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CAPITAL BUDGETING FOR CAPACITY ENHANCEMENT OF AC

LOCOMOTIVES FACILITIES

TM

At

BHARAT HEAVY ELECTRICAL LIMITED


JHANSI (U.P.)

By

RAJKUMAR ARYA
Under the guidance of

Dr. (Mr.) Kushal Kataria Mr. Ghanshyam mourya


Associate Professor Engineer,
G D Goenka World Institute P&D Department, BHEL
Lancaster University, U.K. Jhansi

A project report submitted in partial fulfilment of the requirements for the


Award of the Degree
Of

MASTER OF BUSINESS ADMINISTRATION (MBA)

G D GOENKA WORLD INSTITUTE, GURGAON, INDIA


(LANCASTER UNIVERSITY, U.K.)

MAY-JUNE 2010
ACKNOWLEDGEMENT

I express my deep sense of gratitude to Mr. Ghanshyam Mourya, Engineer -P&D, BHEL,
Jhansi for offering me this project. I am also grateful to Mr. Abhishek Jain, Assistant
Manager-FP&A, Wipro Technologies, Bangalore and the whole FP&A Team for taking
pains in explaining the requirements, correcting errors, clearing doubts and patiently guiding
me throughout the project.

I sincerely thank my internal guide Dr. Kushal Kataria, Assistant Professor, G D Goenka
World Institute, Gurgaon for meticulously reviewing my work, making corrections and
offering suggestions without which the project would have been incomplete.

I am indebted to all my colleagues at BHEL intern for their constant support and help at all
times, without which this project would have remained incomplete.

Finally, I extend my heartfelt thanks to my parents for being a source of constant inspiration
and continuous encouragement.

RAJKUMAR ARYA
PREFACE

With immense pleasure and deep sense of sincerity, I have completed my Industrial
training. It is an essential requirement for each and every student to have some
practical exposure towards real world situations. A systematic practical experience is a
must to inculcate self confidence in a student so that they can mentally prepare
themselves for this competitive environment.

The purpose of the training was to:

1. Developing intellectual ability

2. Bringing confidence

3. Developing skills

4. Modify attitudes
PROJECT FORMAT

CHAPTER DESCRIPTION PAGE NO.

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

1 INTRODUCTION
1.1 Introduction to the topic
1.2 Need for the study
1.3 Statement of the problem
1.4 Objectives of the study
1.5 Research Methodology (population, sample, research method,
sampling method, tools of data analysis)
1.6 Limitations of the study

2 PROFILE OF THE COMPANY

3 ANALYSIS AND INTERPRETATION

4 CONCLUSION

5 BIBLIOGRAPHY
EXECUTIVE SUMMARY

The objective of the study is to analyze the process use for capital budgeting done in BHEL
in which the proposals are analyzed in terms of Return on investment and Payback period and
also the internal rate of return. The acceptance rules for the proposal are decided by the
management of the Organization.

Capital budgeting refers to the process we use to make decisions concerning investments in
the long-term assets of the firm. The general idea is that the capital, or long-term funds,
raised by the firms are used to invest in assets that will enable the firm to generate revenues
several years into the future. Often the funds raised to invest in such assets are not
unrestricted, or infinitely available; thus the firm must budget how these funds are invested.

BHEL is one among the Navaratna and continuous growing organization. This report
summarized the process for capital budgeting in BHEL Jhansi unit with the example of the
proposal of scheme “Capacity Enhancement of AC LOCO” under this scheme the
organization is having an investment for Rs.4535 Lakhs and this amount is invested for the
opening of a new workshop named as BAY 10 which will enhance the capacity of the
Organization to manufacture the AC LOCO which are in demand by the Railways.

After analyzing the proposal with all aspects, such as doing the sensitivity analysis etc,
following results have been obtained. The investment is giving the IRR of 15.43%, Payback
period is 7.96 years and the return on investment is 19.81%.
CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION

Capital budgeting is concerned with designing and carrying through a systematic investment
programme. According to Charles T. Horngren; “Capital budgeting is a long-term planning
for making and financing proposed capital outlays.”

As per the words of G. C. Philippatos; “Capital budgeting is concerned with the allocation
of the firm’s scarce financial resources among the available market opportunities. The
consideration of investment opportunities involves the comparison of the expected future
streams of earnings from a project with the immediate and subsequent stream of expenditure
for it.”

According to Richards and Greenlaw, “The capital budgeting generally refers to acquiring
inputs with long-run returns.”

Thus, the capital budgeting decision may be defined as the firm’s decision to invest its
current funds most efficiently in long-term activities in anticipation of an expected flow of
future benefits over a series of years. Such decisions may consist of addition, disposition,
modification, mechanization or replacement of any fixed assets.
SCOPE OF CAPITAL BUDGETIG DECISION

 Mechanization of a process – In order to reduce costs, a firm may intend to mechanize


its existing production process by installing machine. The future cash inflows on this
investment are the savings resulting from the lower operating costs. The firm would be
interested in analyzing whether it is worth to install the machine.

 Expansion decision – Every company want to expand its existing business. In order to
increase the scale of production and sale, the company may think of acquiring new
machinery, addition of building, merger or takeover of another business etc. this all would
require additional investment which should be evaluated in terms of future expected
earnings.

 Replacement decision – A company may contemplate to replace an existing machine


with a latest model. The use of new and latest model of machinery may possibly bring
down operating costs and increase the production. Such replacement decision will take
with help of capital budgeting.

 Choice of equipment – A company needs an equipment to perform a certain process.


Now a choice can be made between semi- automatic or fully- automatic machine. Capital
budgeting process helps a lot in such selections.

 Product or process innovation – The introduction of new product or a new process will
be involve heavy expenditure and will earn profits also in the future. So, a study of capital
budgeting will be very useful and the ultimate decision will depend upon the profitability
of the product or process.
1.2 STATEMENT OF THE PROBLEM
Capital budgeting decisions are among the most crucial and critical business decisions. The selection
of the most profitable assortment of capital investments can be considered a key function of
management. The need and importance of capital budgeting can be illustrated on the following
grounds.

 Heavy investment – Almost all the capital expenditure projects involve heavy investment of
funds. And these funds are accumulated by the firm from various external and internal sources at
substantial cost of capital. So their proper planning becomes inevitable.

 Permanent commitment of funds – The funds involved in capital expenditure are not only large
but more or less permanently blocked also. Therefore, these are long-term investment decisions.
The longer the time, the greater the risk is involved. Hence, a careful planning is essential.

 Long-term impacts on profitability – Capital expenditure decision have long term implications
for the firm and influence its risk complexion to a large extent. These projects exercise a great
impact on the profitability of the firm for a very long time. If properly planned, they can increase
not only the size, scale and volume of sales but firm’s growth potentiality also.

 Complicacies of investment decisions – The long-term investment decisions are more


complicated in nature. They entail more risk and uncertainty. Further, the acquisition of capital
assets is a continuous process. So the management must be gifted ample prophetic skill to peep
into future.

 Worth maximization of shareholders – Capital budgeting decisions are very important as their
impact on the well-being and economic health of the enterprise is far reaching. The main aim of
this process is to avoid over-investment and under-investment in fixed assets. By selecting the
most profitable capital project, the management can maximize the worth of equity shareholders’
investment.
1.3 OBJECTIVES OF THE STUDY

Following are the objectives of the study

 To understand the procedure followed in BHEL for Capital Budgeting.

 To understand the schemes for which Capital Budgeting is done.

 To study the various parameters for assessing the performance of the organization

 To offer suggestions based on the findings

1.4 RESEARCH METHODOLOGY

RESEARCH

Research is a process in which the researchers wish to find out the end result for a given problem and
thus the solution helps in future course of action. The research has been defined as “A careful
investigation or enquiry especially through search for new facts in branch of knowledge”

RESEARCH DESIGN

The research design used in this project is Analytical in nature the procedure using, which researcher
has to use facts or information already available, and analyze these to make a critical evaluation of the
performance.

DATA COLLECTION

 Primary Sources
1. Data are collected through personal interviews and discussion with Finance-
Executives.

