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CHAPTER V

PERFORMANCE OF BEML - AN ANALYSIS

5.1 Introduction

A brief description about project implementation, procedure,

projects in progress and operational and financial performance in BEML is

given in this chapter.

BEML is ranked as "The Largest and Most Profitable Construction

Equipment Company" by Construction World - NICMAR, 2007. It has

emerged in the forefront of heavy engineering industry with a track record of

growth and revenues for over four decades. For its innovative management

practices the company has been awarded the "Golden Peacock Innovation

Management Award". BEML has also been rated as "The Fourth Largest

Wealth Creator in the Country" by Dalal Street Magazine.

5.2 Project Implementation Procedure in BEML

The procedural aspects of the implementation of PMS in BEML

has been as detailed below;

Idea Formation: Basically promising idea emerges based on

the requirement of the company to take up projects depending

on the demand for the product and the potential customer.

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Planning: The project approval from the state government,

central government and other bodies is obtained. This is

followed by preparing the feasibility report which measures

the project based on its ;

Economic viability

Financial viability and

Social viability

A Detailed Project Report (DPR) is prepared by an appointed

consultant. Detailed drawings will be made on various phases or sequences of

the project based on which, quotations of public tenders will be called. Nodal

officer will be nominated as Chief R&D and the Team will be identified from

various departments like purchase, maintenance, facilities, planning,

manufacturing, finance and marketing for implementation of the projects.

Suitable PERT chart and CPM will be drawn. The Regulatory supervision

will be monitored by the management.

Execution

The project will be divided into various activities like Civil

contract; Landscaping; Fencing; Building construction; Designing of civil

construction; Designing of interiors; Mechanical work; Pipeline; Gas pipeline;

Water treatment; Sewage line and Electrical contract.

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The time frame required to complete the project will be as per the

customer requirement or the purchase order. Normally the time taken would be

around 18-24 months and also varies from project to project. Around 20 types of

projects have been taken up from the time of inception till date. Almost all the

projects have been completed within the scheduled time. On an average around 6

to 7 projects are taken up in a year. The study reveals that there is no drop out

projects. All projects are taken up simultaneously and separate teams are formed

for each project.

Tender Quotations

Tender will be evaluated based on the technical know-how,

experience, number of similar contracts undertaken etc, . After scrutinizing the

tenders the unqualified ones would be eliminated and only the qualified tenders

are opened for bids which are divided into each package. Date of completion is

also specified. The shortlisted tenders are classified as L1, L2, L3 and finally L1

is selected.

Clauses specified

The terms include LD clause (liquidated damages) wherein if the

project is not completed in the stipulated time the loss has to be borne by the

contractor. Delay to the extent of one week period may be subject to bearing a

loss of 0.5% of the project and delay of 2 weeks may be 1% subject to a

maximum of 10% which will be a heavy loss. All the activities are performed

parallely but properly sequenced and timed.

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Monitoring and Control

During the process of execution very strict monitoring and control

takes place. Overall timeframe i,e start time and end time is specified clearly.

Further it is subdivided into completion of activities month wise and on

weekly basis and in-between targets are also set providing room for

contingencies. Monthly meetings are conducted for updations of the progress

of the project wherein all contractors are present for discussion and for further

decisions to be taken.

5.3 Projects currently in Progress

Diversifying and Globalising being the main strategy of the

company and Quality Assurance being the motto of BEML, action plans are

designed and implemented to complement and supplement the company’s

ambitious ‘vision’ of becoming global market leader.

In the process of maximizing profits and also to achieve its

ambition, the Research and Development department continuously plays a

vital role in the organization. One such project is the R&D project - R&D

Centre of Excellence in Bangalore complex initiated, costing Rs. 134 crores.

Establishment of Bangalore Metro Rail manufacturing facility at Bangalore

complex for Rs. 214 crores of which a Grant offer of Rs.125 crores is from

the Central Government. The Planning commission gives grants through the

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ministry of Heavy Industries and Public Enterprises, a society formed from

various institutions like HAL, HMT, TIFAC (Technical information

forecasting assessment council and DST (Dept of science and technology).

Some of the projects under progress are:

Delhi Metro Rail project - BEML purchases the technology

from ROTEM for manufacturing of Metro rails because Metro

rails differ from Metro coaches as the Metro coaches will be

used by different set of people and used only in Metropolitan

cities with a fast moving population. Presently ROTEM the

contractor and BEML is the vendor for manufacture of 240

coaches to supply to DMRC. For metro coaches BEML has

signed a collective agreement with ROTEM of Korea for

technology transfer.

