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Bharat Heavy Electricals Ltd.

Notes to Accounts

NSE: BHELEQ BSE: 500103ISIN: INE257A01026INDUSTRY: Engineering - Heavy

BSE   Rs 247.20   Open: 252.00   Today's Range 245.60
253.35
 
NSE
Rs 247.30
+4.20 (+ 1.70 %)
+4.30 (+ 1.74 %) Prev Close: 242.90 52 Week Range 67.63
271.90
You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (Rs.) 86111.43 Cr. P/BV 3.21 Book Value (Rs.) 77.05
52 Week High/Low (Rs.) 276/68 FV/ML 2/1 P/E(X) 180.41
Bookclosure 11/08/2023 EPS (Rs.) 1.37 Div Yield (%) 0.16
Year End :2023-03 

c) Terms / rights attached to the equity shares

The company has only one class of equity shares having par value of '2 per share (previous year ' 2 per share). Each holder of the equity shares is entitled to one vote per share.

d) Issue of bonus share (In immediately preceding five years ended March 31, 2023)

The Company allotted bonus share on October 03, 2017 in the ratio of 1:2 i.e. one equity share for two existing fully paid-up equity shares. Consequently, the paid-up capital was increased from '489.52 crore in FY 2016-17 to '734.28 crore in FY 2017-18 by capitalization of reserves.

e) Share buyback (In immediately preceding five years ended March 31, 2023)

The Company vide its Board approval dated October 25,2018, bought back its 18,93,36,645 fully paid-up equity shares of the face value of '2 each representing 5.16% of the total issued and paid-up equity share capital from the eligible equity shareholders of the Company for an amount of ' 16,28,29,51,470 at a price of ' 86 per equity share in FY 2018-19. Consequently, the paid-up share capital was reduced from ' 734.28 crore in FY 2017-18 to ' 696.41 crore in FY 2018-19.

Nature and purpose of reserves:

(a) Capital reserve : It represents mainly the excess of net assets taken, over the cost of consideration paid during amalgamation of the then subsidiary company (HPVP) with the BHEL.

(b) Capital redemption reserve: The Company has recognised Capital Redemption Reserve on buy back of equity shares from its general reserve.The amount in capital redemption reserve is equal to nominal amount of equity shares bought back.

(c) General reserve: This represents accumulation of profits retained by Company to meet future (known/unknown) obligations.

(d) Retained earnings: Retained earnings are profits that Company has earned till date, less transfer to general reserve, dividends or other distributions to shareholders.

(e) Re-measurement of net defined benefit plans: Differences between the interest income on plan assets and the return actually achieved, and any changes in the liabilities over the year due to changes in actuarial assumption or experience adjustments within the plans, are recognised in 'Other comprehensive income' and these are subsequently not to be reclassified to the Statement of Profit and Loss.

Note [32] Contingent liabilities and commitments

(? in Crore)

Particulars

As at

As at

March 31, 2023

March 31, 2022

A. Contingent liabilities

Claims against the company not acknowledged as debt :

(a) Sales tax matters

1227.09

1279.61

(b) Service tax matters

606.56

920.46

(c) Court & arbitration matters

711.81

592.77

(d) Excise duty matters

166.39

162.18

(e) Customs duty and others

934.51

880.06

(f) Goods &Service Tax

4.14

-

(g) Other matters ( incl. disputed staff cases)

59.69

48.37

(h) Claim towards Liquidated damages (LD)

3596.61

2872.25

Total

7306.80

6755.70

(i) In view of various court cases, litigations and claims disputed by the Company, the outflow of resources is not ascertainable at this stage. Generally,contingent Liability in respect of court & arbitration cases are shown on award/court judgement and also reviewed on a case to case basis for its reporting in contingent liability.

(ii) It is not practicable for the Company to estimate the timing of actual cash outflows in respect of items (a) to (g) , if any, due to pending resolution of the respective proceedings. However, the chances of cash outflow are contingent.

(iii) Liquidated damages represents likely claims or amount withheld by customer on account of delay in execution of projects which will be settled after commissioning and trial operation of project based on delay analysis and is being disclosed in line with Ind AS -37.

(iv) Movement in contingent liabilities (? in Crore)

Particulars

As at March 31, 2023

As at March 31, 2022

Balance at the beginning of the year

6755.70

6045.49

Less: Reduction out of opening balance

727.70

129.84

Add: Additions (net) during the year

1278.81

840.05

Balance at the end of the year

7306.80

6755.70

(? in Crore)

Particulars

As at March 31, 2023

As at March 31, 2022

B. Commitments

(a) Estimated amount of contracts, net of advances, remaining to be executed on capital account and not provided for.