2. Data are collected through personal interviews and discussion with Material
Planning- Deputy Manager.

 Secondary Sources
1. From the annual reports maintained by the company.
2. Data are collected from the company’s website.
3. Books and journals pertaining to the topic.
TOOLS AND TECHNIQUES OF ANALYSIS
 Payback Period
 IRR
 ROI.
1. PAY BACK PERIOD:
 Payback is the number of years required to recover the original cash outlay invested
in a project.
 If the project generates constant annual cash inflows, the payback period can be
computed by dividing cash outlay by the annual cash inflow. That is:

 Assume that a project requires an outlay of Rs 50,000 and yields annual cash inflow
of Rs 12,500 for 7 years. The payback period for the project is:

 Unequal cash flows In case of unequal cash inflows, the payback period can be
found out by adding up the cash inflows until the total is equal to the initial cash
outlay.
 Suppose that a project requires a cash outlay of Rs 20,000, and generates cash inflows
of Rs 8,000; Rs 7,000; Rs 4,000; and Rs 3,000 during the next 4 years. What is
the project’s payback?
3 years + 12 × (1,000/3,000) months
3 years + 4 months

Acceptance Rule
 The project would be accepted if its payback period is less than the maximum
or standard payback period set by management.
 As a ranking method, it gives highest ranking to the project, which has the
shortest payback period and lowest ranking to the project with highest
payback period.
2. INTERNAL RATE OF RETURN (IRR) :
 The internal rate of return (IRR) is the rate that equates the investment outlay with the
present value of cash inflow received after one period. This also implies that the rate
of return is the discount rate which makes NPV = 0.

Calculation of IRR:
Uneven Cash Flows: Calculating IRR by Trial and Error
 The approach is to select any discount rate to compute the present value of cash
inflows. If the calculated present value of the expected cash inflow is lower than the
present value of cash outflows, a lower rate should be tried. On the other hand, a
higher value should be tried if the present value of inflows is higher than the present
value of outflows. This process will be repeated unless the net present value becomes
zero.
Level Cash Flows
 Let us assume that an investment would cost Rs 20,000 and provide annual cash
inflow of Rs 5,430 for 6 years.
 The IRR of the investment can be found out as follows:

Acceptance Rule:
 Accept the project when r > k.
 Reject the project when r < k.
 May accept the project when r = k.
 In case of independent projects, IRR and NPV rules will give the same results if the
firm has no shortage of funds.

1.5 LIMITATIONS OF THE STUDY


1. The procedures involved in Energy sector for the Capital Budgeting may vary accordingly.
Hence the suggestions cannot be generalized.

2. The study can collect only 1 Report, as the data were kept confidential.

CHAPTER 2

PROFILE OF THE COMPANY


BHEL – AN OVERVIEW

BHEL is country’s premier engineering organization and one of the NAVARATNA PSUs
(PUBLIC SECTOR UNDERTAKINGS)

BHEL is the largest engineering and manufacturing enterprise in India in the energy-
related/infrastructure sector, today. BHEL was established more than 40 years ago, ushering in the
indigenous Heavy Electrical Equipment industry in India - a dream that has been more than realized
with a well-recognized record of accomplishment of performance. The company has been earning
profits continuously since 1971-72 and paying dividends since 1976-77. 

It has the financial turnover during the year 2008-09 was Rs.21, 401 Crores and current order of book
is of around Rs.1, 20,000 crores. DHEL plans to be a Rs.45000 crores company by 2011-12 and a
Rs.90, 000 crores company by 2016-17.BHEL is the only PSU among the 12 Indian companies to
figure in “Forbes Asian Fabulous 50” list.

BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of
the Indian Economy viz., Power Generation & Transmission, Industry, Transportation,
Telecommunication, Renewable Energy, etc. The wide network of BHEL's 14 manufacturing
divisions, four Power Sector regional centres, over 100 project sites, eight service centres and 18
regional offices, enables the Company to promptly serve its customers and provide them with suitable
products, systems and services -- efficiently and at competitive prices. The high level of quality &
reliability of its products is due to the emphasis on design, engineering and manufacturing to
international standards by acquiring and adapting some of the best technologies from leading
companies in the world, together with technologies developed in its own R&D centres.

BHEL has already attained ISO 9000 and all the major units/divisions of BHEL have been upgraded
to the latest ISO- 9001: 2000 version quality standard certification for quality management. All the
major units/division of BHEL has been awarded ISO- 14001 certification for environmental
management system and OHSAS- 18001 certification for occupational health and safety management
systems.

BHEL has

 Installed equipment for over 90,000 MW of power generation -- for Utilities, Captive and
Industrial users
 Supplied over 2,25,000 MVA transformer capacity and other equipment operating in
Transmission & Distribution network up to 400 kV (AC & DC).
 Supplied over 25,000 Motors with Drive Control System to Power projects, Petrochemicals,
Refineries, Steel, Aluminium, Fertilizer, Cement plants, etc.
 Supplied Traction electrics and AC/DC locos to power over 12,000 kms. Railway network.
 Supplied over one million Valves to Power Plants and other Industries.

BHEL including Transmission, Transportation, Telecommunication & Renewable Energy - and


Overseas business this enables BHEL to have a strong customer orientation, to be sensitive to his
needs and respond quickly to the changes in the market.

BHEL's vision is to become a world-class engineering enterprise, committed to enhancing


stakeholder value. The company is striving to give shape to its aspirations and fulfil the expectations
of the country to become a global player.

The greatest strength of BHEL is its highly skilled and committed 43,500 employees. Every
employee is given an equal opportunity to develop himself and grow in his career. Continuous
training and retraining, career planning, a positive work culture and participative style of management
– all these have engendered development of a committed and motivated workforce setting new
benchmarks in terms of productivity, quality and responsiveness.

POWER GENERATION:

Power generation sector comprises thermal, gas, hydro, and nuclear power plant business. As on
31.3.2002, BHEL supplied sets account for nearly 67.232 MW or 60% of total installed capacity of 1,
04,917 MW in the country, as against Nil till 1969-70.

BHEL has proven turnkey capabilities for executing power projects from concept to commissioning.
It possesses the technology and capability to produce thermal sets with super critical parameters up to
1000 MW unit rating and gas turbine-generator sets up to 250 MW units rating. Co-generation and
combined cycle plant have been introduced to achieve higher plant efficiencies. To make the efficient
use of the high-ash-content coal available in India, BHEL also supplies circulating fluidized bed
combustion boilers for thermal plant.

TRANSMISSION AND DISTRIBUTION (TD):


BHEL offers wide ranging products and systems for T&D applications, products manufactured
include: power transformer, instrument, transformers, dry type transformer, series & shunt reactors,
capacitor banks, vacuum & SF6 circuit breakers, gas-insulated switchgears and insulators.
INDUSTRIES:

BHEL is a major contributor of equipment and system to industries cement, sugar, fertilizers,
petrochemicals, paper, oil and gas, metrological and other process industries. The range of
systems and equipment supplied includes captive power plants, co-generation plants, DG
power plants, industrial steam turbines, industrial boilers and auxiliaries, waste heat recovery
boiler, gas turbine, heat exchangers and pressure vessels, seamless steel tubes, electrostatic
precipitator, fabric filters, reactors, fluidized bed combustion boilers, chemical recovery
boilers and process controls.

TRANSPORTATION:

BHEL is involved in the development, design, engineering marketing, production,


installation, and maintenance and after sales services of rolling stock and traction propulsions
systems. BHEL manufactures electric locomotives up to 5000 IIP, diesel electric locomotives
from 350 IIP to 3100 IIP for mainline and shunting duty applications. It also produces rolling
stock for special applications viz. overhead equipment cars, special well wagons, and rail-
cum road vehicle. Besides traction propulsion systems for in-house use, BHEL manufactures
traction propulsion systems for other rolling stock producers of electric locomotives, diesel-
electric locomotives, electrical multiple units and metro cars.

TELECOMMUNICATION:

BHEL also caters to communication sector by way of small, medium and large switching system.

RENEWABLE ENERGY:

Technologies that can be offered by BHEL for exploiting non-conventional and renewable sources of
energy includes: wind electric generator, solar photovoltaic systems, solar heating systems, solar
lanterns and battery powered road vehicles. The company has taken up R&D efforts for development
of multi-junction amorphous silicon solar cells and fuel cells based systems.
OIL AND GAS:

BHEL’s product range includes deep drilling oil rigs, mobile rigs, work over rigs, well heads and x-
mass trees, chock and kill manifolds, full bore gate valves, mud line suspension system, casing system
sub-sea well heads, block valves, seamless pipes, motors, compressors, heat exchangers etc.

INTERNATIONAL OPERATION:

BHEL has, over the years, established its references in 70 countries across all inhabited continents of
the world. These references encompass almost the entire range of BHEL products and services,
covering Thermal Hydro and Gas based turkey power projects, substation projects, Rehabilitation
projects, besides a wide variety of products like Transformers, compressors, Values, Oil field
equipment, Electrostatic Precipitators, Photovoltaic equipments, insulators, heat Exchangers,
Switchgears, Casting and Forgings etc..