Bangalore Metro Rail project

Green field project – A new production unit in Palakkad

Upgradation projects - BEML has development orders for

intermediate cars for DMRC RS4 project. This intermediate

cars is to enhance the present four car formation of metro cars

to six car formation which will increase the passenger carrying

capacity.

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5.4 Performance of BEML

The performance of BEML has been ever improving from its

inception over the past four decades. The Performance of BEML is analysed

under two broad aspects namely,

Operational Performance and

Financial Performance

5.4.1 Operational Performance

Being a public sector undertaking under the ministry of Defense,

BEML commands 70% market share in domestic earthmover industry. Nearly

40% of its equity has been divested to financial institutions and public. The

Nationwide Network of sales offices of BEML gives the buyers, ready access

to its wide range of products and services. Its service centers and spares

depots provide total equipment care and rehabilitation service. The company’s

personnel and site engineers ensure higher availability of machines through

prompt after sales services and maintains the decorum of a quality

organization.

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5.4.1.a Value of Production, sales turnover and Exports

The operational performance of BEML could be measured by

seeing its value and growth of production, sales turnover and exports as given

in the Table 5.1.

Table 5.1 Operational performance – Sales, Production and Exports

Year Sales

(in crores)

% growth

in sales

turnover

from the

period 2000

to 2010

Value of

Production

(in crores)

% growth in

value of

production

from previous

year

Exports

% growth

in Exports

from

previous

year

2004-05 1856.01 50.86 1885.95 11 58.56 11

2005-06 2205.84 63.71 2179.57 16 61.49 5

2006-07 2601.79 93.09 2590.75 19 110.73 80

2007-08 2713.34 101.37 2826.95 09 200.62 81

2008-09 3013.47 123.65 3294.19 17 303.34 52

2009-10 3557.67 164.03 3708.66 13 156.25 (48)

The Table 5.1 shows the percentage growth in sales, Value of

Production and Exports for the period 2004-05 to 2009-10. There has been a

phenomenal and consistent growth in sales at 164.03 percent in the year 2009-

2010 from 50.86 percent in the year 2004.-05. The value of production has

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risen steadily over the years. There has been a 96 % increase in the value of

production from the year 2004-05 to the year 2009-10. The exports have

increased in the years 2006 and 2007, followed by a decline in exports in the

years 2008 and 2009. The drop in international business in 2008 and 2009-10

was mainly due to the global recession as also many orders were not

converted into sales for want of LC because of funds constraints with the

clients. But however its international presence has increased to 56 countries as

on 2009-10. The figure represents the growth in Sales, Production and exports

for the period 2004-05 to 2009-10.

Figure 5.1 BEML’s growth in Sales, Value of Production, and Exports

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5.4.1.b BEML’s Contribution to Ex-chequer and procurement from

MSM

The operational performance of BEML could also be assessed from

its contribution to exchequer and its procurement from MSM as shown in the

Table 5.2

Table 5.2 BEML’s contribution to exchequer and procurement from

MSM

Year Tax contributed

to exchequer

(in crores)

% growth in Tax

contributed to

exchequer

From 2004 to 2010

Procurement

from MSM

(in crores)

(2004-2010)

% growth in

Procurement

from MSM

2004-05 366.48 - 102.81 -

2005-06 491.42 0.34 102.65 (0.001)

2006-07 461.76 0.25 27.50 (0.73)

2007-08 595.63 0.62 163.18 0.58

2008-09 580.34 0.58 209.06 1.03

2009-10 688.25 0.87 517.38 4.03

The Table 5.2 shows the percentage growth in the tax contributed

to the exchequer and Procurement from MSM (Micro, Small and Medium

Enterprises) from the year 2004 to the year 2010. The tax contributed to the

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exchequer as on 2009-10 is 688.25 crores (ie., 0.87% increase) , a substantial

contribution to the economy. An increase in the procurement from MSM has

increased from Rs.102.81 crores to 517.38 crores (ie., 0.001 percent to 4.03

percent). It is represented in Figure 5.2.

Figure 5.2 Contribution to exchequer and Procurement from MSM

5.4.2 FINANCIAL PERFORMANCE

5.4.2.a Growth analysis of net worth

The company achieved an all time high turnover of Rs. 3558 crore

during the financial year 2009-10, a growth of 18% over the previous year.

The profit before tax stood at Rs.320 crore. The international business

achieved a turnover of Rs.157 crore. The international presence of the

company has increased to more than 56 countries with the entry into Brazil,

Nigeria etc. during the year 2009-10. Market value of company’s shares rose

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from a mere Rs.58 per share to Rs.1700 in 2005-06 and is now at about

Rs.1000, thus giving phenomenal returns to the share holders.