282.05

209.20

-- (The above includes related to acquisition of intangible assets)

32.71

7.56

(b) Investment in the Joint Venture entity (NBPPL) for which the company has restrictions for their disposal for five years from the date of incorporation /commercial operation of the project/first unit of the project/completion of first EPC contract, as the case may be. This investment has been fully provided for.

50.00

50.00

(c) In view of the nature of business, being long term construction contracts there may be other commitments for purchase of material etc., which has been considered as normal business process.

Note [33]

Current Financial liabilities includes a sum of ' Nil (previous year ' 100.51 Crore) towards guarantee fee demanded by the Government of India in respect of foreign currency loans taken by the Company at the instance of the Government upto 199091. Since there was no stipulation for payment of such guarantee fee at the time the loans (guaranteed by Government) were taken by the company, the same is reversed after review.

Note [34]

The Company had taken over Amorphous Silicon Solar Cell Plant (ASSCP), Gurgaon on April 1, 1999 from Ministry of New and Renewable Energy (MNRE) on lease for a period of 30 years. The formal lease agreement with the Ministry of New and Renewable Energy (MNRE) is yet to be finalised.

Note [35]

Balance shown under Trade receivables, Trade payables, contractors' advances, deposits and stock / materials lying with subcontractors/ fabricators are subject to confirmation, reconciliation & consequential adjustment, if any. The Company is in the business of long term construction contracts, bills are raised on the customers as per contract in line with billing schedule approved by the customer and the reconciliation is carried out on ongoing basis & provisions made, wherever considered necessary. Final reconciliation with customer is done on completion of project (Trial Operation and PG Test completed). Trade Receivable of Completed Projects stand at '7963 Cr (Previous Year 7593 Cr.). Out of completed contracts, the projects reconciled with customers have outstanding trade receivables of ' 6185 Cr. (previous year ' 6376 crore).

Lease Commitments - Company as Lessee

The company's significant leasing agreements are in respect of land, building and EDP equipments. The company has entered into a rate contract for lease arrangement for computer items, printers, video conferecing equipments and peripherals. Assets taken on lease are capitalised and disclosed separately as Right-of-use assets in the property, plant and equipment. The lease rentals are allocated between interest, maintainence and principal value. The interest and maintenance charges are charged to Statement of Profit and Loss and principal amount is adjusted to lease obligations.

The company has applied the following available practical expedients :

(i) The short-term leases exemptions to leases with lease term less than 12 months

(ii) The low value lease exemption to leases where underlying asset is of low value (assets of less than ' 50000 in value).

A. The Company has following Schemes in the nature of Defined Benefits plans :

i) Gratuity Scheme

ii) Post Retirement Medical Scheme

iii) Provident Fund Scheme

iv) Travel claim on Retirement

(i) Gratuity (Funded Plan)

The Company has a defined benefit gratuity plan. Every employee who has rendered continuous service of five years or more is entitled to gratuity at 15 days salary (15/26 X last drawn basic salary plus dearness allowance) for each completed year of service subject to a maximum limit of '20 Lakhs.The gratuity liability arises on account of future payments, which are required to be made in the event of retirement, death in service or withdrawal. The liability has been assessed using projected unit credit actuarial method.

Risk Exposures

Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such, company is exposed to various risks such as increase in salary, investment risk, discount rate, mortality, disability and withdrawals.

(ii) Post Retirement Medical Benefits (Funded Plan)

The Company has Post-Retirement Medical benefit (PRMB), under which the retired employees and their spouses are provided medical facilities in the Company hospitals/empanelled hospitals subject to company medical rules.They can also avail treatment as out-patient subject to a ceiling fixed by the Company. The liability for the same is recognised annually on the basis of actuarial valuation.

The weighted average duration of the post retirement medical benefit plan obligation at the end of the reporting period is 12.34 years (31 March 2022: 12.78 years )

Risk Exposure

Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks such as increase in medical cost, investment risk, discount rate, mortality, disability and withdrawals.

(iii) Provident Fund

The Company pays fixed contribution to provident fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The Company has an obligation to ensure minimum rate of return to the members as specified by GOI. Accordingly, the Company has obtained report of the actuary. Wherever as per the actuarial valuation certificate liability for likely interest shortfall arises, the same has been provided in the accounts.

(iv) Travel claim on retirement- (Settlement Allowance - Unfunded Plan)

The settlement allowance is the expenditure reimbursed to an employee towards travel and shifting of baggage for proceeding to home town or any place in India where he or she intends to settle after retirement or death in service for self (including members of his/her family).