TECHNOLOGY UPGRADATION, RESEARCH & DEVELOPMENT

To remain competitive and to meet customer’s expectations, BHEL lays emphasis on the continuous
up gradation of the products and related technologies, and development of new products. The
company has upgraded its products to contemporary levels through continuous in-house efforts as
well as through acquisition of new technologies from leading engineering organization of the world.

BHEL’S investment in R&D is amongst the largest in the corporate sectors in India. Products
developed in the corporate sector in India. Products development, in-house, during the last five years
contribution over 7% to the revenues in 2004-05.

BHEL JHANSI UNIT


By the end of 5th five-year plan, it was envisaged by the planning commission that the
demand for power transformer would raise in the coming years. Anticipating the country’s
requirement BHEL decided to set up a new plant, which would manufacture power and other
types of transformers in addition to the capacity available in BHEL Bhopal. The Bhopal plant
was engaged in manufacturing transformers of large ratings and Jhansi unit would
concentrate on power transformer up to 50 MVA, 132 KV class and other transformers like
Instrument Transformers, Traction transformers for railway etc.

This unit of Jhansi was established around 14 km from the city on the N.H. No 26 on Jhansi Lalitpur
road. It is called second-generation plant of BHEL set up in 1974 at an estimated cost of Rs 16.22
crores inclusive of Rs 2.1 crores for township. Its foundation was laid by late Mrs. Indira Gandhi the
prime minister on 9th Jan. 1974. The commercial production of the unit began in 1976-77 with an
output of Rs 53 Lakhs since then there has been no looking back for BHEL Jhansi.

The plant of BHEL is equipped with most modern manufacturing processing and testing facilities for
the manufacture of power, special transformer and instrument transformer, Diesel shunting
locomotives and AC/DC locomotives. The layout of the plant is well streamlined to enable smooth
material flow from the raw material stages to the finished goods. All the feeder bays have been laid
perpendicular to the main assembly bay and in each feeder bay raw material smoothly gets converted
to sub assemblies, which after inspection are sent to main assembly bay.

PRODUCTS
Transformers:

- Power transformer up to 220 KV/250 MVA

- Special Transformers up to 180 KA 33 KV

- Dry type transformer up to 6300 KVA, 33 KV

- Instrument transformer (current transformer/voltage transformer up to 220KV) 400 KV     CTs are


under supply.

- HVR transformer up to 95 KVP, 1400 MA

- Traction transformer for railway application up to 21.6 MVA - 220 KV class.

- ACEMU transformer for railway.

Locomotives:

- Diesel locomotive

- AC/DC locomotive

- Special purpose wagons.

- Rail cum road Vehicle.

- Synchrolift 
DEPARTMENTS/ WORKSHOPS (JHANSI UNIT) ROTATION REPORT
FABRICATION

Fabrication is nothing but production, it comprises of:

Three bays (workshops): bay1, bay2, bay3

BAY 3:

There are three sections in bay 3:

1. Machine section
2. Copper section
3. Tooling section

MACHINE SECTION:

The operations to form small components of power and traction transformer are done in this section.
The shop consists of following machine:

CENTRAL LATHE: It consists of a tailstock & headstock. Lower part of tailstock is fixed and tail
stock spindle is moving. On this machine facing, turning and threading is done.

TURRET LATHE: Its main function is same as central lathe but is used for mass production. Here
turret head in presence of tailstock because turret head contains many tailstocks around six.

CAPATAN LATHE: It is a belt drive.

RADIAL ARM DRILLING MACHINE: It is used for drilling and boring.

HORIZONTAL BORING MACHINE: It is computerized and used for making bore, facing etc.

MILLING MACHINE:

a) Horizontal milling machine: It is used for making gear and cutting operation.
b) Vertical milling machine: by this machine facing, cutting, and T-slot cutting is done.

COPPER SECTION:

All the processes related to copper are done in this section.

TUBE SLITTING MACHINE: This machine is developed here and is used for cutting the along its
length and across its diameter. Its blade thickness is 3mm.

SHEARING MACHINE: It is operated hydraulically and its blade has V-shape and a thickness of
15mm.

DIE AND PUNCHING MACHINE: It is also hydraulically operated and has a die and punch for
making holes.

HYDRAULIC BENDING MACHINE: It is used for bending the job up to 900


SEARCHING MACHINE: It is fully mechanical and is used the job along its width.

FLY PRESS MACHINE: It is used to press the job it is operated mechanically by a wheel, which is
on the top of the machine.

BEND SAW MACHINE: This machine is used for cutting job having small thickness it has a
circularly blade, around 5.1 metre long.

WATER COOLED BRAZING MACHINE: It contains two carbon brushes. The sheet is put along
with a sulphas sheet and the carbon brushes are heated. A lap joint is formed between the sheets as the
sulphas sheet melts.

LINCING BELT MACHINE: It creates a smooth surface.

HYDRAULIC PRESS MACHINE: It has pot that contains solder. Solder has a composition of 60%
Zn and 40% Pb.

TOOLING SECTION:

In this section the servicing of tools is done.

BLADE SHARP MACHINE: It sharpens the blade using a circular diamond cutter. Blade of CNC
dropping line machine is sharpened here.

MINI SURFACE GRINDING MACHINE: It serves grinding purposes. It has a grinding wheel
made of “Aluminium Oxide”

TOOL & SURFACE GRINDING MACHINE: This is specially used to grind the tools in BAY 7

DRILL GRINDING MACHINE: To grind the drills.

BAY 4:

It is the winding section.

TYPES OF WINDING:

1. Reverse section winding.


2. Helical winding
3. Spiral winding
4. Interleaved winding
5. Half sectional winding

There are four types of coil fixed in the transformer. They are

1. Low voltage coil (LV)


2. High Voltage coil (HV)
3. Tertiary coil
4. Tap coil

The type of ending depends upon job requirement. Also, the width and thickness of the conductors are
designed particulars and are decided by design department. Conductors used for winding is in the
form of very long strip wound on a spool. The conductors are covered by cellulose paper for
insulation.

For winding first the mould of diameter equal to inner diameter of required coil is made. The
specifications of coil are given in drawing. The diameter of mould is adjustable as its body is made up
of wooden sections that interlock with each other; this interlocking can be increased or decreased to
adjust the inner diameter of coil.

The moulds are of following types:

1. Belly type
2. Link type
3. Cone type

BAY 5:

It is core and punch section. The lamination used in power, dry, EPS transformer, etc for making core
is cut in this section.

CRGO (cold rolled grain oriented) silicon steel is used for lamination that is imported in from Japan,
UK Germany .It is available in 0.27 and 0.28mm thick sheets, 1 metre wide and measured in kg. The
sheet is coated with very thin layer of insulation material called “carlites”.

For the purpose of cutting and punching the core three machines are installed in shop.

1. Shipping machine: it is used to cut CRGO sheets in different width. It has a circular cutter
whose position can be changed as per the requirement.
2. CNC cropping line pneumatic: it contains only one blade. Which can rotate 90 0 about the
sheet? It is operated pneumatically.
3. CNC cropping line hydraulic: it is also used to cut the CRGO sheet. It contains two blades,
one is fixed and the other rotates 900 above the sheet. It is operated hydraulically. M4 quality
sheet 0.23-0.33 mm thickness is used.

BAY 6:

Single-phase traction transformer for AC locomotives is assembled in this section. These freight
locomotives transformers are used where there is frequent change in speed. In this bay core winding
and all the assembly and testing of traction transformer is done.

Three phase transformers for ACEMU are also manufactures in this section. The supply line for this is
of 25KV and power of the transformer is 6500 KVA.

The tap changer of rectifier transformer is also assembled in this bay rectified transformer is used in
big furnace like the thermal power stations/ plants (TPP). 
BAY 7

This is the insulation shop. Various types of insulation are

1. AWWW: all wood water washed press paper.


The paper is 0.2-0.5 mm thick cellulose paper and is wound on the conductors for insulation.
2. PRE-COMPRESSED BOARD: This is widely used for general insulation & separation in the
form of blocks.
3. PRESS BOARD: This is used for separation of coils eg. L.V. from H.V. it is up to 38 mm
thick.
4. UDEL: UN Demnified electrical lamination wood or perm wood this is special type of
plywood made for insulation purposes.
5. FIBRE GLASS: This is a resin material and is used in fire prone areas.
6. BAKELLITE:
7. GASKET: It is used for protection against leakage.
8. Silicon rubber sheet: it is used for dry type transformer.

The machines used for shaping the insulation material are

1. Cylindrical machines
2. Circle cutting machine
3. Scarfing machines
4. Punching press machine
5. Drilling machine
6. Guillotine machines
7. Bench saw (spt for OD)
8. Jigsaw (spt for ID)
9. Circular saw
10. Line sin machine

BAY8

It is the instrument transformer and EPS transformer manufacturing section.

