REPORT OF THE BOARD OF DIRECTORS

The Directors have pleasure in presenting the 41^st Annual Report and Audited Accounts for the year ended 31.03.2005.

FINANCIAL RESULTS

(Rs. In lakhs)

2004-2005

2003-2004

Sales (Gross)

Value of Production

Profit (before Depreciation

Interest and Tax)

Interest

Depreciation

Profit before tax

Provision for taxation

Profit after tax

Profit available for appropriations

APPROPRIATIONS :

Interim Dividend including tax

Proposed Dividend

Tax on Dividend

General Reserve

Profit & Loss Account

1,85,601

1,88,595

29,757

179

2,299

27,279

9,751

17,528

17,827

623

3,123

438

12,000

1,643

1,76,575

1,69,186

6,995

148

1,829

5,018

2,601

2,417

2,780

735

1,650

299

Net Worth

69,439

56,888

TURNOVER AND PROFITABILITY

Your Company has achieved an all time high turnover of Rs.185601 lakhs during the financial year 2004-05, an increase of Rs.9026 lakhs registering a growth of 5.11 % over the previous year. The value of production was Rs.188595 lakhs recording an increase of Rs.19409 lakhs compared to previous year. The Company’s Profit Before Tax stood at Rs.27279 lakhs, which is almost 5.44 times of the previous year. The Profit After Tax stood at Rs.17528 lakhs. This is the highest ever profit earned by the Company which was possible by controlling the product-mix of equipments, spares manufactured and sold and cost control measures implemented yielding results. The year 2004-05 had been declared as the “YEAR OF TURNAROUND” for the Bangalore complex and KGF Complex. Both the units have shown profits enabling the overall performance of the company to grow substantially. This has been a major achievement.

DIVIDEND

An interim dividend of 15% was declared by the Board. Final dividend of 85% has been recommended by the Board bringing the total dividend to 100% for the year 2004-05. This is the highest dividend declared by the Company.

EXPORTS

The Company posted an export turnover of Rs. 5856 lakhs of which Rs. 5168 lakhs constituted physical exports. An export target of Rs. 15000 lakhs has been fixed for the year 2005-06. The year 2005-06 has been declared as the “YEAR OF EXPORT” and every effort is being made to increase our presence in the global market. Towards this end, certain regions / areas have been identified with focus in the following regions :-

1. North and Central African Countries

2. Latin America comprising of Brazil, Chile, Peru & Suriname

3. Indonesia and Australian Region

4. United Arab Emirates including Iran.

STRUCTURE, SEGMENT REPORT AND PROSPECTS

The company has three manufacturing units located at Bangalore, KGF and Mysore. At the Bangalore Complex, Railway Rolling Stock, Metro Coaches, Defence equipments and aggregates are manufactured. At the KGF Complex, Heavy Earthmoving Equipment like Bulldozers, Hydraulic Excavators, Mining Shovels, Backhoe Loaders, Walking Draglines, Loaders, etc., of different models, capacity, spares, Defence equipment and aggregates are manufactured. At the Mysore Complex, Dumpers Motor Graders, Engines of different capacity and sizes and Defence equipments are manufactured.

The company deals with three segments in the product range viz., Earthmoving equipment segment catering to the core sector of the economy, the Railway Rolling Stock segment catering to the Railways, Metro Coaches for Metros and Defence Segment covering ground support equipments, aggregates and Wagons. The Earthmoving segment accounted for Rs.118374 lakhs constituting 63.78% of the total turnover, Defence segment accounted for Rs. 56299 lakhs constituting 30.33% and the Railway Segment accounted for Rs.10928 lakhs constituting 5.89%.

The outlook for the Earthmoving segment largely depends upon the growth of the core sector of the industry namely mining and infrastructure. This segment presents a promising outlook but is open to severe competition from within and outside the country. There is a gradual shift in the existing practice of coal companies buying equipments and operating them for mining. Blocks of coalfields are being offered for exploitation by interested parties who will be responsible for excavation and development of the mine. In order to ensure our share of business for equipment and spares it has become necessary to form joint ventures to operate the mines with BEML being responsible for supply of equipments, operation and its maintenance.

This will ensure that the share of business for earthmoving equipment / spares is retained. In the Railway Rolling Stock segment, the off-take is decided by the Railway Board and for the Metro Coach the prospects appears to be good with several cities like Bangalore, Hyderabad and Ahmedabad indicating their intention to go in for metro rail transit system to reduce the congestion and pollution levels. The company has also bid for the Mumbai Metro Project as a member of the consortium consisting of M/s L&T Gammon India, M/s Siemens and M/s BEML. In the Defence segment, the prospects are dependent on the off-take of equipments by the Defence. In the Railway and Defence segments, the prospects largely depends on outlays by Government for procurement of the range of equipments manufactured by the company. The competition in the Defence segment is growing. In the metro coach segment the demand is projected to grow which is linked to the projects being approved for implementation in cities for which funds have to be raised and implementation of the project is combined with supply and maintenance of the coaches as a package.

The prospects for the year 2005-06 is good with the company setting for itself a target of Rs.2200 crores with better profitability over that attained during this year. The company has on hand orders to the tune of Rs.1279 crores for supplies to be made during the year. The company is confident of attaining the target set and showing better returns.

QUALITY

In line with the company’s vision to emerge as a global player in providing world class products and services, impetus has been given to sustain a culture of continuous improvement.

Concerted efforts and resources have been focused on Kaizen activities and break through improvements in the manufacturing process. Company has derived benefits from the same.

