Bharat Heavy Electricals Ltd

A. FINANCIAL OPERATIONS

Analysis of the Financial Performance of the Company

(i) Standalone Financial Results

Balance Sheet

I. Share Capital

There is no change in the share capital during the year 2010-11.

2. Reserves & Surplus

The Reserve & Surplus has increased by s 4237 Crore during 2010-11 after additionof Retained earnings.

3. Loans Funds

Unsecured Loan represents credit for assets taken on Finance Lease.

4. Fixed Assets

Gross Block and Capital Work in progress increased by s 1470 Crore, and s 212 Crorerespectively during the year due to Capital expenditure incurred on ongoing capacityaugmentation programme at various manufacturing units and the erection and commissioningfacilities at the project sites.

5. Investments

Long term trade investments have increased by s 359 Crore mainly on account of Equityparticipation in Joint Venture Companies and Subsidiary Company.

6. Deferred Tax Assets (Net)

Deferred Tax Assets (Net) have increased by s 637 Crore mainly due to increase inprovisions.

7. Inventories

Inventory increased by s 1728 Crore over previous year in tune with the increase involume of operations but in terms of days of turnover, it has decreased from 99 days in2009-10 to 93 days in 2010-11.

8. Sundry Debtors (Net)

In terms of days of turnover debtors increased from 221 days in 2009-10 to 230 days in2010-11 which is mainly on account of increase in deferred debts.

9. Cash and Bank Balances

The cash and cash equivalents at the year end are placed at s 9630 Crore as against s9790 Crore in 2009-10.

10. Loans and advances & other Current Assets

Loans & advances have increased by s 444 Crore in line with increased level ofoperations. Other current assets represent interest accrued on bank deposits andinvestments.

11. Current Liabilities & Provisions

The increase in current liabilities is mainly due to increase in advances fromcustomers by s 1200 Crore and sundry creditors & other liabilities by s 2123 Crore.The increase in provision is mainly on account of increase in provision for ContractualObligation in line with revised policy on warranty provisions.

12. Turnover

Turnover net of Excise Duty increased by 26.49% during the year, Power segment andIndustry segment contributed 79% and 21% respectively for the total revenue of thecompany.

13. Other Income

Other income increased by s 53 Crore during the year. The increase in operationalincome is in tune with increase in the volume of operations and the reduction in interestincome is due to reduced interest rates and decrease in short term investments.

14. Consumption of Material, Erection & Engineering Expenses

The increase in Consumption of Material, Erection & Engineering Expense by s 2537Crore or 12.27% is mainly on account of increase in Turnover / volume of operation, whichhas increased by 26.89%. As percentage of net turnover it decreased from 62.91% in 2009-10to 55.84% in 2010-11 (59.83% without considering the impact of additional turnover on a/cof policy change) (refer note no. 13 of sch-19).

15. Employees Remuneration & Benefits

Employees remuneration & benefits increased from s 5244 Crore in 2009-10 to s 5397Crore in 2010-11. Employees Remuneration & benefits include provision for pensionscheme.

16. Other Expenses of Manufacturing, Administration, Selling & Distribution

The increase in other Expenses of manufacturing, Administration, Selling &Distribution is s 471 Crore or 22.81% as compared to 2009-10 in line with the increasedlevel of operations of the company.

17. Provisions (Net)

The Increase in Provisions (Net) is mainly on account of increase in provision forContractual Obligations in line with revised policy on warranty provisions.

18. Interest and other borrowing costs

The interest cost represents the interest component of the lease rentals on assetstaken on Finance lease and interest on short term borrowings during the year.

19. Depreciation

The increase in depreciation by s 86 Crore is on account of increase in gross block oncommissioning of assets.

20. Provision for Taxation

The increase in provision for taxation is in line with the growth in profit for theyear.

21. Profit after Tax

The Net profit for the year rose by s 1700 Crore or 39.43%.

22. Dividend

The company has paid an interim dividend of 132.50% (s 13.25 per share), s 648.61Crore, on share capital of s 489.52 Crore during the year 2010-11. The Board has alsorecommended a Final dividend of 179% (s 17.90 per share) i.e. s 876.24 Crore.

The total dividend payment for the year 2010-11 is s 1524.85 Crore (exclusive ofdividend tax) as against s 1140.58 Crore in the previous year.

Provision of s 142.15 Crore has been made for Corporate dividend tax on the Finaldividend proposed. Corporate dividend tax of s 107.73 Crore has already been paid on theinterim dividend.

23. Transfer to General Reserve

s 4000 Crore has been transferred to General Reserve for the year 2010-11 as against s3000 Crore in the previous year.

a) Bharat Heavy Plate and Vessels Ltd. (BHPV)

Bharat Heavy Plate and Vessels Ltd. (BHPV) is 100% subsidiary co. of BHEL taken over on10.05.2008. BHEL is in the process of reviving the Company with adequate managerial andfinancial support. In 2010-11 BHPV recorded a profit of s 8.78 Crore on a turnover of s136.98 Crore.

The financial highlights of BHPV are as under:

b) BHEL Electrical Machines Ltd.

A subsidiary Company has been incorporated on 19^th January 2011 as"BHEL Electrical Machines Ltd.", with BHEL holding the majority stake of 51% andGovt. of Kerala retaining 49%. BHEL Electrical Machines Ltd. shall manufacture alternatorsand other rotating electrical machines.

a) BHEL-GE Gas Turbine Services Pvt. Ltd. (BGGTS)

BGGTS is a Joint Venture Company of BHEL & GE USA, formed to take up repair &servicing of GE designed Gas Turbines. The Financial highlights of the Company are asunder: (Figures in s Crore)

There is a decrease in the turnover since previous year sales include s 23 Crore forRGPPL whereas there was no sales on this account in the current year.

b) NTPC-BHEL Power Projects Pvt. Ltd. (NBPPL)

A Joint Venture between BHEL & NTPC incorporated on 28^th April, 2008 forcarrying out EPC activities in the Power Sector. The Financial highlights are as under :

c) Udangudi Power Corporation Ltd.

A Joint Venture between BHEL & TNEB, incorporated on 26^th December,2008, to build, own and operate a 1600 MW (2x800 MW) Super Critical Thermal Power Plant atUdangudi. The Corporation is in the process of setting up a Thermal Power Plant ofCapacity 2x800 MW at Udangudi, Tuticorin Dist. in Tamil Nadu. The Company has obtained therequired land and the development of the same is on.

*Based on provisional figures

d) Raichur Power Corporation Ltd.

BHEL has promoted a Joint Venture Company with Karnataka Power Corporation Limited(KPCL) for setting up Supercritical Thermal Power Plant at Karnataka on build, own andoperate basis. The Joint Venture was incorporated on April 15, 2009 under the name of"Raichur Power Corporation Ltd".

*Based on provisional figures

e) Dada Dhuniwale Khandwa Power Limited

BHEL has promoted a Joint Venture Company with Madhya Pradesh Power Generating CompanyLtd. (MPPGCL) for setting up of a 2x800MW Supercritical Thermal Power Plant at Khandwa,Madhya Pradesh on build, own and operate basis. The Joint Venture was incorporated onFebruary 25, 2010 under the name of "Dada Dhuniwale Khandwa Power Ltd". BHEL hasinvested Rs.2.50 Crore in the equity of the Joint Venture.

*Based on provisional figures

f) Barak Power Pvt. Ltd.

A Joint Venture between BHEL & PTC, incorporated on 1^st Sept, 2008. BHELhas Contributed s.5 Lac towards Equity participation. The Joint Venture is underliquidation.

g) Power Plant Performance Improvement Ltd.

A Joint Venture between BHEL and Siemens and is under liquidation.

(iv) Consolidated Financial Statements (CFS)

Consolidated Financial Statements have been prepared in accordance with AccountingStandard -21 on " Consolidated Financial Statements" and Accounting Standard -27 on " Financial Reporting of Interest in Joint Ventures." A brief summary ofthe results on Financial performance after elimination of Intra group transactions in linewith the above AS are as under :

s (Figures in Crore)

Order Book

During the year 2010-11, Power Sector - Marketing has secured orders worth s 44,341Crore corresponding to 15,071 MW in physical terms.

