FARSIGHTEDNESS APPROACH OF THE

MANAGEMENT
BHASKAR POWER PROJECT LTD.

By: Abdul Azeem MBA (G) Class of 2012 A0101910080

Introduction of the Industry

India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4% of global power generation. While The top four countries are US, Japan, China and Russia together consume about 49% of the total power generated globally. India has historically failed to meet its power sector targets by a significant margin and with tremendous opportunities ahead; the power sector continues to be affected by the shortfall both on generation as well as transmission side. There is a need to increase power generation capacity by 5-6 times. The power backup market in India, unlike in the West, is a macroscopic market. With the continued power deficit situation, demand for alternate or backup power sources in the form of generator sets, power inverters and UPS solutions. The power backup industry is growing at a very fast rate because of the growth of the businesses in India. Which results in a very high demand of silent Gensets

Introduction of the Company

I did my summer internship in the finance department of Bhaskar Power Project Ltd. which manufactures silent diesel Gensets. The Bhaskar Group has three companies:
Bhaskar Power Project Ltd. (BPPL) Bhaskar Energy Pvt. Ltd. (BEPL) Bhaskar Energy Pvt. Ltd. (BGPL)

It has three manufacturing plants :

Two in daman as Bhaskar Power Projects Ltd. And Bhaskar Elect Power Ltd. And one in Pantnagar as Bhaskar Energy Pvt. Ltd.

Bhaskar Energy Pvt. Ltd. is a trading company which sells the gensets to those customer who does not have the c form. It also sells 5KV15KV Silent Gensets of Kirloskar Green as a trading company.` The company has its corporate office in Noida.

Problems (mentioned in the case)

Now where the problem arises- In the whole transaction, the BPPL sells one unit at a certain price to the BGPL then BGPL will sell it to the consumer. First, BPPL records one unit of sale in his books of accounts, which added to sales, gross profit, net profit etc. Now the same unit will also resulted as a sale of one unit in the BGPL, and BGPL also records a unit of sale at a certain price, which added to the sales, gross profit, net profit etc.

 When the BPPL sells to the BGPL, it charges some amount of tax from the BGPL and when the BGPL sells to the end consumer, the consumer also bears the certain rate of tax. The whole procedure of sale of one unit of Genset through BGPL charges taxes like excise then VAT/CST then freight charges. This increases the price of the Genset The Bhaskar group pay tax two times to sale of same unit as shown in two books of accounts. This also resulted in the two balance sheets, two sales records, two profits etc. in the books of accounts. While the actual profit by selling one unit of sale is occurs only once in the Bhaskar Group.

Raw Material Used

The main raw materials which is manufacture the Genset includes:
Canopy Engine Base Frame Various Parts etc

used to

Bhaskar Power Project do not manufacture all the raw materials rather they purchase the main parts of the gensets from various companies and assemble them in their factory. This process was resulting in:
High Cost Time taking process Delay in Supply All this is resulting in very high price of the Gensets in comparison to its competitors.

 The Bhaskar Power Projects Ltd has the contract of co-branding, it pays royalty to the Kirloskar (one of the leading manufacturer of the Genset). Bhaskar also uses the engine of the Kirloskar used in every Genset. So as per the contract Bhaskar cannot manufacture the engine to manufacture the Genset. But for other raw materials it can use or manufacture the other raw materials.

Solutions:
Bhaskar came with a very good solution during the period of financial cisis that instead of purchasing various parts of the Genset and assemble them to manufacture the Genset. They started to manufacture the various parts like canopy, base frame and other important parts to their own. Because sales of every company has gone down which resulted, they started to get the raw materials at much low prices. They started to manufacture the important parts and materials in one of the manufacturing plant and Daman and in other plant they assemble them into a Genset.

 This idea proved to be a very good idea. And the manufacturing cost has gone down and because of that they started to sell the Genset at much lower prices in comparison to its competitors. As it already discussed that a country like India Genset is very needy and demanding product because of the shortage of the power. So Bhaskar was confident in estimating their demand after the period of recession and they produced according to their expected demand. When the market started to come over recession in the year 2010-2011 the demand and sales of the product has gone up with much higher rate as we can see in the Gross Profit Ration and Net Profit Ratio.

Results:
Gross Profit Ratio:
Gross Profit Ratio
12.00 10.00

9.56 8.61 7.23

8.00
Axis Title

8.28
5.91

6.00

4.00

2.00

2005-2006 Gross Profit Ratio 9.56

0.00

2006-2007 8.61

2007-2008 5.91

2008-2009 7.23

2009-2010 8.28

Net Profit Ratio:

Net Profit after Tax
140,000,000.00 120,000,000.00 100,000,000.00
Axis Title

125,591,312.69

107,977,567.39 99,059,977.99 78,945,451.78

85,128,075.66

80,000,000.00

60,000,000.00
40,000,000.00 20,000,000.00

0.00

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

Net Profit Ratio

16.00 14.00 14.25 12.89 10.59 10.48

12.00
10.00
Axis Title

8.00 6.00 4.00 2.00 0.00

Net Profit Ratio 2005-2006 12.89 2006-2007 10.59 2007-2008 6.32 2008-2009 10.48 2009-2010 14.25

6.32

Stock Turnover Ratio:

Ratio (in times)
16.00 14.00

14.51 11.47 8.21

12.00
10.00 8.00 6.00 4.00 2.00 0.00
Ratio (in times) 2005-2006 6.73 2006-2007 7.39 2007-2008 14.51 2008-2009 8.21

6.73

7.39

2009-2010 11.47

Now Bhaskar is one of the fastest growing companies in the Genset Industry as we can see the rate of increasing its sales and annual growth rate.