INSTRUMENT TRANSFORMER-

These are used for Measurement. Actual measurement is done by measuring instruments but these
transformers serve the purpose of stepping down the voltage to protect the measuring instrument.
They are used in AC system for measurement of current voltage and energy and can also be used for
measuring power factor, frequency and for indication of synchronism they find application in
protection of power system and for the operation of over voltage, over current, earth fault and various
other types of relays.

They are of two types.

1. Current transformer (CT)


2. Voltage transformer (VT)
Current transformer-

It is a step down transformer. High current is not directly measured by th CT but is stepped down to
lower measurable voltage.

BODY:

 The main body is a dushing which houses the winding and also acts as an insulator
 The CT has a bottom and top chamber.
 The top chamber is cylindrical tank of mild steel. It has terminals for connection of HV coils.
It also has a glass window to insulate the oil level.
 Below the top chamber is the bushing made of porcelain. It has several folds or “rain sheds”
to provide a specific electric field distribution and long leakage path. Some bushings are
cylindrical which modern ones are conical as amount of oil porcelain used is reduced without
any undesirable defect.
 Bottom chamber house the secondary winding. There is also connection box to which the
connection of the low voltage (LV) coil is made.

WINDINGS

The primary winding consist of hollow copper/aluminium pipe bent in form of a “U” aluminium
is used for low rating. For higher raring a set of wires is passed through the pipe is used and for
highest rating copper pipe with copper wire passing through is used. This arrangement depends on
the current carrying capacity. The bent portion of primary as in the bottom chamber where as the
free end is the top chamber. The straight portion lies inside the bushing.

The primary is wound with crepe paper insulation. The thickness of the insulation goes in
increasing as we go downwards in the bottom chamber. The free ends are provided with
“ferrules”, which are, small hollow cylinders through which wires can pass connection to the
primary are made through these ferrules.

VOLTAGE TRANSFORMERS:

This is also a stepped down transformers. The outer construction is same as that of the CT that is
this is also has a top chamber, bushing and a bottom chamber. The difference is only in the
winding.

WINDINGS:

The primary winding is of thick wire having a few turns the winding is heavily insulated with
paper insulation. It has a hollow cylinder passing centrally through it, which houses the secondary
winding. The clean and painted with either enamel or proxy paint. The customer gives the choice
of paint. Epoxy paint is generally used in chemical plants and seashore installation. Terminals are
then ratings and diagram plate is fixed.

The job is then sent to the shipping department. Which takes care of its dispatch by packing it in
the wooden boxes?
ESP TRANSFORMER:

The electrostatic precipitator transformer is used for environmental application. It is used to filter
in a suspended charge particles in the waste gases of an industry. They are of particular use in
thermal power station and cement industry.

The EPS is a single-phase transformer. It has a primary and secondary. The core is laminated and
is made up of CRGOS. It is a step up transformer. An AC reactor is connected in series with
primary coil. The output of the transformer must be DC, which is obtained by rectifying AC using
a bridge rectifies (bridge rectifier is a combination of several hundred diodes). A radio frequency
choke (RF choke) is connected in series with the DC output for protection of secondary circuit
and filter circuit. The output is chosen negative because the particles are positively charged. The
DC output from secondary is given to a set of plates arrange one after the others impurity particles
being positively charged stick to these plates.

BAY 9

In the bay power transformer are assembled. After taking different input from different bays 0-9
assembly is done.

Power transformer is used to step and down voltages at generating and sub-station. There are
various rating- 11KV, 22KV manufactured, they are:

a) Generator transformer.
b) Systems &
c) Autotransformer

A transformer in a process of assemblage is called a job. The design of the transformer is


done by the design dept. & is unique of each job, depends on the requirement of the customer.
The design department provides drawing to the assembly shop, which assembles it
accordingly.

The steps involved in assembly are:

1. Core building
2. Core lifting
3. Unlacing
4. Replacing and end frame mounting
5. High voltage terminal gear and low voltage gear mounting.
6. Vapor phasing and oil soaking
7. Final servicing and tanking
8. Case fitting.

TRANSFORMER ENGINEERING (TRE):

The transformer manufactured in BHEL Jhansi ranges from 10 MVA to 240 MVA and up to 220 KV.
The various transformers manufactured in this unit are:

POWER TRANSFORMER:-
 Generator transformer
 System transformer
 Auto transformer
SPECIAL TRANSFORMER:-
 ESP transformer
 Instrumental transformer
 Dry type transformer

All above types are oil cooled except dry type, which is air cooled. The generated voltage at the
power station is 6.9 KV, 11 KV, & 13.8 KV but due to certain advantages like economical generation
11 KV is the most widely used. For this, voltage needs to be stepped up. Transformer at high voltage
is desirable because it result in lesser losses, need thinner wire and hence is economical.

In certain cases the required voltage may be less than the output voltage, so in order to obtain it we
require a tapping circuit. The output voltage may have a certain percentage variation. This may be
tapped in 4 or 6 equal steps.

TECHNOLOGY:

This department analysis the changes taking place in the world and suggest changes and upgrades
accordingly. This is very important department because the product must get obsolete in the market
otherwise they will be rejected by the customer.

FUNCTION: Technology function can be classified as:

 Processing sequences: the sequence of process of manufacturing is decided for timely and
economic completion of the job.
 Operation time estimation: it includes incentive scheme management.
 Allowed operation time: it includes incentive amount.
 Facilities identification: it includes looking for new equipment or plant or tools to increase
productivity.
 Special process certification: special processes are the ones requiring expertise for example
identifying errors, cracks, air bubbles in the welding.
 Productivity projects compilation: it includes the initial analysis of the problem and their
appropriate solution to enhance productivity.

TRANSFORMER COMMERCIAL (TRC)

The objective of the department is interaction with the customers. It brings out tenders and notices and
also responds to them. It is the department that bags contracts of building transformers. After delivery
regarding faults, this department does failures and maintenance.

One of the major tasks of this department is to earn decent profits over all negotiations. Transformer
industry has become very competitive.

The company offering the lowest price gets the contract but this process may continue does the work
on very low profits. To avoid such a situation, a body by the name of INDIAN ELECTRICAL
MANUFACTURES ASSOCIATION (IEMA) was set up. This association helps to maintain a healthy
competitive atmosphere in the manufacturing of electrical appliances.
The main work of TRC is classified as:

 Tender and notices.


 Interaction with design department
 Place of the work
 Approximate cost of the work
 Earnest money
 Place & time of viewing contract documents
 Place & time of obtaining tender documents.
 Deciding time up to which tender documents will be sold
 The amount if any, to be paid for such documents.
 The place, date and time of submission of tenders and opening of tenders.

LOCOMOTIVE DEPARTMENT:

This unit was started in1985. This department of Jhansi consists of two sections the first is
manufacturing & other is design. The diesel electronic shunting locomotives (DESL) and AC/DC
locomotive are manufactured here.

1. The diesel locomotives:


Salient feature:
a. Flat bed under frame.
b. All pneumatic valves provide in single panel
c. All electrical equipments provided in single panel
d. Improved filtration system.
e. Brush less traction alternators
f. Fault display on control desk with alarm.
g. Simple driving procedure
h. Automatic wheel slip detection & correction
i. Multiple unit operation up to three locomotives.
j. Air & vacuum brakes.

2. The AC locomotive: salient features


a. Operate on 25 KV single-phase lines.
b. Driving cab at both ends.
c. Corridors on both sides for maintenance
d. All pneumatics valves at one place.
e. Automatic wheel slip detection & correction.
f. Multiple unit operation up to three locomotives.
g. Fault display on driver’s desk
h. VCB in AC circuit.
i. Air & vacuum brakes.

3. The AC/DC locomotive: salient features


a. Designed to operate both in 1500 V DC & 25 KV AC lines
b. Driving cab at both ends
c. High adhesion bogie.
d. Corridors on both sides for maintenance.
e. All pneumatics valves at one place.
f. Automatic wheel slip detection & correction.
g. Multiple unit operation up to three locomotives.
h. Fault display on driver’s desk.
i. Static inverter for auxiliary supply.
j. FRP control desk.
k. VCB in AC circuit.
l. Air & vacuum brakes.
m. Air dryer for brake system.

LOCOMOTIVE MANUFACTURING (LMM)

This section deals with manufacturing of locomotives. The main parts of the locomotives are:-

 Under frame: the frame on which a locomotive is built.