Major achievements during the year:

Record orders for main plant equipment with supercritical parameters of 660/700/800 MWrating from public as well as private sector utilities.

• Record orders (9 Nos. Turbine Generators sets and 7 Nos. Steam Generator sets)for Units of 660/ 700/ 800 MW rating with Super-critical parameters, which include:

• First order for new 700 MW rating against stiff competition for Bellary-3 (1x700MW) from KPCL.

• First order from a JV of BHEL with a State Utility - Raichur Power Co. Ltd. -for super-critical sets for 2x800 MW Yeramarus TPS, followed by 1x800 MW Edlapur TPS.

• Order against bulk tender for 2x660 MW Mauda Turbine Generators Package fromNTPC.

• Repeat orders for 10 sets of 270 MW from India Bulls Group (5x270 MW Nasik Ph.II& 5x270 MW Amravati Ph.II).

• Order for Sagardighi TPEP Stage-II (2x500 MW) from WBPDCL who had earliersourced Stage-I (2x300 MW) of the project (already commissioned) from Chinese supplier.

• New Customers added:

• Visa Power Ltd.

• Dainik Bhaskar Power Ltd. (DBPL)

• Bajaj Hindusthan Ltd.

• Raichur Power Corporation Ltd. (RPCL)

Super-critical Thermal Sets (6,400 MW):

• Orders received against stiff International Competitive Bidding (ICB)

• 1x700 MW Bellary TPS from KPCL.

• 3x660 MW Lalitpur TPS from Bajaj Hindusthan Ltd.

• 2x660 MW Mauda TG Package from NTPC against Bulk tender.

• ESP package orders for Nigrie STPP (2x660 MW) from Jaiprakash Power VenturesLtd. and for Bara STPP (3x660 MW) from Prayagraj Power Generation Company Ltd. (JaypeeGroup).

• Orders received on Negotiation basis

• 2x800 MW Yeramarus TPS Supercritical Power Project from Raichur Power CompanyLtd. – A JVC of BHEL and KPCL (State Utility of Karnataka).

• 1x800 MW Edlapur TPS Supercritical Power Project from Raichur Power Company Ltd.– A JVC of BHEL and KPCL (State Utility of Karnataka).

Sub-critical Thermal Sets (7,800 MW):

• Orders received against stiff International Competitive Bidding (ICB)

• 5 sets of 270 MW Amravati Ph.II from Indiabulls group – Order of 5 sets of270 MW for Ph. I was received last year.

• 5 sets of 600 MW from Dainik Bhaskar Power Ltd., Visa Power Ltd. and Korba WestPower Co. Ltd.

• 2 sets of 500 MW for Sagardighi TPEP Stg-II from West Bengal Power DevelopmentCorp. Ltd.

• Orders received on Negotiation basis

• 5 sets of 270 MW Nasik Ph.II from Indiabulls group – Order of 5 sets of 270MW for Ph. I was received last year.

• 1 set of 600 MW for Rayalseema #6 from APGENCO.

• 2 sets of 250 MW for Barauni TPS from Bihar State Electricity Board.

Gas Turbines (871 MW):

• Orders received on Negotiation basis

• 750 MW Bamnauli CCPP (750 MW) from Pragati Power Corporation Ltd.

• GTG orders for Monarchak (100 MW) from North Eastern Electric Power Corporation(NEEPCO) and Rokhia (21 MW) from Tripura State Electricity Corporation Ltd.

Nuclear Business:

• Orders received on Negotiation basis

• 2x700 MWe TG package from NPCIL for KAPP 3&4 – First 700 MWe TG orderfor Nuclear Power Plant.

SPARES & SERVICES BUSINESS GROUP (SSBG)

SSBG has booked orders worth s 1651 Crore for Spares, s 471 Crore for Services and s 25Crore for Supply and E&C of R&M equipment totaling to s 2147 Crore for 2010-11.SSBG secured orders worth s 131 Crore for New Systems & Products in 2010-11. Thisincludes s 4.96 Crore for complete Overhauling of 1000 MWe LM• make Nuclear SteamTurbine from NPCIL/Kudankulam and s 30.52 Crore received for supply of spares &related services for Non-BHEL (Mitsubishi make) Boilers (2x500 MW) of UPRVUNL/ Anpara TPSUnits 4&5. SSBG added 13 nos. new customers in 2010-11 and secured orders worth s22.40 Crore SSBG received appreciations from 14 customers for services rendered to them byBHEL/ SSBG.

COMMISSIONING:

BHEL commissioned 52 sets of 7666.5 MW during the year within the country and abroad.Power Sector commissioned 39 sets totaling 7073.5 MW during the year. This include 27 BHELUtility sets totaling 6333 MW, 9 Industrial sets of 452.5 MW and 3 Overseas sets of 288MW. Additionally BHEL MU’s commissioned 3 sets of 59 MW (overseas) and 10 industrialsets of 534 MW in the country.

In addition to these projects, BHEL synchronised 4 sets of 1775 MW for further additionin country’s Power Generating Capacity.

Thermal utility sets commissioned during the year were Kakatiya 1 (500 MW), Rayalseema5 (210 MW) & Simhadri 3 (500 MW) in A. Pradesh, Korba STPP 7 (500 MW) in Chhattisgarh,Pragati GT1,2 (2X250 MW) in Delhi, Surat Lignite 3,4 (2X125 MW) in Gujarat, Jhajjar 1 (500MW) in Haryana, Allain Duhangan HEP 1,2 (2X96 MW) in Himachal, Sewa HEP 1,2,3 (3X40 MW) inJ&K, Raichur - 8 (250 MW) in Karnataka, Kuttiyadi HEP 1,2 (2X50 MW) in Kerala,Barsingsar 1,2 (2X125 MW) & Chhabra 2 (250 MW) in Rajasthan, Baramura GT (21 MW) inTripura, Dadri 6 (490 MW) in U. Pradesh, Koteshwar HEP 1,2 (2X100 MW) in Uttarakhand,Farakka 6 (500 MW), Mejia 7,8 (500 MW) in W. Bengal.

Overseas sets commissioned by BHEL during the year include Devighat 3 (5 MW), Hico 1,2(2X26 MW), Pamir (7 MW), Siddhirgunj 2 (126 MW) and WM Extension 6 (157 MW).

PERFORMANCE OF BHEL UTILITY SETS

BHEL’s coal based sets registered PLF of 75.7 % against National Average of 75.1%.

• During the year, generation from BHEL supplied 195 200/210/250/500 MW coal basedsets which form the backbone of country’s power generation went to 401709 MUs withPLF of 78.9 % and OA of 88.8%. 60% of total electric energy generated by Coal sets in thecountry was contributed by these sets.

• Seventeen stations equipped with BHEL equipments recorded a PLF of above 90%viz. Dahanu (100.5), Rihand (97.8), Raigarh (97.7), Singrauli (96.6), Sipat (96.5), KorbaEast (96.4), Simhadari (96.1), Vindhyachal (95.0), Unchahar (93.3), Korba-NTPC (93.1),Tanda (92.8), CESC (92.0), Bhilai (91.4), Korba West (91.0), Kota (90.8), Ramagundam(90.7), Sabarmati (90.4).

• 178 BHEL supplied coal based sets achieved PLF of over 70%. Of these, 61 setsregistered PLF of over 90% and 73 sets achieved PLF between 80-90%.

• BHEL Coal Sets registered the Operating Availability (O.A.) of 86.1%

• 139 Thermal Sets of BHEL make achieved O.A. higher than or equal to 90%.

• 171 BHEL supplied coal based sets clocked uninterrupted operation for more than90 days during the year out of which:

• 65 sets ran twice continuously for more than 90 days.

• 28 sets continuously ran for more than 200 days.

BHEL continued its endeavor to render efficient customer service aimed at facilitatinguninterrupted power supply and keeping power plants in good running condition. During theyear, Power Sector overhauled 120 sets (including non-BHEL sets).

