MANAGEMENT DISCUSSION & ANALYSIS REPORT

(i) Industry structure and developments:

Your Company is a Mini Ratna Category - I Public Sector Enterprise under the administrative control of Department of Defence Production, Ministry of Defence, operating in three distinct business verticals namely Mining & Construction, Defence & Aerospace and Rail & Metro.

Organization

The three major Business verticals viz., Mining & Construction, Defence & Aerospace and Rail & Metro are headed by the Business Group Director concerned. The Trading Division deals in non-Company products. The International Division exports products manufactured by all the three verticals. The Company's manpower strength stood at 9,599 as on 31.03.2015.

Production Units

The Company has nine manufacturing units located at Bengaluru, Kolar Gold Fields (KGF), Mysuru andPalakkad & a subsidiary steel foundry functioning inTarikere, Chikmagalur District.

Bengaluru Complex: The Bengaluru Complex manufactures various types of Railway products such as Rail coaches, AC Electrical Multiple Units(AC EMU), Diesel Electric Multiple Unit (DEMU),Main Line Electric Multiple Unit (MEMU),Stainless Steel Electrical Multiple Units (SSEMU),Overhead Equipment Inspection Car (OHE Car) etc.,for Indian Railways. The Company has acquired technology for manufacture of state-of-the-art stainless steel Metro Cars and is brsently supplying to DMRC. The Complex also manufactures Defence products such as Milrail Coaches, Ejector & AirCleaner assemblies and Military Wagons.

KGF Complex: Earth Moving Division, Hydraulics and Power line Division, Rail Unit-II and Heavy Fabrication Unit located in KGF produce a wide range of equipment such as Bulldozers, Hydraulic Excavators, Wheel Loaders, Dozers, Pipe Layers, Tyre Handlers, Hydraulic Cranes, Walking Dragline, Electric Rope Shovels, Engineering Mine Ploughs, Armoured Recovery Vehicles, Transmissions, Axles, Hydraulic aggregates and allied assemblies for all the manufacturing units of BEML. Rail Unit-II manufactures Rail Coaches and supports Bengaluru Complex by supplying components / aggregates for Rail Coaches and Wagons.

Mysuru Complex: The Truck Division at Mysuru  manufactures off-highway Rear Dump Trucks,Motor Graders and Water Sprinklers. The Engine Division manufactures a wide range of Diesel Engines powering BEML's product range. The Aerospace Manufacturing Division produces Ground Handling Equipment, Weapon Loaders and Tooling & Components for Aerospace applications. BEML's Engine Division and Aerospace Manufacturing Division have been accredited AS9100C certification. The Dredging Equipment Manufacturing Division caters to the requirements of Dredging line of activities.

Palakkad Complex: The Palakkad Complex manufactures products for Defence and Rail Business such as Heavy Duty High Mobility Vehicles, Sarvatra Bridge Systems, Heavy Recovery Vehicles and Rail coach parts / aggregates.

Subsidiary Units: (a) Vignyan Industries Limited (VIL), Tarikere, was taken over by BEML in 1984 as a subsidiary unit. VIL supplies quality steel and alloy castings to various manufacturing units of BEML.(b) M/s. MAMC Industries Limited (MIL) was formed and incorporated by the Company as a wholly owned subsidiary for the intended purpose of JV formation with M/s. Coal India Limited and M/s.Damodar Valley Corporation for restarting of MAMC factory at Durgapur. Shareholders' agreement, as duly approved by the Boards of all the three members of the consortium, has been submitted to MoD for necessary approval. After obtaining the said approval, MIL, would be converted into a joint venture Company by following due process of law.

Marketing: The Company's products are sold and serviced through its marketing network comprising 12 Regional Offices, 20 District Offices, and Service Centres.

International Business: The Company exports its products through its International Business Division.

The major markets are Middle East countries, African countries and South East Asian countries.

Developments & Performance during 2014-15:

As per the advance estimates of Central Statistical Organization, the Indian economy has posted 7.4% growth in GDP in 2014-15. The Centre for Monitoring Indian Economy report of 22nd May 2015 mentions "Output of construction equipment and mining equipment is likely to have plummeted by 23 - 25% during the year 2014-15 as the Major mining companies postponed their investment".