 Super structure: the body of locomotive is called super structure or shell and is made of sheet
of mild steel
 DC motor
 Alternator
 Compressor
 Flower
 Static rectifier – MSR
 Static converter – SC
 Exchanger

Bogie- the wheel arrangement of a loco is called bogie. A bogie essentially contains

1. Wheel axle arrangement


2. Suspension
3. Brake rigging
 Traction transformer: it is fixed on under frame and gets supply from an overhead line by
equipment called pantograph. The type of pantograph depends on supply. This transformer
steps down voltage and is fitted with a tap changer. Different taps are taken from it for
operating different equipment. One tap is taken and is rectified into DC using MSR and is fed
to the DC motor.

CENTRAL QUALITY SERVICES (CQX):

First we get acquainted with a few terms concerning this department

 Quality

It is the extent to which products or services satisfy the customer needs

 Quality assurance
All those plants and systematic action necessary to provide adequate confidence that a product or
service will satisfy the given requirement is called quality assurance.

 Quality control

The operational technique and activities that are used to fulfill requirement for quality are quality
control.

 Quality inspection

Activities such as measuring, testing, gauging of more characteristics of a product or service and
comparing these with specified requirement to determine conformity are quality inspection.

HEALTH, SAFETY AND ENVIRONMENT MANAGEMENT:

BHEL as an integral part of business performance and in its endeavour to becoming a world class
organization and sharing the growth global concern on issues related to environment, occupational
health and safety, is committed to protecting environment in and around its own establishment, and
providing safe and healthy working environment to all its employees. For fulfilling this obligation,
corporate policies have been formulated as:

ENVIRONMENTAL POLICY:

 Compliance with applicable environmental legislation/regulation.


 Continual improvement in environment in environment management system to protect our
natural environment and control pollution.
 Promotion of activities for conservation of resources by environment management.
 Enhancement of environment awareness amongst employees, customers and suppliers.

OCCUPATIONAL HEALTH AND SAFETY POLICY:

 Compliance with applicable legislation and regulations.


 Setting objective and targets to eliminate/minimize risks due to occupational and safety
hazards.
 Appropriate structured training of employees on occupational health and safety (OII &S)
aspects.
 Formulation and maintenance of OII &S management programs for continual improvement.
 Periodic review of OII&S management system to ensure its continuing suitability, adequacy
and effectiveness.
 Communication of OII&S policy to all employees and interested parties.

The major units of BHEL have already earned international recognition by implementation of ISO
14001 Environmental Management System and OHSAS 18001 occupational health and safety
management system.
In pursuit of these policy requirements, BHEL will continuously strive to improve work practices in
the light of advances made in technology and new understanding in occupational health, safety and
environmental science.
COMPANY’S BUSINESS MISSION AND OBJECTIVES
 BUSINESS MISSION

To maintain a leading position as suppliers of quality equipment, systems and services in the field of
conversation of energy, for application in the areas of electric power transportation, oil and gas
exploration and industries. Utilize company’s capabilities and resources to expand business into allied
areas and other priority sectors of the economy like defence, telecommunication and electronics.

 BUSINESS OBJECTIVES
 Growth:
To ensure a steady growth by enhancing the competitive edge of BHEL defense,
telecommunication and electronics in existing business, new areas and international
operations so as to fulfill national expectations from BHEL.
 Profitability:
To provide a reasonable and adequate return on capital employed, primarily through
improvements in operational efficiency, capacity utilization, productivity and generation
adequate internal resources to finance the company’s growth.
 Customer focus
To build a high degree of customer confidence by providing increased value for his money
through international standards of product quality, performance and superior services.
 People-orientation
To enable each employee to achieve his potential, improve his capabilities, perceive his role
and responsibilities and participate and contribute positively to the growth and success of the
company and to invest in human resources continuously and be alive to their needs.
 Technology
Achieve technological excellence in operation by development of indigenous technologies
and efficient absorption and adaptations of imported technologies to suit business need and
priorities and provide the competitive advantage to the company.
 Image
To fulfill the expectations which stakeholders like government as owner, employees,
customers and the country at large have from BHEL.

STORES DEPAERTMENT:

There are three sections in store:

 Control receiving section


 Custody section
 Scrap disposal section

Function:

A list of material coming in store is prepared and quality control people are called for inspection.
If material is found as per standard, SRV (store receipt voucher) is issued for each material. A
total of 08 SRV’s are prepared. Some material such as silicon oil, transformer oil, insulating
material are directly stored in the bays.

SUMMARY OF BHEL’S CONTRIBUTION TO VARIOUS CORE


SECTORS:-
 BUSINESS SECTORS

BHEL’s operation is organized around three business sectors, mainly power, industry and
international operations. This enables BHEL to have a strong customer’s orientation, to be
sensitive to his needs and respond quickly to the changes in the market.

 POWER SECTORS

Power is the core sector of BHEL and comprises of thermal, nuclear gas, diesel and hydro
business. Today BHEL supplied sets, accounts for nearly 66% of the total installed capacity in the
country as against nil till 1969-70. BHEL manufactures boilers auxiliaries, TG sets and associate
controls piping and station C & I up to 500 MW rating with technology and capability to go up to
1000 MW range.

BHEL has contracted so far around 240 thermal sets of various ratings. Which includes 14 power
plants set up on turnkey basis? Nearly 85% of World Bank tenders for thermal sets floated in
India have been won by the company against international competition.

 INDUSTRY SECTORS

BHEL is a major producer of large size thyristor devices. The products include centrifugal
compressors, high speed industrial drive turbines, industrial boilers and auxiliaries, waste heat
recovery boiler, gas turbines, electric motors, drive, and control equipments, high voltage
transformers, switch gears and heavy castings and forgings.

 TRANSMISSION

A wide range of transmission products and systems are produced by BHEL to meet the needs of
power transmission and distribution sector. These include:

 Dry Type Transformer


 SF6 Switch Gears
 400 KW Transmission Equipment
 High Voltage Direct Current System
 Series and Shunt Compensation Systems
In anticipation of the need for improved substations, a 33 KV gas insulated sub-station with
micro processors base control and protection system has been done.

 TRANPORTATION

65% of trains in Indian Railways are equipped with BHEL’s traction control equipment. These
include:
 Broad Gauge 3900 HP AC / DC locomotives
 Diesel Shunting locomotives up to 2600 HP
 5000 HP AC Loco with thyristor control
 Battery Powered Road Vehicles and Locomotives
 RESEARCH AND DEVELOPMENT

BHEL has a corporate R&D centre supported by R&D group at each of the manufacturing
divisions. The dedicated effort of BHEL’s R&D engineers have produced several new products
like automated storage retrieval system automated guide vehicles for material transportation etc.
establishment of Asia’s largest fuel evaluation test facility at Tiruchy was high light of the year.
This facility will enable evaluation of combustion, heat transfer and pollution parameters in
boilers.

Major R&D achievement includes:

 Design manufacture and supply of countries first 17.2 MW industrial steam turbines.
 Development 4700 HP AC / DC loco for Indian Railways.
 Development of largest capacitor voltage transformers of 8800 PF 400 KV rating.
 Development and application low cost ROBOTS for job loading/unloading.

According to ex- CMD MR. R.K.D. SHAH, “BHEL is spending Rs. 60 Crores on research and
development. Earning from product which has been commercialized has gone up 26% to Rs. 760
Crores.”

TECHNICAL COLLABORATIONS, DIVISIONS, COMPETITORS AND


VARIOUS PRODUCT OF BHEL
 TECHNICAL COLLABORATION

PRODUCT COLLABORATIONS

# Thermal Sets, Hydro Sets, Motors & PROMMASHEXPORT


Control Gears. RUSSIA

# Bypass & Pressure Reducing Systems SULZER BROTHER LTD.


SWITZERLAND

# Electric Automation System for SIEMENS AG.


Steam Turbine & Generators GERMANY

# Francis Type Hydro Turbines GENERAL ELECTRIC


CANADA

# Moisture Separator Reheaters BALOKE DUERR


GERMANY
# Christmas Trees & Conventional Well NATIONAL OIL WELL

Head Assemblies USA

# Steam Turbine, Generators and Axial SIEMENS AG.


Condensers GERMANY

# Cam Shaft Controllers and Tractions SIEMENS AG.


Current Control Units GERMANY

# HDVC ABB
SWEDEN

# Programmable Controls ABB


SWITZERLAND

# Gas Turbines GENERAL ELECTRIC CO.

# Tube Mills STIEN INDUSTRIES


FRANCE

 DIVISIONS OF BHEL:

There are 20 divisions of BHEL, they are as follows:

 HEEP, Hardwar
 HPEP, Hyderabad
 HPBP, Tiruchy
 SSTP & MHD, Tiruchy
 CFFP, Hardwar
 BHEL, Jhansi
 BHEL, Bhopal
 EPD, Bangalore
 SG, Bangalore
 ED, Bangalore
 BAP, Ranipet
 IP, Jagdishpur
 IOD, New Delhi
 COTT, Hyderabad
 IS, New Delhi
 CFP, Rudrapur
 HERP, Varanasi
 Regional Operations Division ARP, New Delhi
 TPG, Bhopal
 Power Group (Four Region and PEM)

 MAJOR COMPETITORS OF BHEL


 Ansoldo Italy
 Asian Brown Bowery Switzerland
 Beehtel USA
 Block & Neatch USA
 CNMI & EC China
 Costain U.K.
 Elect rim Poland
 Energostio Russia
 Electro Consult Italy
 Fransco Tosi France
 Fuji Japan
 GEC Alshthom U.K.
 General Electric USA
 Hitachi Japan
 LMZ Russia
 Mitsubishi Japan
 Mitsui Japan
 NEI U.K.
 Raytheon USA
 Rolls Royce Germany
 Shanghai Electric Co. China

 PRODUCTS OF BHEL
1. Thermal power plants 16. Industrial and special ceramics
2. Nuclear power plants 17. Capacitors
3. Gas based power plants 18. Energy Meters
4. Hydro power plants 19. Electrical Machines
5. Dg power plants 20. Compressors
6. Industrial sets 21. Control Gear
7. Boilers 22. Silicon Rectifiers
8. Boiler Auxiliaries 23. Thyristor GTO/ IGBT equipments
9. Piping System 24. Power Devices
10. Heat exchangers and pressure Vessels 25. Transportation equipments
Pumps 26. Oil Field equipments
11. Power station Control equipment 27. Castings and Forgings
12. Switchgear 28. Steams Steel Tubes
13. Bus Ducts 29. Distributed power Generation and
14. Transformer Small hydro plant
30. Systems and services.
FINANCE DEPARTMENT IN BHEL, JHANSI
A sound financial management is the crux of the efficient management of a business enterprise and
financial management on scientific and sound lines is a prime consideration of BHEL. The
finance/accounts department of the company controls all the finance operations. That is directed at
improving profitability and internal resource generation through optional utilization of men, material,
machine, tools and money,

According to its various function the finance/account departments is divided in to following sections:-

1. Price store leader (PSL)


2. Supply bills
3. Cash
4. Pay
5. Books budget and MIS
6. Sales
7. Miscellaneous and revenue
8. Internal audit
9. Export incentives, sales tax and income tax
10. Provident fund
11. Works
12. Travelling allowing.

PRICE STORE LEDGER:

PSL section is entrusted with the job for material pricing and determination of material
consumption. PSL are used for the material accounting as well as their financial accounting. The
documents involved are:

a. SRV-store receipt voucher


b. MIV- material issue voucher
c. SRN- store return note
d. MTV- material transformer note
e. RCDV- receipt cum dispatch voucher

PASSING OF BILLS:-

The bills passing process starts after the account section gets the purchase order, SRV’s and bills
from supplier. The accountants’ section then makes payment.

Terms of payment are of three kinds:

a) 10% in advance payment


b) 100% after receipt and acceptance
c) Partial advance and the remaining after receipt and acceptance

FOREIGN PURCHASE:

There are certain items which are to be imported. A license is required for such items. The license can
be acquired from DGTD. There is also a provision for forward cover.
CASH:

This section is responsible for banking all the money worth received by the company from customer
and disbursement of all authorized payment on behalf of the company to suppliers, contractors, in
from cheques, cash, drafts, postal orders etc.

It is also concerned with payment of salaries, wages and other personal payment of employees.

Cash section prepares these statements for management information

Daily-cash flow > daily collection of sales.

Weekly-cash inflow > outflow-during week.

Statement of pending bills of cash section of margin money.

Monthly-cash flow forecast for 3 months.

Operating result statement.

Statement of outstanding letter of credit & bank guarantee.

Daily bank transfer statement.

Bank reconciliation statement is also prepared BHEL has centralized cash credit system.

PAY SECTION
It is assigned the job of payment of salaries and other personal payment to employees it took after
provident fund, gratuity and bonuses insurance facilities extend to medical claims.

BOOKS, BUDGET AND MIS

General leader is the consolidated list of general entries. As soon as the general voucher is received,
the general leader is prepared.

In the general leader, receipt and expenditure both are recorded. This section prepares section wise
and monthly trail balance.

After the preparation of general leader, trail balance, P&L account and balance sheet are prepared
yearly. The balance sheet is prepared in accordance with the company’s act.

Two types of audit are done:

1. Internal audit
2. Government

BUGDET:
Budget is a target setting for operations:

REVENUE BUDGET: it consist of consolidated production programmed & related expenses to carry
out that programmed.

CAPITAL BUDGET: it includes the fixed assets. Preparation of budget is done at three levels

1. Internal level: each department is sent information about the budgeted expenses provided to
the department. It is necessary for control.
2. Corporate level: budget of BHEL unit is sent to the corporate office.
3. Government level: budget of BHEL is also sent to government level.

MANAGEMENT INFORMATION SYSTEM:

Three types of information systems are generated:

1. Internal for the unit


2. For the corporate office
3. For government.

Every month information is generated regarding allocation on various funds on various aspects
for each department and is sent to every department.

Information is generated mainly for control purpose. Other information generated is:

1. Cash flow
2. Inventory level ( non moving and slow moving items).
3. Inventory of finished goods.

COST SECTION:

This section is responsible for accounting and reporting of cost. It determines direct labour rates
and engineering rates, overheads recovery factors of manufacturing, engineering, commercial and
administration for cost estimates.

The cost accounting is done to record and allocate for work orders and product level information.
It furnishes cost reports to management about:

1. Profitability- profit wise, order wise


2. Variance-estimated and actual cost.
3. Performance-efficiency and operating result.

SALES SECTION:

The accounting of sales is done in this section. The activity of this section starts when the
commercial department issues a work. Work order part 2 (financial) summarizes the financial
terms of the contract. It contains the information like the name customer & consignee, description
of goods to be produced and sold, quantity sales value, terms of delivery and payment, price
variation clause, sales tax, excise duty, liquidated damages, bank guarantee, freight etc. with the
part 2 W.O. details. Apart from that the terms and conditions embodied in W.O. part 2 as regarded
adjustment of advances, deferred debts and calculation of PVC, excise duty and sales tax must
also be complied with, sales section submits the bills to the customers as desired by commercial
either direct or through such as banks.

MISELLANEOUS AND REVENUE:

Miscellaneous wing of this section deals with payment of advances to employees going on official
tours, LTC etc. payment to transporters, welfare, activities, security services, repairs and
maintenance, daily wages, furniture, departmental and other petty expenses.

The revenue wings of the section with recovery of rent, electricity and water charges and charges
for other facilities from the salary of the employees.

INTERNAL AUDIT:

BHEL is having its own team of internal auditors, who to unearth the discrepancies in accounting,
check periodically the books of accounts as well as schedules forming accounts.

EXPORT INCENTIVES, SALES TAX AND INCOME TAX:

This section deals with exports procedures of finished foods, it is entrusted to get licenses for
export. It is also responsible for claim of duty draw back and export incentives. This section also
looks the import of raw materials that forms par to finished goods.

It also assesses of sales tax, income tax and other tax matters related to custom duty.
BHARAT HEAVY ELECTRICALS LTD., JHANSI
PLANNING & DEVELOPMENT DEPARTMENT
SCHEME AT GLANCE

Framed by : Bharat Heavy Electricals Limited, Jhansi.

Scheme description : Capacity Enhancement of AC Locomotives


Facilities

Reference : New Proposal

Estimated Cost : Rs. 4535 Lakhs

Investment Phasing : Within 21 months

Installed : 30 nos.

After Investment : 50 nos.

Major facilities : Facilities proposed are:

 Bogie machining centers -1 No.


 Wheel press machine -1 No.
 Radial drilling machine -1 No.
 CNC pipe Bending machine -2 Nos.
 CNC Vertical milling machine -1 No.
 EOT cranes 2x10T, 1x20T, 2x50T.
 Stress Relieving Furnace -1 No.
 Painting Booth -1 No.
 New Bogie & Assembly shop.