BHEL team made an impossible task possible when flood ravaged Koteshwar HEP of THDC wasrehabilitated in a record time of five months and capacity addition of two units (200 MW)was achieved. CMD, THDC expressed gratitude and congratulated BHEL.

Commendations/appreciations received from reputed customers like NTPC, MSPGCL, RelianceInfrastructure Ltd., APGENCO, and WBPDCL etc. for excellent support/services provided byBHEL.

INDUSTRY SECTOR

In Industry Sector, BHEL secured orders worth s 11405 Crore in Captive Power, RailTransportation, Power Transmission, Oil & Gas, Renewable Energies and other IndustrialSegments.

Major orders received during the year and other business highlights from Industrysegment include:

Captive Power plants

• Breakthrough order from M/s India Power Corp. Ltd. Haldia, West Bengal for 3x150MW Boiler, Turbine and Generator package with single cylinder reheat machines.

• Significant order for double controlled extraction STG set from Tamil NaduNewsprint & Paper Ltd. for 1x41 MW STG set.

• Orders for cost effective 67.5 MW rating units from M/s Shree Metallics and fromBhubaneswar power.

• Order for 80 MW STG set with ACC configuration from M/s Suryadev Alloys.

• Received 4 orders in a row for captive power equipment from Maruti Suzuki IndiaLimited in a year.

RailTransportation

• Orders for State-of-the-art propulsion equipment for 6000 HP ElectricLocomotives and 1400 HP AC EMUs from Indian Railways amidst stiff competition from leadinginternational suppliers. Indian Railways have reposed their confidence in BHEL’scapabilities and technological excellence.

• Orders for 198 sets of Electrics for conventional AC EMU/ DEMU and also for 588nos. of Traction motors received from Railway Board and Indian Railways manufacturingunits at ICF, RCF, DLW, etc.

• Order for 11 nos. 700 HP Diesel Electric Shunting Locomotives received from JSWSteel Limited, Bellary.

Other business highlights in this segment include:

• BHEL has established itself as a manufacturer of IGBT based traction propulsionequipments for Indian Railways. Indigenous Development of IGBT based equipment shall helpIndian Railways to reduce dependence on costly imports.

• BHEL has supplied, erected and successfully commissioned Electric propulsionsystems, controls and other equipments for prototype rakes of Kolkata Metro coaches andare successfully running under commercial operations. Series manufacture and supply ofequipments for remaining 11 rakes are in progress.

• BHEL signed a JV agreement with Govt. of Kerala to take over Kasaragod unit ofKEL. After due diligence exercise, A JV company named BHEL Electricals Machines Ltd., hasbeen registered. In addition to present range of manufacture of Alternators, othercomplementary products like LT motors, WEG’s Alternators and traction equipments forIR are proposed to be taken up for manufacture by JV.

• BHEL has signed a JV agreement with Alstom, France for participation in IRtender for setting up a factory at Dankuni, West Bengal on Public-Private Partnershippattern for manufacture and supply of Electric Loco components to CLW.

• Loco manufacturing capacity at Jhansi unit has been augmented from 30 nos. to 50nos. Further augmentation from 50 nos. to 75 nos. per year is underway to meetRailways’ increased requirements.

Industrial Products (Electrical)

• Highest value single order for HT Motors finalized in the country so far, for 20nos. 6 MW 4P SCIMs for special coolant pump application of RAPP & KAPP 700 MW sets ofM/s NPCIL.

• Orders for 124 motors (180 – 2100 KW) for M/s IOCL’s Paradeep refinerywhich include 110 nos. flame proof motors.

Other business highlights in this segment include:

• Design and manufacture of largest BFP motor -17500KW 11 KV 4 Pole SCIM for NTPCBarh 2 X 660 MW. The motor has been successfully tested and approved by NTPC.

• New design of vertical synchronous motor developed - 4000KW 11 KV 16 Pole, andmotor manufactured and tested for AMR Lift Irrigation Scheme through M/s WPIL.

• Manufacturing capacity for electrical machines expanded to 2250 machines p.a. atBhopal to address market requirements in line with the growth projections.

Industrial Products (Mechanical)

• Order for 3 nos. Turbo Blower Package with Steam Turbine Drive from SAIL-BhilaiSteel Plant.

• Orders for Compressors from Fertilizer Sector (NFL Bhatinda, NFL Nangal , NFLPanipat and GNFC Bharuch) & Refinery Sector (BPCL Mumbai). In addition an order forCO2Compressor revamp from NFL Vijaipur.

• Highest value order for supply of WH&XMT from ONGC Bassein and SatelliteAssets.

Other business highlights in this segment include:

• Collaboration entered into with M/s GENP, Italy for manufacture of centrifugalcompressors. This will further enhance BHEL’s capability to address marketrequirement of higher size compressors for refinery, fertilizer, petrochemical, pipelineand other applications.

• MOU entered into with M/s NOV, USA for AC Drives for Oil Rigs

Defence Business

• Prestigious order for Integrated Platform Management System for the 1^stAir Defence Ship (Indigenous Aircraft Carrier) being manufactured in India for the firsttime. The order has been received against stiff competition from the global giants.

Transmission Systems – Sub-station / switchyards

• Breakthrough order from PGCIL for the world’s first 800 kV, 6000 MWUltra High Voltage Multi-terminal DC Transmission Link, in consortium with ABB, Sweden hasbeen bagged. This will be world’s first 800 kV, 6000 MW Ultra High VoltageMulti-terminal DC transmission link. The link comprises three converter terminals and apower transmission system with a built in capacity up to 8,000 MW which is the largestHVDC transmission system ever built. The use of Ultra High Voltage (800 kV) minimizestransmission losses. In financial terms, this is the largest order finalized in T&Dsector anywhere in the world.

• Order for 220 kV Substation and associated transmission lines from DPL.

• Order for installation of 4 nos. 63 MVAr Shunt Reactors at various substationsfrom KPTCL.

Other business highlights in this segment include:

• BHEL is the first company in India to indigenously develop and manufacture 1200kV transformers. At newly constructed manufacturing block at Bhopal, BHEL has manufactured1200 kV 180 MVA test transformer which shall be used as testing transformer in UHV Lab.

• BHEL has also manufactured 1200 kV CVT required for Bina station in addition to420 kN disc insulators already supplied for the 1200 kV test transmission line at Bina.

• Order from Indiabulls for 36 transformers totaling to 4078 MVA including 10generator transformers each of 330 MVA, 400 kV for Phase-II of Nasik and Amravatiprojects.

• Order for the largest rating state-of-the-art Dry Type Transformers, in thecountry. Order was secured for 6 nos., 15 MVA dry type transformers from Bluestar forReliance Sasan project, against international competition

New & Renewable Energies

• Four significant orders of SPV power generation plants totaling to 8 MWp: UnionTerritory of Lakshadweep for Augmentation, Renovation and Operation & Maintenance ofaggregate 2.15 MWp SPV plants at various Islands, 6 MWp orders from Indiabulls forprojects at Bareilly & Nagpur.

Other Business highlights in this segment include:

• BHEL is working with Bharat Electronics Limited to set-up a manufacturing plantof approx. 240 MW solar PV products and systems. This will bring economies of scaleoffering solar PV products and systems at competitive prices in India and abroad.

• BHEL has entered in to a manufacturing cooperation agreement with GE IndiaIndustrial Private Limited (GEIIPL), India. Both partners will jointly address requirementof state-of-the-art Water treatment plants for the Power Plants, Industry and Municipalcorporations. With this agreement, BHEL’s Ranipet plant will benefit with developmentof capabilities in offering the large size water treatment plant as turnkey solutions tothe customers.

• With the aim of providing EPC solutions in Concentrated Solar Thermal area BHELhas signed an agreement with M/s Abengoa Spain, through which EPC solutions would beoffered to clients, based on parabolic and power tower technologies. BHEL’s units atTiruchirapalli, Hyderabad, Bhopal, Haridwar and Bangalore would deliver the majorequipment like power block, heat transfer equipment, steam generators, piping etc.