The main sources of funds for the company are internal resources

and credit facilities from banks. In order to fund the various expansion /

modernization and business projects the required capital was raised through a

public offer of shares and a Follow on Public Offer in June 2007, with 49 lakh

equity shares of the company. With the sound fundamentals, excellent

performance track record and the active pre issue campaigns launched by the

company, the FPO was a resounding success and the issue was over

subscribed 31 times, the highest ever for a PSU. The 10 rupee shares of the

company were offered at Rs. 1075 and the company could raise Rs.526.75

crore through this, to Contribution to exchequer and Procurement from

MSM fund its expansion programs and other identified projects. The month

wise market price data for the period 2009-2010 is shown in Table 5.3 and the

same is presented graphically in Figure 5.3.

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Table 5.3 Market Price Data: High and Low during each month from

1st January 2009 to 31st May 2010 in BSE and NSE

Month/Year

BSE NSE

High

(Rs.)

Low

(Rs.)

High

(Rs.)

Low

(Rs.)

January - 2009

February

March

April

May

June

July

August

September

October

November

December

January - 2010

February

March

April

May – 2010

397

417

399

542

825

1154

1124

1146

1220

1125

1114

1147

1275

1190

1080

1107

1068

322

334

330

386

502

737

905

1039

1020

913

930

973

1006

1000

1017

1017

952

398

442

398

542

825

1153

1130

1184

1220

1124

1055

1142

1275

1190

1080

1165

1057

320

334

330

383

500

737

909

1014

1028

912

925

984

1005

1001

1016

1017

952

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Figure 5.3 BEML’s Scrip against the Sensex index

During the year 2001-02, the company’s sales turnover was

Rs.1424 crore and the profit (before tax) was a mere Rs.13.01 crore, which

was less than 1% of the sales. Since taking over the reins of the company, the

CMD, Mr. Natarajan, a visionary and dynamic leader, clearly perceived the

changed business environment prevailing and recognized the need for the

company to transform itself in order to attain market leadership and become a

high performing company against all the challenges to be faced. With his

clear Vision, he spearheaded a change process to achieve growth.

Accordingly he initiated several strategic measures and ensured the same are

implemented within a specified time frame. As regards sales, during 2009-10,

the company has achieved an all time high turnover of Rs.3558 crore, up from

Rs.1424 crore in 2001-02, thus providing a growth of 149% with the profit

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before tax being Rs.319.55 crores, and an increase of Rs.544.20 crores , a

growth of 18% of sales over the previous year 2008-09. It has plans to

diversify into varied activities including underground mining equipment,

underground storage for petro-products, leasing and financial services and

joint ventures abroad

The Financial performance of BEML, includes the analysis and

interpretation of the following financial metrics:

Profitability ratios

1. Growth analysis of PAT

2. PBIT to Capital Employed

3. PAT to Net worth

4. EPS

5. Dividend paid for the period 2005 to 2010

Solvency Ratios

6. Debt is to Equity

7. Return on Equity

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Activity Ratios

8. Growth analysis of Foreign Exchange Earnings

9. Analysis on Turnover to Capital Employed

10. PBT to Sales 

11. Value of Production to Inventories

5.4.2.b Profitability ratios

The financial performance of BEML is measured from few factors

and ratios such as PAT, PBIT to capital employed, PAT to Networth, EPS and

Dividend paid as given in the Table 5.4.

Table 5.4 Profitability Ratios

Year PAT

(in crores)

% growth in

PAT from the

period 2000

to 2010

PBIT To

Capital

Employed

(ratio)

PAT to

Networth

(ratio)

EPS Dividend

%

2004-05 175.28 28.2 35.98 25.24 47.70 100

2005-06 186.93 30.2 33.73 21.89 50.87 100

2006-07 204.93 33.2 31.83 20.20 55.77 120

2007-08 225.65 36.6 18.94 13.34 56.10 120

2008-09 268.84 43.8 17.47 14.10 64.56 120

2009-10 222.85 36.1 10.85 11.0 59.76 100

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The Table 5.4 shows the growth in Profit after Tax (PAT) is

observed, a remarkable increase from 6 crores in the year 2000 to 175.28

crores in 2004-05 to 222.85 crores in 2009-10. The reduction in profit in

2009-10, was mainly on account of implementation of wage revision for

employees, change in product mix propelled by the market demand, lesser

quantum of sales of spares coupled with severe competition that had exerted

pressure on margins. However, Company has initiated steps to maximize its

profits.