The Company registered gross revenue of Rs.3129.65 Cr during 2014-15. In Mining & Construction sector despite a de-growth in domestic and global market, as indicated above, a net sales of Rs.1652.52 Cr was achieved with an imbrssive growth of 14.28% over brvious year. The Rail & Metro vertical achieved net sales of Rs.993.16 Cr, which is lower compared to brvious year net sales of Rs.1314.19 Cr. This was mainly due to the non availability of Rail Coach Orders from Indian Railways. The Defence business achieved a net sales of Rs.160.86 Cr which is higher compared to brvious year net sales of Rs. 143.42 Cr. The Company made a Profit Before Tax of Rs.6.91 Cr as against Rs.9.08 Cr during 2013-14.

The Company achieved important landmarks during the year and some of them are mentioned here under:

Mining & Construction

Ø Won 'India's Top Challenger Company' award in the category of Construction & Engineering in the 12th Annual Construction World GlobalAwards-2014 by ASAPP Media Information Group.

Ø Bagged Dual Awards for Equipment under the categories of "Best Seller-Rigid Dump Trucks" and "Best Seller-Crawler Dozers" in the 2nd EQUIPMENT INDIA AWARDS-2014.

Ø Bagged “Silver Shield for Star Performer -Large Enterprise (Machinery for Mining, Quarrying and Construction & Parts thereof)” award of EEPC.

Ø Rolled-out India's Biggest Electric Drive Dump Truck - BH205E (205T U.S.) for large scale Coal Mining applications as designed and developed by the Company's R&D team.

Ø Introduced the biggest Made-in-India Electrical Excavator BE1800E to the Market. With the thrust for 'Make in India,' this indigenously developed pollution-free Excavator will helpto increase productivity in Mining Operations both domestically and globally.

Ø Designed, developed and rolled out 100 Ton Hydraulic Excavator BE1000-1 with Engine Auto Idling feature.

Defence

Ø Manufactured and supplied aggregates for section IV & V of Akash Missile to M/s. Bharat Dynamics Limited.

Ø Designing is under progress for manufacture of Arjun Repair & Recovery Vehicle (ARRV)in association with CVRDE and Army.

Rail & Metro

Ø Bagged new order for manufacture and supply of 70 Cars in addition to 92 Standard Gauge Metro Cars for the brstigious Phase III, RS-9 Project of Delhi Metro Rail Corporation Limited.

th Ø Rolled-out 50 Metro Train Set to M/s. Bangalore Metro Rail Corporation Limited and also completed the supply of brstigious BMRCL 2 RS-DM Contract.

Ø Designed, developed and supplied Standard Gauge Intermediate Metro Cars to DMRC for conversion of 4 car train set to 6 car train set.

General

Ø The Company has launched 'Swachh Bharat' campaign at its Units and Offices all over the Country. On 02.10.2014, coinciding with Gandhi Jayanthi, 'Swachhta Bharat Shapath' was administered and various programmes like Badge Wearing, Street Plays, Children's Rally, mass cleaning programme and planting saplings in and around the Company brmises to promote 'Swachh Andolan' were conducted. Further, various programmes are chalked out throughout the year in respect of Swachh Bharat campaign.

(ii) Strength and Weakness:

(a) Strength

0 Established manufacturing Infrastructure, knowledge base, dedicated and skilled manpower.

0 All manufacturing units accredited with ISO 9001-2000 certification.

0 Established R&D base with technology absorption and design capability.

0 Technology self-reliance for existing product range as well as for production / processes.

0 Development of Electric Drive Dump Trucks and Excavator.

0 First Indian Company which has acquired state-of-the-art Metro Car manufacturing capability in the country.

0 Wide range of products to cater to customer needs.

0 Well sbrad out Marketing network of Sales, Service and Spare parts distribution.

0 Spare parts Depots and Service Centers located close to the mines. 0 Established brsence and brand image.

0 Works on outsourcing model with strong and vibrant vendor base. 0 Good industrial relations with conducive working atmosphere.