INTERNATIONAL BUSINESS

• In International Business, the global outlook still remains cautious and signsof recovery after global meltdown are unable to create a positive atmosphere forinfrastructure investments. Energy investment worldwide has plunged resulting in projectdeferments and cancellation due to financial crunch. Recent developments in the MiddleEast & North Africa have also adversely affected the business prospects in ourtraditional markets with many projects on hold.

• In spite of such challenging trends, BHEL has been able to sustain its exportsmomentum with a physical export order inflow of s 3738 Crores from 24 countries spreadover five continents during the year registering a 5% growth over last year.

• The year marked significant steps towards globalization with successful foraysin new markets and new product areas, apart from firmly establishing the company’spresence in existing markets.

MAJOR ACHIEVEMENTS DURING 2010-11:

During the year BHEL secured following prestigious orders:

• Single largest export order for Gas Turbine based Power Project – Furtherstrengthening its foothold in Yemen, BHEL secured the prestigious order for the 4x168 MWGas Turbine based Marib-II Power Project. This is the largest ever order for an overseasgas turbine based power project.

• Yemen - entry into new market – BHEL successfully made its maiden entry inYemen by securing orders for supply of motors.

• First ever order for motors from Kenya – BHEL for the first time secured anorder for supply of motors to Mombasa Cement Ltd., Kenya.

• Maiden order for Solar cells from Hong Kong & Turkey – Entry into newmarket – BHEL for the first time secured orders for supply of solar cells to HongKong & Turkey.

• Order for Control Equipment from USA – BHEL secured order for supply of BusExtender Modules from Metso Automation, USA.

• Continued focus on After Sales Services led to orders for Spares & Servicesfrom UAE, Bangladesh, Bhutan, France, Indonesia, Kazakhstan, Sri Lanka, Libya, Malta,Malaysia, New Zealand, Oman, Saudi Arabia, Thailand and Yemen.

EXECUTION OF MAJOR OVERSEAS ORDERS:

• Major milestone of the year was the commissioning of four power plants inBangladesh, Libya, Oman and Nepal.

The major projects executed during the year are:

• Bangladesh – Siddhirganj Gas based power plant’s second unit (126 MWGas Turbine Generator set) commissioned.

• Libya – Unit-5 (157 MW Gas Turbine Generator set) of Western Mountain PowerPlant Extension project, Libya successfully commissioned. With this now the installedcapacity of this plant has been increased to 750MW, making it the largest power plant sofar set up by BHEL overseas.

• Oman – 2x26 MW Gas Turbine Generator Sets of Oman Refinery Companycommissioned.

• Nepal – Renovation, Modernization & Uprating of 5 MW Unit of DevighatHydro Power Project successfully completed.

• Tajikistan - Hydro generator supplied by BHEL for Pamir-I Power Plantsuccessfully commissioned.

• Myanmar - 16 nos. transformers supplied and successfully installed. Thesetransformers were for replacement of damaged transformers during cyclone.

• Ethiopia - 230KV Substation at Semera, charged. With this BHEL has nowsuccessfully charged four substations in Ethiopia.

C. CAPITAL INVESTMENT

• The company made an investment of R 1655 Crore during 2010-11 towardsaugmentation of manufacturing capacity and modernization of facilities in manufacturingunits and at power project sites.

• Focused attention was given on rebuilding and retrofitting of existingfacilities to enhance their life, accuracy and productivity through an additionalinvestment of R 58 Crores.

• The company’s augmentation programme to 20,000 MW per annum by March 12 tomeet the power requirement of the Twelfth plan and beyond, is on track.

• 120 major state-of-the-art machining facilities/ process plants commissionedacross BHEL units during the year under various ongoing Capacity Augmentation Schemes.Today BHEL has about 500 nos. CNC machines which include large size Lathes, HorizontalBorers, Vertical Borers, Machining Centers, Flame Cutting Machines, 5-axis MachiningCenters, Incremental Pipe Bending Machines, Special Purpose Machines etc.

• For meeting enhanced load of commissioning of Power Plants, BHEL has inductedfollowing 17 nos. of heavy lift and medium range cranes to resolve constraints at projectsites. With this a total of 125 cranes are available for executing work at project sites.

A) BHEL-GE Gas Turbine Services Ltd. (BGGTS):

The Joint Venture Company, BHEL-GE Gas Turbine Services Ltd. (BGGTS), promoted by BHELwith GE, USA for repair & servicing of GE designed Gas Turbines, has completedthirteen full financial years of operation.

BGGTS achieved a sales turnover of R 418 Crore during the year 2010-11 with aprofit after tax of R 57 Crore. Orders for R 509 Crore were booked by BGGTS during theyear including export orders from overseas. BGGTS successfully completed gas turbineservicing & supply of spares to various customers in both Public and Private sectors.BGGTS also completed export orders of R 32 Crore. For the year 2010-11, BGGTS has declareda dividend of 660 % thereby maintaining its consistent record of improved performance.

B) Powerplant Performance Improvement Limited (PPIL):

The Joint Venture Company, Powerplant Performance Improvement Ltd. (PPIL), has beenpromoted by BHEL with Siemens, Germany for plant performance improvement of old fossilfuel power plants.

PPIL is in the process of settlement of outstanding issues and collection of withheldpayments for pending contracts. Since, sufficient business to ensure viability of thecompany has not been forthcoming, both the promoter partners have mutually agreed togradually wind up the company.

C) NTPC BHEL Power Projects Limited (NBPPL):

BHEL along with NTPC Ltd. has promoted a Joint Venture Company "NTPC BHEL PowerProjects Private Limited" for carrying out EPC contracts for Power Plants and otherInfrastructure Projects in India and abroad. The JV Company can also take up manufactureand supply of equipments, for power plants and other infrastructure projects, which arenot subject to any limitation or restriction under any ongoing collaboration agreement ofpromoter companies. The JV Company was incorporated on 28th April, 2008 with initialauthorized and paid up capital of R 10 lakhs subscribed to equally by NTPC and BHEL.Further, Board has also decided to enhance BHEL’s contribution from R 5 lakh to R 100Crore which will be done in tranches depending upon the requirements. The paid up capitalis R 50 Crore, with BHEL and NTPC each subscribed R 25 Crore. The JVC has acquired land inMannavaram, AP and is in the process of implementing Phase-I of the investment alreadyapproved. The JVC is also executing orders for Balance of Plant equipment assigned to it.NBPPL has entered into a technical collaboration agreement with M/S DMW, USA formanufacture and supply of Coal Handling Plants.

D) Barak Power Private Limited (BPPL):

BHEL has promoted a Joint Venture Company with PTC India Ltd. for setting up of 2x125MWCFBC based power plant in Silchar, Assam. The JVC was incorporated on 1^stSeptember, 2008 under the name of Barak Power Private Limited with an authorized and paidup capital of R 10 lakh subscribed to equally by BHEL and PTC. Due to non availability oflocal coal, the power plant has not been found to be viable. JV is under winding up.

E) Udangudi Power Corporation Limited (UPCL):

BHEL has promoted a Joint Venture Company with Tamilnadu Electricity Board for settingup of a 2x800MW Supercritical Thermal Power Plant at Udangudi, Tuticorin, Tamilnadu onbuild, own and operate basis. The JVC was incorporated on December 26, 2008 under the nameof "Udangudi Power Corporation Ltd". The initial authorized and paid up equityof the JVC is R 10 Crore subscribed to equally by TNEB and BHEL. The equity structurewould be diluted subsequently to bring in Financial Institution/Banks etc., so that TNEB& BHEL hold 26% equity each. The state Govt. has allotted land to the JVC for theproject. The JVC is also in the process of obtaining coal linkage, MOEF clearance andfinalizing main plant equipment order on BHEL. At present the paid up equity capital is R65 Crore, with BHEL and TNEB each subscribed R. 32.5 Crore.

