India's capital goods sector will contribute around 7.

1 percent to the country's gross domestic product (GDP) in fiscal 2008-09, compared with 9 percent a year earlier, the heavy industry minister said on Friday.

There are only 3 ways to improve the business: increase users, increase usage and find new uses for existing products. Porters 5 forces ,

The first force of the year was inflation which was the bargaining power of the suppliers to raise prices. The customers drive their inventories down and provide cash discounts. The environment was driven by a strengthening rupee and they hedged exports. The inflation came down when the oil prices fell down. So companies started conserving cash. The rupee started weakening and became 50 Rs to the dollar. The need of the hour was to hedge imports. The cost of customer acquisition is high and one is willing to invest money on consumers. The priority shifted to increase the usage of the products instead of increasing consumers.

Competition (overcome to survive): In 2009, he expects a recession will be forced in India as well and expected unemployment rate to be around 10%. The balance 90% will see a 10-15% reduction in income. The prices of capital goods home prices, automobiles etc. will all fall. There may be collapses of major companies. If the company is able to efficiently minimize cost then it can survive in this market condition.

Threat of new entrant: As such there is no threat of new entrant as this industry requires lot of capital for its operations.

SWOT: Strength: Value-engineering techniques is used for efficient raw material usage and cost reduction. Weakness: This industry is Capital intensive, technology oriented. therefore any change will lead to pooling in lots of money.

Opportunity: Project offers from other countries. Project for defense purpose granted by government. Project available in domestic market.

Threat: Change in Technology can act as a threat to this industry as it is difficult to purchase costly equipments every now and then and also adapting with newer technology

Value Driver Method:

Equity valuation methods include simple multiples-based approaches, such as that based on P/E ratio, cash-based approaches, such as DDM and DFCFM, and accounting-flow-based approaches such as RIVM and AEGM. A simple multiples-based approach, where multiples are derived from data for comparable firms, is favoured by valuation practitioners. This approach is likely to be attractive because of its relative simplicity. Comparison of different multiples is the main problem for recent empirical research. Multiples used by investment bankers are constructed from one of four value drivers: Book value, net

income (EPS), operating cash flow and revenue. However, practitioners do not calculate every possible multiple for every transaction. It is seen that the value driver method delivers superior performance to traditional price-to-book multiple, when the premium multiples are based on earnings or EBITDA, among which forward EPS serves as the best value drivers for the premium multiples. Forward EPS in the premium multiple provides the most additional help the current EPS value anchor. The superiority of forward EPS as the value driver in the premium multiples is largely due to the higher correlation of the value estimates with the observed price. The price-to-forward-earnings multiple, delivers the best performance. The approach is potentially attractive because it retains the relative simplicity of commonly used multiples-based approaches whilst allowing for a greater use of company-specific information than is commonly found in such approaches and greater flexibility with regard to the use of value drivers. The value driver used in this approach is P/E value, book value and current share price. Two methods are used to find the intrinsic value of the share of the company. The two methods are: 1. In the first method equal weights is given to the all three value driver. Intrinsic value = 1/3rd (P/E value) + 1/3rd book value + 1/3rd current share price. P/E multiple = (market price) / (Earning per Share (EPS)) Projected EPS = EPS1 = current EPS (1+g) (where g is compounded annual growth rate) P/E value = projected EPS * P/E multiple 2. In the second method weight given to the value driver are different. Intrinsic value = 60% of P/E value + 10% of book value + 30% of current share price. Margin of safety (safety margin) is the difference between the intrinsic value of a stock and its market price.