B. Long term Leave Liability (Encashable Leave -EL /Half Pay Leave-HPL) - (Unfunded Plan)

The company provides for earned leave benefit and half pay leave to the employees of the company which accrue half yearly at 15 days (maximum) and 10 days respectively. The earned leave is encashable while in service subject to fulfilment of certain conditions. On retirement/superannuation, earned leave & half pay leave put together upto a maximum of 300 days is encashable subject to company policies & leave encashment rules.The leave liability has been treated as other long term benefits and has been assessed using projected unit credit actuarial method.

Construction of power projects is a long cycle business, where the contracts received by the company are either EPC contracts (Engineering, Procurement & Construction) or BTG Packages (i.e. Boiler, Turbine and Generator packages). Power projects are long gestation period projects with normal execution period of contract ranging between 3 to 5 years. BHEL scope of services includes supply of equipment, erection, commissioning, synchronizing the plant to the grid, completing the trial operation and providing the guaranteed parameters.

Although there are several components to the overall scope, such projects are generally considered one performance obligation. The control transfers simultaneously over the execution period as the entity performs rather than at discrete points in time and hence revenue is recognized over the period of time based on measure of progress (input cost method)

Note [41] - Disclosure pursuant to Ind AS-107 [Financial Instruments - Accounting Classifications and Fair value measurements]

The Fair value of cash and cash equivalents, bank balances, loans, trade receivables, trade payables, security deposit and others reasonably approximates their carrying amount. Trade receivables are evaluated after taking into consideration for Expected Credit Losses. Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique.

Fair value hierarchy

The fair value of financial instruments have been classified in following categories depending on the inputs used in the valuation technique.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Financial Risk Management Objectives and Policies

"The company's activities are exposed to different financial risks arising out of natural business exposures to any company operating in the sector. The management of financial risk has always been an integral part of the company's business strategies and policies. The company reviews and aligns its policies and guidelines from time to time to address the financial risks in line with the needs and expectations of its various stakeholders. Exposure risk from the use of financial instruments can be categorized as under:

a. Credit risk

b. Liquidity risk

c. Market risk

This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk, and management of Company's capital. Further quantitative disclosures are included throughout these financial statements.

Risk management framework

BHEL has in place a Board approved Risk Management Charter & Policy which provides overall framework for Risk Management in the company. The objective of the charter is to ensure that the risks are being properly identified, assessed and effectively managed by adopting suitable risk mitigation measures. The company has 3-layer risk management framework. At the first level, the Board Level Risk Management Committee (BLRMC) of the company is assigned with responsibility of reviewing the company's Risk Governance structure, Risk Assessment & Risk Management framework, Guidelines, Policies and Processes thereof. Risk Management Steering Committee (RMSC) at the second level is responsible for adopting & implementing the risk management framework and leading the risk management initiative across the company. Chief Risk Officer (CRO) being the convener of BLRMC & RMSC is responsible for periodic reporting on risk management to Board/ BLRMC. Key risks being faced by the company are analysed starting from Unit level for their respective areas to prepare risk mitigation plans and to ensure implementation.

a. Management of Credit Risk

Credit risk is considered as an integral part of risk reward balance of doing business. BHEL is involved in setting up of power projects pertaining to Government sector (State utilities, PSU's, Railways and other govt. departments etc.) and private sectors in India and abroad. The projects are generally funded by Financial Institutions/ banks or payments are covered by Letter of Credit (LC). The project duration ranges from 3 to 5 years and payments are generally realised in stages as per the terms of the contract including advance, progress payments, milestone (including intermediate) payments and also retentions which are released on completion of such projects. Since majority customers' profile pertains to Government sector, constituting 80% of total receivables coupled with the fact that the company itself is a CPSE, credit risk is relatively low. In respect of private sector customers , the payment terms are mainly through LC. The company has well established review mechanism for receivables at various levels within organisation to ensure proper attention and focus for realisation in line with the company policies, procedures and guidelines.The company uses expected credit loss model to assess the impairment loss or gain and the disclosure of the same is made elsewhere. Further, adequate provisions are maintained to address any eventuality.