F) Raichur Power Corporation Limited (RPCL):

BHEL has promoted a joint venture company with Karnataka Power Corporation Limited(KPCL) for setting up of a 2x800MW Supercritical Thermal Power Plant at Yeramarus,Raichur, Karnataka and 1x800MW Supercritical Thermal Power Plant at Edlapur, Raichur,Karnataka on build, own and operate basis. The Joint Venture Agreement with KPCL wassigned on January 12, 2009 and the JVC was incorporated on April 15, 2009 under the nameof "Raichur Power Corporation Limited". The initial authorized and paid upequity of the JVC is Rs. 10 Crore subscribed to equally by KPCL and BHEL. A change inequity structure has been approved with KPCL holding 50%, BHEL 26% and balance byFinancial Institution/Banks. The JVC has received MOEF clearance for the 2x800MW Yeramaruspower project and the order for supply and E&C of main plant equipment for the 2x800MWYermarus project has been placed on BHEL for a value of approx R 6300 Crore The EOI for1x800MW Edlapur project valuing R 3100 Crore has also been settled and LOA would be placedafter MOEF clearances. At present the paid up equity capital is R 663 Crore, with BHEL andKPCL each having subscribed R 331.5 Crore.

G) Dada Dhuniwale Khandwa Power Limited (DDKPL):

BHEL has promoted a joint venture company with Madhya Pradesh Power Generating CompanyLtd. (MPPGCL) for setting up of a 2x800MW Supercritical Thermal Power Plant at Khandwa,Madhya Pradesh on build, own and operate basis. The Joint Venture Agreement with MPPGCLwas signed on January 28, 2010 and the JVC was incorporated on February 25, 2010 under thename of "Dada Dhuniwale Khandwa Power Ltd". The initial authorized and paid upequity of the JVC was R 5 Crore subscribed to equally by MPPGCL and BHEL. A change inequity structure has been approved with BHEL holding 26%, MPPGCL-10%, PSUs/PSU-FIs/PSUbank-16% and balance 48% by a partner. The process of selection of 48% partner has beeninitiated. At present the paid up equity capital has been increased from R 5 Crore to s 45Crore, with BHEL and MPPGCL each having subscribed s 22.5 Crore, to enable JVC to meetland acquisition expenses.

H) Latur Power Company Limited (LPCL):

BHEL has promoted a Joint Venture Company with Maharashtra State Power GenerationCompany Ltd. (MAHAGENCO) for setting up a 2x660 MW Thermal power plant or 1500 MW gasbased Combined Cycle Power Plant (CCPP) in Latur, Maharashtra. The Joint Venture Agreementwith MAHAGENCO was signed on November 11, 2010 and the JVC was incorporated on April 6,2011 under the name of "Latur Power Company Ltd". The initial authorized equityof the JVC is s 5 Crore. The equity structure would be diluted subsequently to bring inFinancial Institution/Banks etc., so that MAHAGENCO & BHEL hold 26% equity each.

I) BHEL Electrical Machines Limited:

The Joint Venture Agreement was entered on 8^th September 2010 with Govt. ofKerala for acquiring the Kasaragod Unit of Kerala Electrical and Allied EngineeringCompany Limited (KEL), a wholly owned undertaking of Govt. of Kerala. The Company has beenincorporated on 19^th January 2011 as "BHEL Electrical Machines Ltd.",with BHEL holding the majority stake of 51% and Govt. of Kerala retaining 49%. The Companyshall manufacture alternators and other rotating electrical machines.

E. R&D AND TECHNOLOGICAL ACHIEVEMENTS

BHEL places strong emphasis on innovation and creative development. The research anddevelopmental efforts of the company are thus aimed not only at improving the performanceand efficiency of the existing products, but also developing new products usingstate-of-art technologies and processes, relevant to the needs of the country to remaincurrent both in terms of technology & features vis--vis global benchmarks.

Accordingly, BHEL pursued two pronged strategy namely; aggressive in-house efforts andencouraging innovation which is in line with the "Decade of Innovations(2010-2020)" declared by Govt. of India. As a result, R&D spend of the companyhas registered 18% growth over last financial year (from s 829 Crores to s 981.86 Crores)and associated growth of 15% in turnover from In-house developed products and servicesclocking turnover of s 7809 Crores, which is approx 20% of the total turnover of thecompany.

BHEL’s efforts for encouraging innovation have resulted in raising BHEL’s IPRcapital tally to 1438 with highest ever IPRs (303 nos.) filed this year.

Some significant developments carried out during the year are as follows:

• As part of its endeavour to offer the most contemporary products &technologies to customers, BHEL has become the first company in India to indigenouslydevelop and manufacture 1200 kV transformers. BHEL has successfully manufactured 1200 kV,180 MVA test transformer to be used as a testing transformer in the UHV Lab. BHEL has alsodeveloped and manufactured 1200 kV Capacitor Voltage Transformer (CVT) for the 1200 kVtest transmission line at Bina, which is a stepping stone for the company in the field ofUHVAC Transmission systems. 530 kN Disc insulators for 1200 kV UHVAC transmission lineshave also been developed for the first time in the country. Besides, the company hasindigenously developed and manufactured 765 kV, 500 MVA Transformer which will be put forfield trial at Power Grid Sub-station, Wardha.

• Aimed at enhancing efficiency as well as revenues for hydro utilities, BHEL hasdeveloped a hydro power plant equipment maintenance management system (MMS) – amaintenance software that provides vital support in ensuring continuous power generationwhile minimizing overhead costs due to downtime, repairs and replacements. MMS ensuresachievement of long-term objectives of the plant through effective and efficientmaintenance scheduling and other retrieval functions. Major utilities have already madethe inclusion of MMS package mandatory in all their tender documents. The system is beingsupplied to NHPC for installation at Sewa HEP.

• For the benefit of its customers by way of developing effective control systemsfor its products, a compact and cost-effective digital online monitoring and controlsystem (OLMCS) for power transformers has been developed and tested. The unit can measureand monitor winding temperatures, electrical parameters, moisture and gas-in-oil, andprovides alarm signals along with supervision of the operating condition and estimation ofremnant life and controlling overload of the transformer. The system helps save energy andmaintains voltage profile and has been type-tested as per international standards

• Continually striving to improve the economies of solar PV systems, BHEL hasdesigned and developed high efficiency passivated interface (PI) hetero junction solarcells on full size (125 mm pseudo-square), mono crystalline silicon wafers. With processstep optimization, an efficiency as high as 16.9% have been achieved. This is among thefirst few best efficiencies reported so far internationally for these type of cells.Following this development, steps will be taken towards batch production of cells andmodules and subjecting the modules to qualification tests.

• Reinforcing its commitment to optimum utilization of natural resources as wellas its concern for the environment, BHEL has developed a dynamic classifier system. Thesystem improves classification efficiency of the pulveriser and provides better particlesize control enabling availability of uniform coal size to the burners leading toimprovement of combustion efficiency of the boiler and reduction in the NOx emission fromthe boiler. The new dynamic classifier system has been commissioned at Dr. Narla Tata RaoThermal Power Plant, Vijayawada.

• Consistently offering tailor-made designs to suit customer needs, BHEL hasdeveloped a more reliable 500 kW, 300 rpm brushless exciter has been developed to cater toa range of hydro generators from for 16 MW to 60 MW rating. This opens up vistas to caterto a wider range of hydro generators and is also suitable for retrofit jobs in BHEL makehydro generators. Field trials at Devighat Hydro Power Station in Nepal have commenced andBHEL plans to develop brushless exciters for hydro generators up to 250 MW as the nextstep.

• Consistently offering tailor-made products & designs to suit customer needs,BHEL has developed & installed a 2.5 MVAr STATCOM for controlling quality of power andto reduce voltage flicker during operations of the electric arc furnace (EAF) at theBhilai Steel Plant. Voltage flicker and harmonic currents induced by EAF operations affectthe performance of sensitive electronic equipment connected to the distribution bus of theplant and other consumers linked to subject distribution systems. BHEL’s STATCOM,configured for EAF, increases steel productivity, reduces electrode consumption andreduces peak demand.