(b) Weakness

0 High wage cost.

0 Technology levels of certain products do not measure up to international levels and trends.

0 No assured business from Defence unlike other defence public sector enterprises.

0 Low margin levels, which are mainly due to the dictates of market environment.

(iii) Opportunities and Threats:

(a) Opportunities

Mining & Construction:

0 Coal India envisaged to increase production of coal from 0.5 billion ton to 1 billion ton in the next five years.

0 Underground Mining is also expected to catch up and improve.

0 Operationalization of additional coal blocks would increase business opportunities.

0 Increased thrust by Government in infrastructure development.

0 Scope for dredger equipment business and spares supplies to dredgers in operations. Rail & Metro:

0 Metro Rail extending to Tier-II cities in the Country.

0 Light Rail Metro is also catching up as a revenue line which is expected to emerge from tier-II and tier-III cities.

0 Indian Railways graduating to Medium Speed  LHB Coaches and Sub-urban Railways graduating to SS EMUs.

Defence:

'Make in India' Indian policy of Govt. is a boon to Indian industry and focus is on for Indigenous production.

Emerging business for defence requirements.

New Areas:

0 The demand for Electric Drive Dump Trucks and Excavators.

0 OFB engagement for manufacture and supply of armoury vehicles.

0 BDL engagement for supply ofAkash Missile.

0 Emerging business opportunity for Light Rail Metro which is also a feeder line for the main Metro in the tier-I cities is expected to emerge from tier-II and tier-III cities.

(b) Threats

0 Domestic and global economic scenario yet to pick-up.

0 Post-liberalization, more and more technology leaders operate directly than parting their technology with Indian counterparts.

0 Mergers and Acquisitions in mining and construction equipment industry.

0 Project delay, especially in Mining sector due to delay in resolving environmental and social issues.

0 Demand for higher capacity M&C equipment, in line with the global market trend.

0 High expectations of contractor segment for lower prices for equipment.

0 Mounting brssure on reducing ownership costs.

0 Improved technology for operational cost to stay ahead in business.

>Uncertainty in Defence business.

>Increased FDI caps in Defence sector.

>Opening up of Defence purchases to private sector increasing further competition.

> Dumping of products.

>Uncertainty in orders for Rail Coaches from Railway Board.

Outlook:

The CMIE report of 22nd May 2015 mentions that -"We expect the demand for mining & construction equipments to revive in 2015-16. It will continue to remain healthy in 2016-17. This will be backed by a pick-up in demand from the user-industries like mining, power, steel, construction and infrastructure sectors. Several mining companies have already restarted operations in Goa, Jharkhand, Karnataka and Odisha. Other mining companies are also likely to resume operations in the ensuing months.

In March 2015, the President signed an ordinance to amend Mines and Minerals Development & Regulation Act (MMDR). The MMDR bill is expected to eliminate delays and improve transiency which would help the mining sector to revive. This is likely to ensure effective mining operations in India and in-turn generate demand for the mining & construction equipment industry.

In the Budget 2015-16, several announcements were made and initiatives were taken by the government to boost the construction & infrastructure sectors. The government announced an investment increase of Rs.700 billion by launching new infrastructure projects and by allowing huge domestic and foreign investments in infrastructure sector. Moreover, the government has shown strong intent to remove the bottlenecks and clear stalled projects without any further delay. These initiatives would bode well for the mining & construction equipment industry during 2015-17.

Construction & infrastructure sectors are likely to witness strong investments during 2015-17.

The growth in steel output is expected to push the demand for mining & construction equipment during 2015-17. It is expected to accelerate to 6.2 per cent in 2015-16 as compared to 5.3 per cent in the brceding year. Output is likely to further increase by 7.3per cent in 2016-17.

Backed by a pick-up in demand from user-industries, CMIE expects the production of earth moving equipment and lifts & escalators to rise by 2-4 per cent in 2015-16. Output of cranes, forklifts and mining equipment is likely to rise in the range of 11­16 per cent. Construction equipment production is expected to increase by 19percent in 2015-16."

This augurs well for the Company especially to the Mining & Construction segment. The Company expects orders for Mining and Construction equipments with more projects being cleared. Further improvement in the global economy will boost export performance.

For current fiscal, the Army has been allocated funds for acquisition of Heavy and Medium Vehicles. The Company is making all efforts to pick up business in the areas related to its product portfolio. Further, engagement for OFB is also being pursued for manufacturing of aggregates for armoury vehicles.

Indian Railways, coach manufacturing is graduating to Medium / High speed Coaches/ LHB Coaches. Sub-urban trains are expected to graduate to Stainless Steel EMUs. Maintenance equipment requirements are increasing for Track Laying, Rail Grinding & Track Cleaning Machines. Light Rail Metro is fast catching up as a revenue line which is expected to emerge from tier-II and tier-III cities, as also a feeder line for the main Metro in the tier-I cities. These are expected to open up new business opportunities during the current and next 3~4 years.

