BHEL Chairmans Speech

Dear Shareholders,

It is an honour and a privilege to present the 52nd Annual Report of
your company. I am extremely humbled as I write my first letter to our
valued shareholders, after assuming office on January 1, 2016. This has
been a very challenging year for your company. The volatility in
economic and business environment is bound to change the way we operate
and create wealth for our shareholders. Holding on to our strengths and
building new ones, our team of 42,000 employees is resolutely focused
on achieving immediate target of regaining growth.

The Year That Was?

Today, your company is in the midst of the toughest times it has faced
since its inception. The uncertain global economic order, caused by
weak global recovery, slowing global trade and China''''s growth
transition, is the ''''new normal''''. The desired pace of growth continues
to elude the domestic industrial sector as it faces continued pressure
from subdued capex and capacity underutilization. Power generation
equipment industry, in particular, has been facing a tough time for the
last few years, accentuated by the ongoing energy transition. In
addition to this, geopolitical disturbances in the target export
markets and fluctuating energy prices have dampened the international
business. The overall subdued business environment due to these factors
and the current business mix affected the financial performance of the
company, with the company registering a turnover of Rs. 26,587 Crore
and a net loss of Rs. 913 Crore during the year.

But, the real strength of an organization lies in discovering the
opportunities in its challenges. This is what we believe in, and
despite the hurdles, we have achieved some outstanding benchmarks in
the year 2015- 16 which reflect your company?s strong fundamentals:

- An unprecedented feat in the execution of projects was achieved by
commissioning/synchronizing an all-time high 15,059 MW of power
generation equipment. This includes commissioning of six supercritical
sets which constitutes 55% of the supercritical sets commissioned in
the country during the year.

- Like in 2014-15, all the hydroelectric power projects that went on
stream in the country, totalling 810 MW, were commissioned by BHEL.

- Your company booked orders worth Rs. 43,727 Crore - the highest in
the last five years with 42% growth over 2014-15. With this, the
company has orders worth Rs. 1,10,730 Crores for execution in 2016-17
and beyond.

- Your company secured three major orders of 765kV substations under
stiff international competitive bidding for the National Green Energy
Corridor project.

- 500 MW Kosti TPS - Sudans largest thermal power plant, and two 220 kV
substations in Afghanistan were successfully commissioned by BHEL.

We are proud of our achievements but are fully aware of the looming
challenges. The company is addressing them with its persistent efforts
and capitalizing on the new opportunities. As an organization, we
cannot influence most of the external factors but can definitely change
what is going on within us. It is time for your company to embrace the
new and adapt to the market realities.

Creating BHEL of Tomorrow

In our journey of creating BHEL of tomorrow, it is our passionate
endeavour to transform BHEL into an organization which is "Responsive,
Robust and Rising" to the needs of its stakeholders. This involves
orienting our strategy towards enhancing responsiveness by delayering
and being simple; building new sources of strength for a robust future
and diversification to attain a balanced portfolio for creating a
rising organization. Your company''''s efforts are concentrated towards
this drive and I firmly believe that this will be the bedrock of our
growth in the coming years.

What we choose to embrace, to be responsive of, is a reflection of our
intent. With a view to create a more agile organization, we are
focusing on Execution, Consolidation and Simplification (ECS) as the
first step. In this process, we are identifying the weak links and
putting in place an organization structure that is more productive and
that enables us to achieve higher operational efficiency. At the same
time, we are reviewing our systems and processes to get rid of the
cumbersome legacies and move towards simplification by eliminating
waste and low value added activities. Accelerated execution is one of
the most important facets for us to be responsive to customer''''s needs.
Our continual efforts in this direction have resulted in commissioning
/synchronization of more than 10,000 MW of power projects for the
fourth consecutive year, with this year crossing an all-time high mark
of 15,000 MW. This includes the highest-ever power generation capacity
addition of 13,061 MW to the Indian utility segment - 23% higher than
the target of Ministry of Power, Government of India and a quantum jump
of 59% over the previous year.

Robust BHEL!

Your company is looking forward to build new strengths on the
rock-solid foundation which we have built in our journey of over half
of a century. We derive this strength from our deep-rooted focus on
research & development. Standing true to the spirit of innovation-led
growth strategy, the company has maintained R&D expenditure at plus
2.5% of the turnover for more than five years in a row. The company has
strengthened its focus on indigenization of supercritical technology to
enhance its competitiveness. Recent in-house developments include 765
kV & 1200 kV UHVAC transformer & reactor, IGBT propulsion technology
for locomotives and ACEMU, STATCOM for industrial & grid applications,
Phase Shifting Transformer and 500 kW PCU for solar PV generation. BHEL
also made its foray into 400 kV GIS by securing the first commercial

As digital tools and technologies are profoundly differentiating the
way business is being conducted, your company has put in place an
organization structure to embrace IT as a strategic tool for opening up
new stream of opportunities in new as well as traditional business

Most importantly, to fulfil this target of a robust organization, we
have unhindered focus on the people development strategy which is today
driven by the growing aspirations of the millennial generation of the
company. We are embracing social technologies for increasing employee
engagement and working towards development of employee competencies in
line with the business plans through implementation of various learning
& development initiatives.

Rising BHEL!

What will define us in the new phase of our journey is how well we rise
to the impending challenges. Our goal is to create an organization
which will convert problems into possibilities and leverage on the new
opportunities emerging from ''''Make in India''''. Thus, our absolute focus
is on creating a balanced portfolio with focus on industry business.
Towards this, we are taking various steps. To harness the opportunities
emerging from Government''''s focus on renewables, BHEL is in the process
of augmenting its manufacturing capacity and enhancing EPC capability
for large scale PV based plants. Company is also working towards
expansion of its defence portfolio which currently includes Super Rapid
Gun Mount & Integrated Platform Management System for naval ships,
thermo pressed components, compact heat exchanger for Tejas, turret
castings for T72 tanks and other strategic equipment. We continue to
strengthen our transmission portfolio. Considerable progress has been
achieved in the execution of the world''''s largest ? 800kV, 6000MW HVDC
NE-Agra project with commissioning of Pole-1 and establishment of power
flow in both directions.

With focus on the industry, company is equally pivoted to maintain its
leadership in the power sector. In order to ensure energy security,
coal will continue to remain the dominant fuel for power generation in
the foreseeable future in view of its abundant domestic reserves and
affordability. Towards this, we have focussed on enlarging scope of
offer and enhancing competitiveness by adding flue-gas desulfurization
system, air-cooled condenser, water management system and are in the
process of expanding offerings for environmental solutions.

Partners in Our Journey

These are challenging times, but I am sure that our best years lie
ahead. BHEL has the ''''strategy, structure, and staff'''' to ensure that, in
both good times and tough, we make steady progress. We will not leave
any stone unturned in our quest to unlock the potential and take your
company to greater heights. We will continue to put unwavering emphasis
on creating customer value and bolster our inherent strengths to
enhance shareholder value.

Finally, I would like to express my sincere gratitude to all our
stakeholders: business partners including customers and vendors for
reposing their faith in us, employees for their persistent commitment,
members of the Board for their wisdom, members of the Management
Committee for efficiently channelizing the company''''s resources, and
you, our shareholders, for evincing trust in our ability to steer
forward BHEL in these challenging times. Various ministries of
Government of India, particularly the Department of Heavy Industry,
have been providing valuable guidance and support in our efforts. I am
confident that we will continue to receive your support in the future.

I see a challenging, yet exciting, journey ahead for us -one of new
beginnings, new opportunities and new horizons.

With best wishes,

Atul Sobti

Chairman & Managing Director

New Delhi

August 10, 2016

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