• Aimed at establishing dedicated infrastructure for developing high and ultrahigh voltage gas insulated transmission equipment, BHEL is establishing an Ultra HighVoltage (UHV) Laboratory for gas insulated substation (GIS) equipment at its CorporateR&D division, Hyderabad. The facility will also promote development and training ofBHEL personnel in design, evaluation processes and allied technologies specific to gasinsulated transmission equipment. It will comprise two distinct functional components– a high voltage di-electric test facility, and a dust-free design and assembly area.

• In line with its developmental work in futuristic areas, BHEL is establishing aCentre for Nano Technology (CNT) at its Corporate R&D division at Hyderabad. Thefacility will explore the application of nano materials in products and systems relevantto BHEL. Material development for applications like power plant components, nanostructured wear-resistant coatings, electrical insulating materials, solar cells, carbonnano tube applications, nano fluidics, fuel cells and sensors, will be studied at thisfacility. The CNT is being established to carry out cutting edge R&D and make BHELfuture ready in the areas of ultra supercritical power and renewable energy.

• BHEL continued its tradition of contributing to the country’s space program- 210 sq. mts. of space grade solar panels and 28 space quality batteries have beensupplied to ISRO for their space program, so far. During the year, ISRO launched Carto2Band GSAT4 satellites which are equipped with BHEL’s 24AH Ni-Cd batteries and solarpanels respectively.

• Pursuant to Govt. of India’s "National mission for development ofClean Coal (carbon) Technology", a MOU has been signed between BHEL, IGCAR and NTPCin Aug’10 for development & deployment of advanced Ultra supercritical powerplant in India.

BHEL would play a lead role in the entire spectrum from development to deployment.

1) Industrial Relations

Thrust on participative culture continued during the year and the Industrial Relationsin various Units and Service Divisions of the Company remained harmonious and cordial.Therefore, mandays lost reported during the year 2010-11 was NIL

Two meetings of the apex level bipartite forum, namely "The Joint Committee forBHEL" were held during the year. In addition, two meetings of the AnomaliesCommittees were held during the year wherein various issues arising out of theimplementation of 2007 wage revision were discussed and amicably settled. Elections fordeciding the representative union(s) were conducted in Bhopal unit on 22^ndApril, 2010 after a gap of about 33 years. Further, the Sub-Committee of the JointCommittee met in November, 2010 and decided to hold elections for reconstitution of theJoint Committee in April, 2011. Meetings were also held with the representatives ofExecutives and Supervisors wherein both Company and employee interest related issues werediscussed.

48 meetings of the Plant Councils and 177 meetings of the Shop councils were heldduring the year in various units of the Company wherein issues like cost reduction,meeting the production targets and customer commitments, sequential delivery, productquality, etc. were deliberated at length to improve the overall performance.

BHEL employees have always come forward in the cause of national disasters andcalamities and stood by the victims of such incidents. Continuing this tradition and as anexpression of solidarity with the people struck by cloudburst in Leh area in the state ofJammu and Kashmir, BHEL employees voluntarily donated a sum of approximately s 4.36 Crores(Rupees Four Crores Thirty Six Lacs) towards the Prime Minister’s National ReliefFund to provide succour to the affected and displaced persons.

2) Awards won by BHEL, Units & employees

Prime Minister’s Shram Awards (declared by Ministry of Labour)

• Prime Minister’s Shram Awards are given to workmen in Private and PublicSector of Central & State Government in recognition of their distinguishedperformance, innovative abilities, outstanding contribution in the field of Productivityand exhibition of exceptional courage and presence of mind.

• Prime Minister’s Shram Award 2008 (declared on 15^thAugust 2010): Shram Bhushan Award (One award won by an employee from EDN-Bangalore); ShramVir Award (One award won by an employee from HEP-Bhopal); Shram Shree Awards (Two awardswon by an employee from CFFP-Haridwar & an employee from HPEP-Hyderabad).

• Prime Minister’s Shram Award 2009 (declared on 21^stFebruary 2011): Shram Vir Award (One award won by an employee from CFFP-Haridwar); ShramShree Award (One award won by 3 employees from HPEP-Hyderabad).

• Prime Minister’s Shram Award 2010 (declared on 5^th July2011): Shram Bhushan Award (One award won by 4 employees from HPBP-Trichy); Shram ShreeAward (One award won by an employee from BAP-Ranipet).

National Safety Awards 2009 (declared by Ministry of Labour)

National Safety Awards are given to recognize good safety performance on the part ofIndustrial understanding (covered under factories Act 1986) and to stimulate &maintain interest of both the management & the workers in accident preventionprograms. SSTP-Trichy unit was declared winner.

Energy Smart Organization 2008 (declared by The Institution of Engineers (I) - APState Centre)

Hyderabad unit was declared as an "Energy Smart Organization" duringAll India Seminar on Enhanced Energy Efficiency held on 24-25 November 2010.

3) Human Resource Development

During the year 2010-11, the total number of employees exposed to different types oftraining is 31166, giving 15.02 training man days per employee.

In addition to employees, 6819 Act Apprentices were trained in different units giving1552577 man days.

Customer training has been a regular activity at BHEL and during the year, 1389customers were trained giving 112612 man days.

Rising to the social commitment, 8878 vocational trainees from different professionalinstitutions were also trained.

Human Resource Development Institute, Noida

During the year 2010-11, HRDI conducted 69 programmes spread over 352 days. A total of1544 participants have been covered giving 7286 training man-days.

Thrust on mentoring

Mentoring has been made compulsory for every Engineer Trainee / Executive Trainee sincethe year 2008-09. During the year 2010-11, 368 Mentors were trained in 13 trainingprogrammes held at HRDI and Units.

Engineer / Executive trainees induction training

Engineer Trainees (ETs) were provided one year training according to Dakshata-2007manual at BHEL units followed by the successful absorption in BHEL.

• During the year, 634 ETs were successfully absorbed and Common InductionLearning for additional 1000 ETs had been successfully completed.

• Additionally, 900 ETs joined BHEL in February 2011 at various units. Their CIThas also been successfully completed at various units.

4) Manpower strength

The manpower strength of the Company as on 31.03.2011 was 46,748.

5) Status on Presidential Directives

Presidential Directives on reservation policy issued by Central Govt. on reservationfrom time to time pertains to provision of certain percentages of reservation in directrecruitment as well as promotion in specified posts and for specified reserved category ofcandidates, i.e SCs, STs, OBCs and Physically challenged. Besides, the Directives alsocontain provision of certain concessions and relaxations in direct recruitments,promotions and reservation for housing for specified category of employees. ThePresidential Directives on the subject from time to time are being strictly complied withand reservation percentages are ensured through maintenance of Post Based Roster system asprescribed by Govt. However, there is no direct impact of these guidelines on thefinancial position of the company.

i) Activities of the company for welfare and advancement of SCs and STs:

The company has been following the Presidential Directives and guidelines issued by theGovernment of India from time to time regarding reservation for SCs, STs OBCs and PH.During the year 2010, various Community Development activities focused on SocioEconomicdevelopment of SCs, STs and Backward classes have been carried out in the communities andvillages in and around BHEL Units and in locations where company has presence, under BHELScheme of Corporate Social Responsibility.

ii) Representation of SC/ST employees:

The overall representation of SC/ST/OBC employees in total manpower was 19.59%, 5.40%and 18.28% for SCs, STs and OBC respectively as on 31.12.2010.

However, the percentages in direct recruitment during the year are 16.86% for SCs,8.00% for STs and 21.49% for OBCs. This does not include offers issued, but joined after31.12.2010, which takes care of the required percentage reservation, especially in STcategory.

The Annual Statement in the prescribed format showing the representation of SCs, STsandOBCs as on 01.01.2011 and number of appointments made during the preceding calendaryear, as furnished to the Government, is given at Annexure - A.

iii) Manpower strength of Physically Challenged employees as on 1st Jan, 2011:

Presently we have a total of 755 Physically Challenged employees in BHEL as on01.01.2011. The group wise manpower strength of Physically Challenged employees in theCompany as on 01.01.2011 is given at

G. RIGHT TO INFORMATION ACT, 2005

• BHEL is a front-runner in implementing the Right to Information (RTI)Act, 2005in letter and spirit. A Central Public Information Officer (CPIO) and a Central AssistantPublic Officer (CAPIO) at the company level and 14 CPIOs for each of the administrativeunits are functioning as part of Right to Information.