In this scenario, the Company will focus on emerging new business opportunities and also develop new products / aggregates to align with the market requirements. Further, it is planned to grow in each of the vertical by expanding the business with new products and territories. The Company is committed to enhance customer satisfaction by providing quality products and services to its customers.

(vi) Challenges, Risks and Concerns:

The major challenges to the Company are:

0 Bridging the technology gap and meeting the emerging demand for higher capacity equipment in line with global market trend

0 Maintaining cost competiveness.

0 Sustaining the market share in view of entry of MNCs.

0 Reviving the supply of rail coaches.

0 Meeting the challenges in defence business due to its opening up to private sector.

(vii) Internal control systems and their adequacy:

The Company has an internal control system designed to provide high degree of assurance regarding optimization and safeguarding of resources, quality and reliability of financial and operational information, compliance with applicable statutes and corporate policies. It is the Company's endeavour to align all its processes and controls with global best practices.

The internal audit process is designed to review the adequacy of internal control checks in the system and covers all significant areas of the Company's operations. The internal audit department performs risk based audits, based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors and the audit committee.

The Audit Committee reviews audit reports submitted by the internal auditors and follow up on the implementation of corrective actions periodically.

Your Company has implemented an enterprise-wide ERP. This will accompany by re-engineering and simplification of business processes to improve agility and customer service. Further, it has end-to-end SAP platform that provide a robust foundation to address several emerging business needs.

(viii) Discussion on financial performance with respect to operational performance:

Your Company achieved Gross Revenue of Rs.3129.65 crores including the value of consortium supplies as against Rs.3262.20 crores of corresponding value in the brvious year. The revenue from operations (net of consortium supplies and excise duty) stood at Rs.2809.19 crores as against Rs.2911.51 crores in the brvious year, registering a marginal decline in the growth of 3.51%. The Value of Production (net of consortium supplies and excise duty) is Rs.2599.93 crores as against Rs.2814.45 crores in the brvious year. The Profit before Tax was Rs.6.91 crores as against Profit before Tax of Rs.9.08 crores recorded in the brvious financial year. The decrease in revenue in Rail & Metro segment is due to lack of orders relating to Rail Coach GS/GSCN vis-a-vis the capacity available. In spite of persistent follow-up, orders from Railway Board have not materialized. However, Rail & Metro segment has registered a Net Sales of Rs.993.16 crores in FY 2014-15 as against Rs.1314.19 crores in FY 2013-14, thereby resulting in negative growth of 24.43%. The non-availability of further input materials for Defence supplies continued during financial year affecting the sales in the Defence Business segment. Defence Business segment has achieved a Net Sales of Rs.160.86 crores in FY 2014-15 as against Z143.42 crores in FY 2013­14, registering a growth of 12.16%. Despite sluggish market conditions in Mining & Construction segment, the Company has achieved a Net Sales of Rs.1652.52 crores in FY 2014-15 as against Rs.1446.08 crores in FY 2013-14, registering a growth of 14.28%. However, efforts are being made to improve overall performance of the Company.

(ix) Material developments in Human Resources, Industrial Relations front, including number of people employed:

The Company intensified focus on training and development of manpower. Training and development at middle management levels were in focus during the year. The Company Installation of competence management by way of a structured approach in major locations. A company-wide associate survey was undertaken to obtain feedback on various aspects, covering all employees. The Company intensified its communication with all levels and categories of employees by way of different internal forums. The Company also continued to excel in the field of training apbrntices and workmen.

The industrial relations have been harmonious and cordial. The manpower strength as of 31.03.2015 stood at 9,599. During the year, 24,546 man-days of training were imparted to sharpen their skills and update their knowledge of employees.

(x) Environmental Protection and Conservation, Technological conservation, Renewable energy developments, Foreign Exchange conservation:

Relevant information in this regard is disclosed in the Board's Report.

Board's Report.

Cautionary Statement - Certain statements made in the Management Discussion and Analysis Report related to the Company's objectives, projections, outlook, expectations, estimates and others may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether exbrssed or implied. Several factors could make significant difference to the Company's operations. These include climatic conditions and economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on over which the Company does not have any direct control.