Reckoning with the emergence of growing demand of electric locomotives by Indian


Railways & Inadequate capacity at their Chittranjan Locomotive works (CLW) to meet this
requirement, BHEL Jhansi has set up locomotive manufacturing facilities to produce 30
Locomotives per annum. Since 1988-89 BHEL Jhansi has rolled out 160 electric locomotives
worth Rs. 782.61 crores. After last supply in 99-2000 the facilities were used for different
products as there was no order for main line locomotives. Orders for 50 numbers electric
locomotives (WAG-7) have been received from Indian Railways. Marketing sector has also
indicated for further order in future. Revival of existing locomotive manufacturing facilities
is under progress. Further to meet the projected demand of locomotives, capacity
enhancement up to 50 numbers per year is essential. To enhance the manufacturing facilities,
additional facilities as given above have been proposed.
UNIT : Bharat Heavy Electrical limited, Jhansi

PROJECT : CAPITAL INVESTMENT PROPOSAL FOR CAPACITY

ENHANCEMENT OF AC LOCOMOTIVES FACILITIES

ESTIMATES: Cost Estimates (Rs/Lacs)


Item Total cost FE Content
Plant & machinery 2854.43 1716.08
Civil 1548.68 0
Contingencies 132.09 0
Total 4535 1716.08

Projected expenditure: Rs.533.98 Lakhs in 09-10 and Rs 4001.22 Lakhs in 10-11

Financial returns (on incremental basis):

IRR – 15.43%

ROI – 19.81%

Payback period – 7.96 years

Scheduled completion: 21 months after approval.


BHARAT HEAVY ELECTRICAL LIMITED, JHANSI

FINANCIAL ANALYSIS SUMMARY OF INVESTMENT FOR CAPACITY


ENHANCEMENT OF AC LOCOMOTIVES MFG UPTO 50 NUMBERS

PROJECT COST: Rs 45.35 Cr

INCREMENTAL BASIS TOTAL BASIS

Parameters IRR% ROI% Pay Back IRR% ROI% Pay Back


Period Period

100% Equity 15.43 19.81 7.96 16.95 37.55 7.22

10% reduction in physical sale 13.81 16.67 8.40 11.36 26.43 8.93

10%increase in Material cost 3.32 4.19 11.59 -2.22 -4.97 12.29

10% increase in investment 14.28 17.55 8.25 16.39 34.40 7.35

10% reduction in physical sale, 1.88 2.15 13 - -15.58 13.14


10% increase in material cost
& investment

(-) indicates not determinable


OVERALL PROPOSAL

A. SCOPE: The report projects the required investment in view of increasing installed
capacity of AC Locomotives from 30 numbers to 50 numbers per year.

B. NEED FOR THE SCHEME: Capacity was built up in 1988-89 for manufacturing of 30
electric locomotives per year. These facilities were impaired over the years due to wear &
tear and technological obsolescence of machinery. Since 1999-2000 units were not having
orders of electric locos. Revamping of these facilities is under progress with the estimated
cost of Rs. 761.58 Lakhs. Further in view of business sector projection, installed capacity
of 30 numbers per year needs to be increased to 50 numbers per years.

C. MAJOR INVESTMENT: For increasing locomotives manufacturing locomotives


manufacturing facilities, investment is needed mainly on account of the capacity
enhancement.

D. PROPOSED FACILITIES: Major facilities proposed are:

 Bogie machining centre


 Wheel press machine
 Radial drilling machine
 CNC pipe Bending machine
 CNC Vertical milling machine
 EOT cranes 10T, 20T& 50T.
 Stress Relieving Furnace
 Painting Booth.
 New Bogie & Assembly shop
ORGANIZATIONAL METHODOLOGY:

a) For identifying the facilities required for capacity enhancement a committee having
members from loco manufacturing, loco engineering and works engineering & services
has been constituted at BHEL Jhansi under the chairmanship of GM(Loco & bus duct).
The facilities included in the report with respective cost estimates are based on current
budgetary offers and detailed working.

b) Organizational setup involved in implementation of investment schemes at Jhansi


including major functions is indicated at ANX-II.

c) Project implementation shall be guided and monitored by a project steering committee


headed by GM (Loc & Bus duct) having members drawn from works engineering &
services, finance, production, MM and P&D departments. The steering committee shall
hold monthly reviews, resolve implementation problems, monitor and control the cost &
time over-runs and regularly appraise the unit head about the progress made and
corrective actions taken.

d) As per CMT&IP guidelines, under the chairmanship of the unit head, a project review
committee shall be constituted of which concerned HOD’s will be members. Nominees
from CMT&IP and corporate finance will also be member of this group. The PRC will
review and monitor the implementation status.

RISK ANALYSIS

Risk factors, if investment is made


The investment for capacity enhancement of AC locomotive manufacturing facilities is
proposed in view of the order received and expected orders in next 5 years from Indian
Railways. There is a risk, in case the projected business is not achieved. However, most of the
proposed facilities are general machines and can be utilized for diesel shunter locos, track
equipment etc. which the unit will continue to make.

Risk factors, if investment is not made


The unit is proposing bare minimum investment to meet their requirement for manufacture of
electric locomotives. If this investment is not made, it will be difficult to meet the delivery
requirement of Indian Railways, which shall adversely affect future orders from Indian
Railways. Also this leads to development of other vendors for locomotives by Railways.

Analysis
As above, there is a risk involved in investing as well as not investing. However, keeping in
view the strategic requirement of Jhansi unit as centre for transportation (Divisional plan
2012) and for meeting the requirement of electric locos of Indian Railways, it is essential to
go ahead with the above investment proposal.
INVESTMENT DETAILS & OPERATING REQUIREMENT

Cost estimates for proposed facilities: proposed investment for capacity enhancement of AC
locomotive manufacturing facilities works out to be Rs 4535 Lakhs primarily consisting of
plant & Machinery, civil works. Category-wise details of cost estimates of investment are as
under:

Description Rs./Lakhs

Plant & Machinery/Services 2854.43

Factory civil works 1548.68

Contingency 132.09

Total: 4535.20

Total foreign exchange on imported plant & Machinery items works out to be Rs. 1716.08
Lakhs.

Proposed location & layout: keeping sequential flow of material and assemblies the proposed
facilities have been aligned with the existing Locomotives block consisting of assembly bay,
bogie shop, and test area as per the layout.

Turnover build-up: 30 Locomotives will be manufactured in year 09-10 and 10-11 and 50
Locomotives per year subsequently. Considering turnover values will be Rs. 567.28 Lakhs/
Loco in case of existing order and Rs 700 Lakhs/ Loco for proposed order.

Year 08-09 09-10 10-11 11-12 12-13

Existing 10 30 10 -------------- ---------------

New Loco ------------- -------------- 20 50 50


FINANCIAL ANALYSIS

A. CAPITAL INVESTMENT: A total investment of Rs 4535 Lakhs has been envisaged as


per this proposal which includes import of certain plant & machinery of Rs 1716.08
Lakhs in terms of foreign exchange. Item wise estimates are based on the latest budgetary
offers obtained from prospective suppliers. Custom duties have been taken as per
prevailing current rate (with EPCG benefits) and exchange rates. Investment of Rs 4535
Lakhs as proposed has been arrived considering CENVAT benefits. Matching statutory
export obligation for the expected EPCG benefits will be fulfilled from the export
business of the unit.

B. Total cost of investment has been arrived at after considering existing Net block of
locomotive group as on 31.3.2008 and the proposed investment as per this scheme.
(Rs. /Lakhs)
Net block as on 31.3.2008(loco group) 336
Revamping of AC loco (u/progress) 762
Proposed investment 4535
Total: --------
5633
--------

C. PHASING OF INVESTMENT: Investment is planned of Rs 534 Lakhs in 09-10 and Rs


4001 Lakhs in 10-11. Investment will be completed in around 21 months from approval.
Category-wise breakup i.e. P&M and civil facilities has been furnished. The benefit of
commercial production will be available from year 2011-2012.

D. MATERIAL CONTENT: based on the latest estimate, material consumption on


turnover has been considered as 72.54%.

E. MANPOWER COST: An addition of 70 workers has been projected for the scheme.
Cost of manpower has been taken as per Budget 09-10 after taking account of wage
revision impact. An increase of 5% in personal payment year to year has been considered.

F. OVERHEADS: The overhead expenses have been considered as 12.0% of turnover for
the financial analysis in this report.

G. INVENTORY: Holding period of raw material and components has been taken as 45
days of material consumption and work in progress as 75 days of turnover.

H. DEPRECIATION: Depreciation has been taken on straight line basis. Rates of


depreciation for plant & machinery and civil works have been taken as 20% and 3.34%
respectively considering 3 shift utilization. For income tax calculations, written down
value method has been adopted with depreciation rates of plant & machinery and civil
works as 15% with additional 20% in first year and 10% respectively.
I. CAPITAL STRUCTURE: Funding pattern for the scheme has been assumed on 100%
equity basis.

J. INTEREST CHARGES: Since analysis is based on financing out of own resources, WC


of 12.00% as interest on working capital has been considered.