• Proactive disclosures were made in line with Section 4 (1) (b) of the Actthrough BHEL website. Suitable guidelines have been placed on RTI web page on BHEL website for convenience of the applicants, seeking information. Guidelines have been issuedto administrative units to ensure compliance to the mandatory requirements of the Act.

• BHEL received 1028 RTI applications during the year 2010-2011, while 146 appealswere filed before the First Appellate Authority. All these applications and appeals weredisposed off as per the provisions of the Act.

• In order to give greater thrust to implementation of RTI Act, Human Resource inthis Group at Corporate Office has been strengthened.

• BHEL is an active member of the Steering Committee on RTI constituted by StandingConference of Public Enterprise (SCOPE) wherein RTI related issues of common interestto various Public Sector Undertakings (PSUs) are exchanged so as to enable SCOPEto take-up the matter appropriately for intervention at policy level.

H. INTERNAL CONTROL SYSTEM

• The company has Internal Audit Cells located at major manufacturing units andregional offices of the company which carry out audit as per annual audit programmeapproved by Director (Finance)/Board Level Audit Committee. The Internal Audit departmentchecks the adequacy and effectiveness of internal control system through regular audits,system reviews and monitors compliance of various policies and procedures. The Company hasin-house Internal Audit Department commensurate with its size of operations. Functioningof Internal Audit and adequacy of internal control system is reviewed by Board Level AuditCommittees which is supported by Unit Level Audit Committee.

• The company has well placed proper and adequate systems of internal control anddocumented procedures covering all financial and operating functions. Adequate internalcontrol measures are in the form of various codes, manuals and procedures issued by themanagement covering all critical and important activities viz. Budget, Purchase, Material,Stores, Works, Finance, and Personnel etc. These codes, manuals and procedures are updatedfrom time to time and are subject to strict compliance which is monitored by InternalAudit. The Company continues its efforts to align all its processes and controls withglobal best practices.

I. MERGERS & ACQUISITIONS

BHEL is actively pursuing acquisition opportunities in Europe & USA in the areas ofrenewable energy and other potential areas like transportation & transmission toachieve its objectives like access to technology, access to global markets, securingglobal supply sources, diversifying into related & new business areas. In this pursuitBHEL has conducted an "M&A Advisors Meet" at Mumbai in November 2010 withempanelled M&A Advisors, to share BHEL’s target areas / sectors for M&A.

Bharat Heavy Plate & Vessels, Visakhapatnam (BHPV) a wholly owned subsidiary ofBHEL, which was acquired by BHEL in May 2008 has been turned around and registered aprofit after tax of s 8.77 Crore in FY 2010-11.

World

The global economic crisis of 2008-09 threw energy markets around the world intoturmoil. Fortunately, with the growth of 4.9% in 2010 global economy rebounded , asgovernment support and the need to replenish inventories reversed the decline and sparkedrenewed growth in industry and trade. This economic growth was led by the non-OECDeconomies which had suffered least during the crisis.

As always, economic growth is a key determinant of energy demand and the energyconsumption generally mirrors the economic cycle. Therefore, the pace of the globaleconomic recovery holds the key to energy prospects for the next several years, but itwill be governments’ responses to the twin challenges of climate change and energysecurity that will shape the future of energy in the longer term. As per BP StatisticalReview of World Energy 2011, energy demand fell by more than GDP in 2009 (when it saw itsfirst decline in almost 30 years) and it rose by more than GDP in 2010 (when it saw itsstrongest increase for nearly 40 years).

In recent years, world has seen notable steps forward by international politicalfraternity in policy making, with the negotiation on important international agreements onclimate change, reform of inefficient fossil-fuel subsidies and development and deploymentof low-carbon technologies which has potential to transform the global energy systems.

As per World Energy Outlook 2010, in above policy scenario world primary energy demandis expected to increase by 36% between 2008 and 2035 or 1.2% per year on average. Fossilfuels- oil, coal and natural gas-will remain the dominant energy sources in 2035accounting for over one-half of the increase in total primary energy demand. By 2035,China would account for 22% of world demand, up from 17% today followed by India with 18%share in the rise.

Natural gas is expected to play a central role in meeting the world’s energy needsfor at least the next two-and-a-half decades. Global natural gas demand which fell in 2009with economic slowdown is set to regain its long-term upward trajectory from 2010. It isthe only fossil fuel for which demand is higher in 2035 than in 2008.

Renewable energy sources will have to play a central role in moving the world onto amore secure, reliable and sustainable energy path. The potential is unquestionably large,but how quickly their contribution to meet the world’s energy needs grows hingescritically on the strength of government support to stimulate technological advances andmake renewables cost competitive in comparison to other energy sources.

India

GDP growth of 8.6% (AE) during 2010-11 restored economy to the high growth trajectory.Growth had moderated in the preceding two years as the global economy slowed down as aresult of global financial crisis. The growth during 2010-11 reflects a rebound inagriculture and sustained levels of activity in industry and services.

Overall growth indicators are mixed. Prospects for agriculture appear encouraging,given IMD’s forecast of a normal monsoon and a good outturn of Rabi in 2010-11.Industrial growth, however, moderated in the second half largely reflecting the waning ofbase effects and contraction in capital goods output. The deceleration has, however, beenexacerbated by few items with volatile output. Other indicators, such as the PurchasingManagers’ Index (PMI), direct and indirect tax collections, merchandise exports andbank credit suggest that the growth momentum persists. Indicators on services sectoractivity also remain robust, not withstanding some deceleration in the government spendingrelated services. However, high energy and commodity prices may impact output andinvestment climate, and pose a threat to maintaining high growth at a time when theinvestment momentum may be slowing down.

Power Sector

Government of India is strongly committed to build an efficient and rapidly growingelectricity sector with large-scale private and foreign investment and state-of-arttechnology. Various policy and regulatory reforms like Electricity Act 2003 demonstratethis resolve. As a result, the sector has been growing quite remarkably over the lastcouple of years. During 11^th Plan, country witnessed capacity addition, much ofit thermal, of 34.5 GW up to 2010-11, the highest ever in any plan. There are indicationsthat in 2011-12, the sector is expected to add even more, about 60 GW in all over the XIPlan period (ending in 2011-12), virtually double that in the previous five years’plan. Still, country’s power sector is characterised, with some pockets as notableexceptions, by a sharp demand-supply imbalance, frequent power cuts, and inadequatecoverage. The peak load deficit during 2011-12 is expected to be 10.8%. It is acknowledgedthat the deficit in power availability is a significant impediment to the sustaineddevelopment of the economy. In this context, bridging the gap in demand and supply hasbecome critical and consequently, large capacity additions are being undertaken indifferent segments of the sector; Generation, Transmission and Distribution. During 12^thand 13^th Plan periods, Government of India plans to add more than 100 GWeach to the power generation capacity of the nation with the matching additions in T&Dsegments. There are tremendous opportunities for growth for all stakeholders. New playersfrom India, China and developed nations are striving to exploit these opportunitiesemanating from Indian markets.

Indian power sector is also responding to the challenges of climate change byintroducing energy efficient, climate friendly and less fuel consuming technologies likehigh rating thermal sets with Supercritical parameters, UHV Transmission systems etc.Development of IGCC and Advanced Ultra Supercritical technology is also being pursuedaggressively.

However, some areas continue to concern stakeholders. Capacity imbalances particularlyin Balance of Plant areas along the power value chain have emerged as one of the mainhindrances in realising the capacity addition targets for the sector. The woes of landacquisition, delay in regulatory clearances, erratic fuel supplies, lack of adequateinfrastructure and deteriorating financial position of state utilities are risks tosustain current growth momentum of the sector.