Rationale for using value driver method: Simple to understand and Easy to calculate delivers superior performance to traditional price-to-book multiple it is more flexible when compared to other methods

Company Background: BHEL: Bharat Heavy Electricals Limited (BHEL) operates as an engineering and manufacturing enterprise in the energy related/infrastructure sector in India. Its Power sector comprises thermal, nuclear, gas, diesel, and hydro operations. This sector offers power generating sets and auxilaries, such as air pre heaters, boilers, control relay panels, electrostatic precipitators, fabric filters, fans, gas turbines, hydro power plant, piping systems, pulverizers, pumps, seamless steel tubes, soot blowers, steam generators, steam turbines, turbo generators, and valves. The companys Industry sector provides various products and services relating to transportation, transmission, electric machines, industrial sets and DG sets, telecommunications, and other

industrial products and systems. This sector manufactures and supplies capital equipment and systems, such as captive power plants, centrifugal compressors, drive turbines, industrial boilers and auxiliaries, waste heat recovery boilers, gas turbines, pumps, heat exchangers, electric machines, valves, heavy castings, and forgings, as well as supplies controls and instrumentation systems primarily distributed digital control systems; X'mas tree valves and well heads; and onshore drilling rigs, sub-sea well heads, super deep drilling rigs, desert rigs, and heli-rigs. In addition, it offers transmission products and systems, including high-voltage power and distribution transformers, instrument transformers, dry-type transformers, SF6 switchgear, capacitors, and ceramic insulators; traction and traction control equipment, drives and controls, locomotives, diesel shunting locomotives, and battery powered road vehicles; telecom switching equipment based on C-DOT technology; and technologies for exploiting non-conventional and renewable sources of energy, such as photovoltaic cells and modules, solar lanterns, gridinteractive PV power plants, and solar heating systems. BHEL is based in New Delhi, India.

BHEL Competitors Company Alstom SA Crompton Greaves Ltd Entegra Ltd Transformers And Rectifiers (India) Ltd Triveni Engineering & Industries Ltd

Opportunities: Recent developments &contracts: As part of its manufacturing capacity expansion programme, Bharat Heavy Electricals Limited (BHEL) is setting up a new manufacturing plant in Tamil Nadu. The new unit is being set up by

BHEL at an initial investment of Rs.2,500 Million and the project will be funded through internal accruals.

To be set up at in Tirumayam in Pudukottai district of Tamil Nadu, the plant is expected to provide direct employment to about 750 persons and indirect employment to nearly 3,000 people. BHELs plan to expand its manufacturing capacity from the present 10,000 MW per annum to 20,000 MW by 2011.

2. Once again outbidding Chinese equipment suppliers under International Competitive Bidding (ICB), Bharat Heavy Electricals Limited (BHEL) has won an order for the main plant package at the upcoming Malwa Thermal Power Project (TPP) in Madhya Pradesh, involving two newrating units of 600 MW each.

3. The growth momentum achieved by BHEL in 2007-08 is likely to be accelerated in the current fiscal. The company has recorded significant growth in its turnover and despite higher provisioning for the impending wage revision, maintained its profitability in the first nine months of 2008-09, as against the corresponding period in the previous year. With an order book position of Rs.1,135,000 Million, at the end of the third quarter, the company expects to achieve robust growth in 2008-09 and beyond.

4. Cumulatively valued at around Rs.70,000 Million, the contracts have been placed on BHEL by NTPC Ltd., NLC Tamil Nadu Power Limited (NTPL) and Mahagenco. All the orders were won by BHEL under ICB, as its offers were found techno-economically the best. The company has earlier supplied equipment to all the three utilities and with these orders, the customers have once again reposed confidence in BHEL's proven technological excellence and capability in executing projects of this magnitude.

NTPL has placed a contract for setting up of the 2x500 MW Tuticorin Thermal Power Project

(TPP) in Tamil Nadu. These units will add 24 million units every day to the grid on commissioning.

The key equipment for the above contracts will be manufactured at BHELs Haridwar, Trichy, Ranipet, Hyderabad, Bangalore, Bhopal and Jhansi Plants. The companys Power Sector Regions will undertake erection and commissioning of the equipment.

Here after taking into account the bargaining power of the company is high as its client have shown faith in the company and so it has so many contracts to be completed. Looking at the future prospect one can be assured that even though its a capital intensive company it has lot of potential and a thing like recession cannot affect much.