K. INCOME TAX: Corporate tax has been taken as per prevailing rate of 30%, with
additional surcharge of 10% and 3% educational cess. Thus effective tax works out to be
33.99%.

L. OTHER FINANCIAL PARAMETERS: Have been taken as under:


 Debt collection period : 30 days sales
 Credit payment period : 60 days of material receipt
 Advances from customers : NIL

M. FINANCIAL ANALYSIS: IRR has been calculated based on turnover from electric
locomotive with additional investment and man power. 40% provisional impact of wage
revision due with effect from 1st Jan-07 has been taken in personnel payment for financial
analysis purpose. ROI has been worked out based on average of PAT projection of AC
Locomotive for 12 years period. Detailed working enclosed as per Annexure-IX
IRR :- 15.43%
ROI :- 19.81%
Payback period :- 7.96 Yrs.
Incremental Basis

In this table the calculation is based on Incremental basis which means some part of the Input is
taken from old input which is already there in the organization. And the Invested amount is Rs.
4535.00 Lakhs

As per the data calculated in the table below shows separately IRR & payback period which comes to

IRR= 15.43%

Payback period=7.96 years

Acceptance rules: Any proposal is accepted in BHEL if it satisfies the following conditions.

1. IRR should be greater than or equal to current rate of interest for loan.
2. Payback period should be less than or equal to 10 year. As decided by the management.

Interpretation:

1. As the value of IRR , 15.43 which is more than the current rate of interest i.e. 13%
2. Payback period as calculated comes to 7.96 which are again less than 10 years. It means that
BHEL can recover the amount of investment Max. In 8 years.
3. Average value of the profit after tax for 12 years is Rs. 898.30 Lakhs which is quite high.
4. The return on Investment is 19.81%.

Hence the proposal is accepted.


This table shows the calculation for internal rate of return which is as follows:

1. This table shows that the total cash inflow during year which is calculated by the difference
between total and net cash inflow in column 8th and 9th.
2. Second column shows the capital expenditure during the years and it is Rs. 533.98 and Rs.
4001.22 for 1st and second year respectively.
3. Material used is given in column third and cash paid to labor is given in 4 th column.
4. 5th column shows the outflow working capital and overhead and income tax is shown in 6 th
and 7th column respectively.
5. Doing all this calculation the value of IRR comes to 15.43%.
This table shows the calculation for Payback period

1. To establish new AC LOCO BHEL invest Rs. 524.91 Lakhs in first year, Rs. 3928.59 Lakhs
in second year and Rs. 1348.05 Lakhs in third year.
2. And the year onward the value of net cash inflow becoming positive.
3. In the year between 7th and 8th i.e. 7.96 year the organization is getting back the full amount of
investment. And that year is also known to be breakeven year.
SENSITIVITY ANALYSIS:
1. With 10% reduction in physical sale
a. As per taking this contingency the calculated value of IRR is coming to 13.81%
which is perhaps less than 15.43% but still more than bank rate of interest i.e. 13%.
b. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 765.09 Lakhs and the return on investment will be 16.67%.
c. The payback period is coming to 8.4 year it means that the organization will recover
the invested amount in 8.4 years.
d. The total output is Rs. 14000 Lakhs.

2. With 10% Increase in Material Cost


a. As per taking this contingency the calculated value of IRR is coming to 3.32%.
b. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 189.91 Lakhs and the return on investment will be 4.19%.
c. The payback period is coming to 11.59 year it means that the organization will
recover the invested amount in 11.59 years.
d. The total output is Rs. 14000 Lakhs.

3. With 10% Increase in Investment:


Under this the value of Investment has increased to Rs. 4988.72 which causes the
following changes.
a. As per taking this contingency the calculated value of IRR is coming to 14.28%
which is perhaps less than 15.43% but still more than bank rate of interest i.e. 13%.
b. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 875.50 Lakhs and the return on investment will be 8.25%.
c. The payback period is coming to 8.25 year it means that the organization will recover
the invested amount in 8.25 years.
d. The total output is Rs. 14000 Lakhs.

4. With 10% Reduction in Material, Investment & 10% reduction in physical sale
a. In this case all the contingencies above are taking together.
b. As per taking this contingency the calculated value of IRR is coming to 1.88%.
c. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 107.22 Lakhs and the return on investment will be 2.15%.
d. The payback period is coming to 13 year it means that the organization will recover
the invested amount in 13 years.
e. The total output is Rs. 14000 Lakhs.
Total for AC LOCO 100% Equity

In this table the calculation is done for total basis which means all the Inputs are new. And the
invest amount is Rs. 5633.20 Lakhs

As per the data calculated in the table below shows separately IRR & payback period which comes to

IRR= 16.95%

Payback period=7.22 yr

Acceptance rules: Any proposal is accepted in BHEL if it satisfies the following conditions.

1. IRR should be greater than or equal to current rate of interest for loan.
2. Payback period should be less than or equal to 10 year. As decided by the
management.

Interpretation:

1. As the value of IRR , 16.95% which is more than the current rate of interest i.e. 13%
2. Payback period as calculated comes to 7.22 years which are again less than 10 years.
It means that BHEL can recover the amount of investment Max. In 8 years.
3. Average value of the profit after tax for 12 years is Rs. 2115.42 Lakhs which is quite
high.
4. The return on Investment is 37.55%.

Hence the proposal is accepted.


This table shows the calculation for internal rate of return which is as follows:

1. This table shows that the total cash inflow during year which is calculated by the difference
between total and net cash inflow in column 8th and 9th.
2. Second column shows the capital expenditure during the years and it is Rs. 1613.98 Lakhs
and Rs. 4001.22 Lakhs for 1st and second year respectively.
3. Material used is given in column third and cash paid to labor is given in 4 th column.
4. 5th column shows the outflow working capital and overhead and income tax is shown in 6 th
and 7th column respectively.
5. Doing all this calculation the value of IRR comes to 16.95%.
This table shows the calculation for Payback period

1. To establish new AC LOCO BHEL invest Rs. 5206.77 Lakhs in first year, Rs. 9978.79 Lakhs
in second year and till 7th year
2. And before the year 8th the value of net cash inflow becoming positive.
3. In the year between 7th and 8th i.e. 7.22 year the organization is getting back the full amount of
investment. And that year is also known to be breakeven year.
Sensitivity analysis:
1. With 10% reduction in physical sale
a. As per taking this contingency the calculated value of IRR is coming to 11.36%.
b. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 1488.96 Lakhs and the return on investment will be 11.36%.
c. The payback period is coming to 8.93 year it means that the organization will recover
the invested amount in 8.93 years.
d. The total output is Rs. 31500 Lakhs.

2. With 10% Increase in Material Cost


a. As per taking this contingency the calculated value of IRR is coming to -2.22%.
b. This table shows that if such condition occurs then also the organization will have the
profit after tax of Rs. -280.14 Lakhs and the return on investment will be -4.97%.
c. The payback period is coming to 12.29 year it means that the organization will
recover the invested amount in 12.19 years.
d. The total output is Rs. 35000 Lakhs.

3. With 10% Increase in Investment


a. As per taking this contingency the calculated value of IRR is coming to 16.39%
which is more than 15.43%.
b. This table shows that if such condition occur then also the organization will have the
profit after tax of Rs. 2093.75 Lakhs and the return on investment will be 34.40%.
c. The payback period is coming to 7.35 year it means that the organization will recover
the invested amount in 7.35 years.
d. The total output is Rs. 35000 Lakhs.

4. With 10% Reduction in Material, Investment & 10% reduction in physical sale
a. In this case all the contingencies above are taking together.
b. As per taking this contingency the calculated value of IRR is coming to nil.
c. This table shows that if such conditions occurs then also the organization will have
the profit after tax of Rs. -946.3 Lakhs and the return on investment will be -15.58%.
d. The payback period is coming to 13.14 years it means that the organization will
recover the invested amount in 13 years.
e. The total output is Rs. 31500 Lakhs.
CONCLUSION

BHEL is the leading Organization in India, and is one among the Navaratna. BHEL

maintains the standard, quality of services and the brand image through its uncompromising

customer service. It has separate finance department which is entrusted with the task of

carrying out its various roles efficiently. The business of BHEL is carried on in a very

scientific manner. The procedure followed in the capital budgeting of the proposal is in the

scientific manner. The Organization also does the sensitivity analysis so that in case of any

contingency the organization will not have loss. Overall, the financial performance of the

organization is very well as it is having a continuous growth.


BIBLIOGRAPHY

BOOKS

I.M. Pandey, Financial Management

Documents of BHEL on Capital Budgeting

WEBSITES

www.bhel.com

www.bheljhs.com

www.wikipedia.org

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