Industry Sector

Real GDP growth in 2010-11 regained near trend growth rate, following two successiveyears of below trend growth. Non-agricultural GDP growth, however, was slightly below thetrend. The main impetus to the growth in 2010-11 came from agriculture which benefitedfrom a normal monsoon, while industry and services registered mild deceleration.

During 2010-11, the industrial sector exhibited signs of slowdown as the IIP growthmoderated with intermittent episodes of volatility mainly on account of the high baseeffect and sharp deceleration in capital and intermediate goods which could partly beattributed to the moderation in investment demand in Q3 of 2010-11.

Lead indicators for the Capital Goods sector (business confidence, capitalavailability, capacity utilization) have moderated in recent months, as manufacturinginflation has been ahead of expectations. Increased cost of capital driven by elevatedinterest rates is likely to prompt a deferral of capacity addition plans for themanufacturing and services industries. Although companies in the capital goods space arereporting encouraging order enquires, project finalizations are being held off due tounfavourable macro conditions—in turn reflected in the muted growth in order inflowsfor the sector. Further, demand is likely to moderate in the short term as fallout of therising interest rates. But demand is expected to revive over a longer time horizon on theback of the need for infrastructure spending to sustain the country’s economic growthtrajectory, and robustness in urban and rural consumption led by rising disposableincomes.

As per CMIE (May 2011), industrial production is expected to grow by 9-10 per cent in2011-12 with capital goods production continuing to grow briskly aided by huge capacityadditions lined up across various industries.

K. POSITIONING FOR THE FUTURE

• The company continues its focus on six priority areas for growth viz. CapacityEnhancement, Accelerated Project Execution, Product Cost Competitiveness & Quality,Diversification, Engineering & Technology and People Development to sustain itsleadership in the power sector and capture opportunities in emerging areas.

• Towards manufacturing capacity enhancement, capability to deliver 15,000 MW p.a.has been realised. Further expansion to 20,000 MW by March 2012 is in progress. Byensuring that investments are timely, well planned and scalable, the company continues toharness emerging opportunities in domestic Power sector.

• BHEL is actively pursuing several opportunities for sustaining future growth.These include:

•  Strategic Alliance with Toshiba, Japan to establish a JVC to addressTransmission &Distribution (T&D) business in India and other mutually agreedcountries. The JVC will cover equipments and projects in EHVAC & UHVAC range including765 kV transformers and reactors & GIS, in addition to other products and systems.

•  Transportation business where BHEL is participating in tenders for settingup factory for Electric Loco components and Diesel Loco factory.

•  Proactive participation in Nuclear Business segment by entering into atripartite JV with NPCIL & Alstom for conventional island of Nuclear Projects for 700MWe.

•  Joint Working Arrangement with Abengoa, Spain for Concentrated SolarThermal Power Plant (CSP) and the Strategic Alliance with BEL for formation of JV forsetting up manufacturing facility (240 MW) for silicon wafers, solar cells & modules.

•  Increased focus in water business area where the company has entered intoa manufacturing associate agreement with GE India Industrial Private Limited (GEIIPL), forWater Treatment Equipment.

• In the company’s quest to make its supply chain more agile and accelerateproject execution, initiatives like vendor base expansion, outsourcing, advancedmanufacturing action, rate contracts, deployment of additional tools and plants, globalsourcing and away centre fabrication, etc. are being pursued continually.

• Capability building initiatives like Lean Manufacturing (LM), Design-to-Cost(DTC) and Purchase-Supply-Management (PSM) in identified product areas across the companywould enable the company remain cost competitive.

• As a part of strategic initiative to enhance and strengthen manpower, aninduction of 15,606 people has been done during 2007-11. Alignment of HR processes andsystems with business requirement would be continued with focus on enhancing employeeengagement and development of skills and competencies besides ensuring successionplanning.

• Despite slow recovery in international business, BHEL is poised to consolidateits position in existing international markets and make foray in new markets to expand itsinternational footprint.

Manufacturing and service presence in export markets will be explored for geographicaldiversification.

• To capture emerging opportunities, BHEL would continue to pursue strategicalliances by way of Joint Ventures with State Utilities to leverage equipment sales insupercritical thermal projects, and with others for sourcing of technology, criticalinputs and equipments.

• BHEL will enhance its responsibility towards socioeconomic and communitydevelopment programmes in various villages located near its manufacturing plants andprojects sites spread across the country.

• BHEL will continue to excel in innovation-led business strategy to ensure thatthe company is at the forefront of industry developments and continually improves productsand services.

• As a part of ‘National Mission for Clean Coal (Carbon) Technologies’,the company would play a significant role in development of Advanced Ultra Supercritical(ADV-SC) technology in association with Indira Gandhi Centre for Atomic Research (IGCAR)and NTPC.

• The company is on track to meet the Strategic Plan 2012 target of US$ 10-11Billion by 2011-12.

• Formulation of ‘Strategic Plan 2012-17’, seventh in the series ofCorporate Plans adopted by the company since 1974 is under process to address marketchallenges and enable the company enter next level of growth.

L. RISKS AND CONCERNS

The global economic recession that began in 2008 and continued till 2009, is movingtowards recovery. As the global financial condition continues to improve, it remainsuneven as there is downside risk on account of commodity prices, notably oil - which hasthe potential to move on the upswing due to uncertainties of supply and geopoliticalconsiderations. There are mounting worries over energy security and climate change in theglobal context. Concern is on the rise about environment pollution in the emergingeconomies. Moreover, there is renewed debate on power generated from nuclear powerstations and their strengthening on safety aspects. These are some factors influencingrevisit of existing regulatory frameworks worldwide.

The Indian power sector has over the years caught attention of the world because ofhigh power capacity additions program planned in the country. This has resulted in anumber of international players/suppliers of power equipments increasing their focus onthe growing Indian market by joining hands with domestic companies, setting upmanufacturing facilities or augmenting their existing capabilities. Some of theseinternational players are technology leaders, and insist on their terms & conditionsincluding imposition of licensing restrictions on different market territories in overseasarena as a pre-condition for technology collaboration.

A combination of global competition and open access in the domestic market is puttingpressure on the margins as new players are likely to move towards gaining market share bybidding aggressively. This could escalate the competitive intensity for BHEL in thelong-term. The margins could also be impacted by movement in raw material prices,especially steel and copper.

Coal being the dominant fossil fuel used for power generation in India, domestic powerdevelopers/utilities are facing crunch of this natural resource due to shortage of supplyas excavation of coal is not matching with demand. In addition, various other constraintslike delay in obtaining environmental clearances, land acquisition and local law and orderproblems are affecting implementation of power projects.

India has an overall strategic imperative to balance the goals of sustainable energyuse, enhanced competitiveness and maintenance of the security of the energy supply. TheIndian market is moving steadily towards adaptation of new technologies, likesupercritical technology and its assimilation which can lead to initial technical hitches.The domestic power sector has other concerns like limited number and capacity/ capabilityof balance of plant vendors in the country as well as for competent/qualified constructioncontractors for taking up large size power projects and handling of increased constructionload, shortage of skilled manpower with sub-contractors, contractual issues betweenproject authorities/ developers, contractors and their sub-contractors etc.

In most of the business areas in which BHEL operates, the growth prospects aredependent on policy decisions at the national level as also on the prevailing businesstrends.

Annual Statement Showing the Representation of SCs, STs and OBCs as on 01/01/2011 andNo. of appointments made during the preceding calendar year 2010

** In BHEL there is no appointment at induction level by promotion

ANNEXURE – B

Note: (i) VH stands for Visually Handicapped (persons suffering from blindness orlow vision)

(ii) HH stands for Hearing Handicapped (persons suffering from hearing impairment)

(iii) OH stands for Orthopaedically Handicapped (persons suffering from locomotordisability or cerebral palsy)

* There is no reservation in Promotion from Group B to A and within Group A. In BHELwithin Group-C & D, career based promotion policy is followed, wherein all employeeson completion of prescribed eligibility period in a Grade and subject to attainingsatisfactory levels in conduct and performance are promoted to the next higher grade.