EPS of Rs.105 & 18x FY12 EPS of Rs.137. Given its strong order book, strong balance sheet and proven track record of the management, BHEL is well poised to capture the upcoming opportunities in the Power sector in the country and thus we initiate coverage with an Accumulate rating on the Company with a target price of Rs.2767 (based on 20x its FY12 EPS of Rs.137).