The company makes investments out of surplus funds as per policy of the company duly approved by the Board and in line with the DPE guidelines .Credit risk on cash and cash equivalents and term deposits is very limited as the company generally invests in deposits with financially strong banks and financial institutions.

b. Management of Liquidity risk

The Company manages liquidity risk by maintaining sufficient cash and cash equivalents including term deposits and the availability of Funding through an adequate amount of credit facilities to meet obligations as and when due. Robust cash management system and regular monitoring of cash flows enables management to plan and maintain adequate sources to finance its funds requirement throughout the year. Besides adequate cash and bank balances, company enjoys credit facilities. The company is able to meet all its fund requirements from internal resources i.e. the funds generated from operations and also through short-term borrowings for better treasury management operations.

The Company is exposed to certain currency,commodity, interest rate risks arising from its operations. The company has foreign exchange risk management policy to cover the foreign exchange risks.To insulate the company against major commodity price fluctuationframework agreements including price pass through claims are being entered regularly with supply chain partners including suppliers and customers. Surplus funds generated from operation are kept invested in short term deposits with PSU Banks or large sized private banks only and in debt based schemes of public sector mutual funds , thereby minimizing any chance of risk.

The company's objective, while managing capital is to continue business as a going concern, safeguard,preserve and enhance its capital to provide maximum return to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Board of Directors also monitors the level of dividends to equity shareholders. The Company monitors capital, using a medium term view and long term view, on the basis of a number of financial ratios generally used by industry as well as by the rating agencies. The Company is not subject to externally imposed capital requirements. The Company's capital structure is managed against the various financial ratios as required to maintain highest credit ratings.

Note [42] - Operating Segment

The Segments have been identified as 'Power' and 'Industry', based on the orders booked by the respective business sectors. These segments are driven by the three business sectors i.e. Power Sector, Industry sector, International Operations.

The Power segment comprises mainly thermal, gas, hydro and nuclear power plant businesses, related spares & services business apart from new businesses of coal to chemicals, emission control equipment and spares for Non-BHEL sets.

The Industry segment caters to major equipment supplies and EPC works for a variety of sectors including transportation, transmission, defence & aerospace, captive power, renewables, downstream oil & gas, energy storage, and electric mobility, among others.

The order booked by International operation group is taken to Power or Industry as the case may be.

The Company's Committee of functional Directors has been identified as Chief Operating Decision maker (CODM).

As per SEBI (Listing obligations & Disclosure Requirements) Regulations, 2015, the requisite details of loans and advances in the nature of loans, given by the Company are given below:

i) No loans have been given (other than loans to employees), wherein there is no repayment schedule or repayment is beyond seven years; and

ii) There are no loans and advances in the nature of loans, to firms/companies, in which directors are interested.

Note [46]

Assets and Liabilities are classified between Current and Non-current considering 12 months period as operating Cycle.

Note [47]

The Company has no transactions with companies struck off under section 248 of the Companies Act,2013 or section 560 of the Companies Act,1956.

Note [48]

There were no charges or satisfaction yet to be registered with Registrar of Companies beyond the statutory period.

Note [49]

The Company is complying with the number of layers prescribed under clause(87) of section 2 of the Act read with Companies(restriction on number of layers ) Rules, 2017.

No Scheme of Arrangements has been approved by the Competent Authority in terms of sections 230 to 237 of the Companies Act, 2013.

Note [51]

The Company has no transactions that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act,1961 which is unrecorded in the books of accounts .

Note [52]

The Company has not traded or invested in Crypto currency or Virtual currency during the financial year.

Note [53]

Prior period errors which are material are corrected retrospectively by restating the comparative amount for the prior periods presented in which such error occurred. For the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented are restated.

Note [54]

Figures have been rounded off nearest to '' in crore with two decimal.

Note [55]

Previous year's figures have been regrouped/ rearranged wherever considered necessary.

Note [56]

Ministry of Corporate Affairs (“MCA") notifies new standard or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 31, 2023, MCA amended the Companies (Indian Accounting Standards) Rules, 2015 by issuing the Companies (Indian Accounting Standards) Amendment Rules, 2023, applicable from April 1, 2023, as below:

Ind AS 1 - Presentation of Financial Statements

The amendments require companies to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information, together with other information, is material when it can reasonably be expected to influence decisions of primary users of general purpose financial statements. The Company does not expect the amendment to have any significant impact in its financial statements.

Ind AS 12 - Income Taxes

The amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of Ind AS 12 (recognition exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The Company does not expect the amendment to have any significant impact in its financial statements.

Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

The amendments will help entities to distinguish between accounting policies and accounting estimates. The definition of a change in accounting estimates has been replaced with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty". Entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty .The Company does not expect the amendment to have any significant impact in its financial statements.

Note [57]

The Board of Directors has authorised to issue the Financial Statements 2022-23 in its meeting held on May 26, 2023

 
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