The PBIT to Capital Employed, has declined during the years 1998

to 2003-04, due to infusion of funds for expansion purposes, the decline

during the years 2007-2009 is due to decline in Profits affected by the global

recession.

Profit After Tax to Net Worth ratio has been satisfactory during the

years of economic boom from 2004-05 to 2006-07 and later on declined

during 2008 and 2009.

The Earnings Per share (EPS) has shown a tremendous increase

from Rs.7.10 to Rs. 64.56 during the period 2002-03 to 2008-09. EPS is a

good indicator for the financial performance of the company.

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The dividend paid to the shareholders has been consistently

maintained at 100% and 120%.

Figure 5.4 represents the profitability metrics graphically.

Figure 5.4 Profitability Ratios

5.4.2.c Solvency Ratios

The solvency ratio, helps to assess the strength of BEML which is

measured from the Debt Equity ratio as given in the Table 5.5.

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Table 5.5 Solvency ratio of BEML

Year Debt to Equity

ratio

Return on

Equity

2004-05 0.10 9.3

2005-06 0.03 10.2

2006-07 0.02 12.3

2007-08 0.18 13.4

2008-09 0.30 14.1

2009-10 0.45 11.0

Table 5.5 throws light on the solvency ratios. The solvency position

is assessed using the Debt to Equity ratio and the Return on Equity.

The year 2008-09, has shown greater ROE, but during 2009-10

ROE has dropped due to the impact of global recession. The year 2007-08,

has a satisfactory level of Debt to Equity ratio. From the year

2007-08 the debt value has increased for meeting the capital expenditure on

global expansion.

The Return on Equity has shown a stable increase except for the

year 2009-10, an impact due to global recession.

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Figure 5.5 Solvency ratio of BEML

5.4.2.d Activity Ratios

The Activity ratios such as PBT to sales, Production to Inventories,

Turnover to capital employed, Foreign Exchange earnings are analysed to

measure the growth performance of BEMLas given in the Table 5.6.

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Table 5.6 Activity Ratios

Year

Foreign

exchange

earnings

% growth

in Foreign

exchange

earnings

(2004-2010)

Networth

(in crores)

% growth

in Net

worth

from

previous

year

Turnover

to capital

employed

(ratio)

PBT to

sales

Production

to

Inventories

ratio

2004-05 39.09 - 694.39 22 243.2 14.70 315.8

2005-06 44.61 0.14 853.90 23 256.6 12.94 343.2

2006-07 85.53 1.20 1014.59 19 257.44 12.15 387.63

2007-08 33.62 (0.14) 1691.76 66 138.48 12.83 354.37

2008-09 282.79 6.23 1907.08 13 123.34 12.86 228.85

2009-10 133.91 2.42 2036.29 7 120.75 11.13 224.36

  The Table 5.6 shows an increase of foreign exchange earnings from

Rs. 39.09 crore (0.14 percent) to Rs. 133.91 crore (2.42 percent) ie., an

increase of 2.28 percent.

The Networth has increased from 694.39 crores to 2036.29 crores,

an increase of 193 percent from the year 2004-05 to 2009-10. 

The Turnover to Capital Employed has shown a stable increase till

the year 2006-07 followed by a decline in the ratio, which is due to decrease

in Turnover affected by the global recession.

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Profit Before Tax to Sales has shown a gradual decline from the

year 2004-05 onwards. Despite notable increase in sales volumes, the PBT

was Rs.319.55 crores as against Rs.387.47 crores recorded in the previous

financial year. The reduction in profit was mainly on account of product mix

including metro car sales, lesser quantum of sales of spares and lesser

turnover of exports coupled with severe competition that had pressure on the

margins.

Value of Production to Inventory ratio of BEML shows a steady

increase from its inception except for the years 2008-09 and 2009-10.

Figure 5.6 represents the Activity ratios of BEML graphically.

Figure 5.6 Activity Ratios of BEML (2004-05 to 2009-10)

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5.5 Summary

Successful project management requires that all knowledge areas

(scope, time, cost, quality, human resource, communications, risk,

procurement, project integration) be managed effectively. Effective use of

human resources in coordinating, integrating, communicating, plays a key

role in the timely completion of the project. BEML has achieved its long run

success over the years and sustained its position for more than four decades,

due to its effective Project Management System. The Operational and

Financial Performance analysis exhibits the consistent and remarkable growth

of BEML over a period of 48 years from its record making results.