Small group activities in the form of quality circles, TPM teams, Kaizen teams etc., continue to receive impetus and have contributed in the areas of cost reduction and quality improvement.

Training has been imparted and competencies developed in areas of TPM, Lean / Six Sigma, reliability etc. The company has tied up with a leading institution for training and development of human resources for six sigma implementation.

A symbiosis has been maintained with vendors through constant vendor development and periodic vendor meets. Such interactions have helped in identifying areas of mutual benefit and strengthening synergies.

Based on detailed analysis and evaluation deserving suppliers have been identified and accorded status of Self Certification. This pioneering exercise will be continued in a progressive manner.

Cross-functional teams continues to visit various customer sites which has helped in fine-tuning customer satisfaction that is required with regard to various products and services.

The above measures have resulted in definitive reduction in internal failure cost and warranty expenditure

RESEARCH & DEVELOPMENT

A well established Research & Development Centre of the Company continues to play a vital role in the design & development of products and critical aggregates, indigenization activity etc. During the year, a 7 T Class Excavator – BE71 and Backhoe Loader - BL 9H were formally launched after successful customer trails which are under series production. An indigenously developed 20T Class State-of-the-art new Hydraulic Excavator - BE200 has been developed and presently undergoing in-house testing and trials and is likely to be introduced into the market shortly. Presently, the design and development of a Load Haul Dumper – BL15 is on hand for underground mining application. Also a four-cylinder indigenous engine B4D105 has been built, tested, evaluated and planned to be fitted on one of the earthmoving equipment.

The information on R&D, Technology Absorption, Adaptation and Innovation is at Annexure-I.

FINANCE

The working capital requirement was met from the internal resources and cash credit facilities from banks. There was no overdue installment of principal and interest.

The company is in the process of upgrading its facilities by re-building and replacing the existing plant & machinery wherever necessary, modernizing and upgrading the manufacturing facilities to help improve quality of products as also productivity. A capital outlay of over Rs.125 crores is proposed over a two year period. The company is a member of a consortium constituted to bid for the Metro Rail Project at Mumbai, and if successful would require an investment of about Rs.100 crores from BEML.

The company is also contemplating entering into a joint venture for contract mining which would require an investment of about Rs.25 crores. It is proposed to introduce VRS scheme to selected workforce in unskilled and support staff categories to reduce overheads which would require an estimated outlay of about Rs.90 crores in the next 2-3 years. To fund these and other capital investment over the next couple of years, it is proposed to make a Public Issue of equity shares at a premium through book building process.

The company’s contribution to exchequer was of the order of Rs.36647.86 lakhs during the year by way of Excise Duty, Customs Duty, Sales Tax and Income Tax.

FOREIGN EXCHANGE EARNINGS AND OUTGO

During the year, the Company’s export earning stood at Rs.3908.94 lakhs. The total foreign exchange utilised during the year was Rs. 49682.84 lakhs.

A sum of Rs. 122.56 lakhs was incurred towards deputation of personnel abroad for business / export promotion, after-sales-services and training.

FIXED DEPOSITS

The entire amount outstanding against fixed deposits matured during the year and was repaid. The company did not renew or accept any fresh deposits during the year. Fixed deposits aggregating to Rs.0.27 lakhs remains unclaimed.

VIGILANCE

The Vigilance Department is functioning effectively for ensuring the objective of Central Vigilance Commission (CVC) by adopting preventive and detective measures in accordance with the guidelines issued by CVC from time to time.

An elaborate and well structured Vigilance system has been established covering all the areas and operations of organizational activity. The Vigilance Department scrutinizes / checks various records / documents selectively to ensure that the systems are followed. Periodical meetings of Vigilance Officers are held on regular basis and reports submitted to various agencies including CVC / MoD etc. Effective investigations have been carried out on all the complaints received and reports are submitted to the competent authorities concerned, in time.

In addition to the above, the Vigilance Department conducts surprise checks, verification of high value purchase orders, verification of property returns on random basis. Systems Audit are conducted to ensure that established systems are followed strictly.

CORPORATE GOVERNANCE

A report on Corporate Governance along with a compliance certificate from the Auditors as prescribed under the Listing Agreement with the Stock Exchanges, is annexed to this report.

SUBSIDIARY COMPANY

M/s Vignyan Industries Limited, Tarikere recorded a turnover of Rs.2154.90 lakhs with profit before tax of Rs.92.88 lakhs recording a growth of 43.23% in sales and 35.86 times in profit. The value of production of the company stood at Rs.2178.11 lakhs and profit after tax stood at Rs.42.03 lakhs. The company is in the process of modernizing its facilities to improve its productivity. The company is looking forward to diversify its product range to have a broader customer base. The company is also exploring the export potential for its products.

The statement and particulars relating to M/s. Vignyan Industries Limited, Tarikere, pursuant to Section 212 of the Companies Act, 1956 are attached.

SMALL SCALE AND ANCILLARY INDUSTRIES

The Small Scale and Ancillary Units continue to get support and preference from BEML wherever there is shortage of in-house capacity. The Company extends technical guidance and requisite support to these industries wherever required. Our quality control personnel visit the industries to assist and ensure that the quality of the products meet the requisite standards.

During 2004-05, the Company procured items worth Rs.10281.13 lakhs from these Units.

RAJBHASHA

Thrust is given to use of Hindi in official work and training. Around 1575 employees have been trained in Prabodh, Praveen and Pragya courses. Important letters, general orders, circulars, annual reports are issued bilingually whereas sign boards and name plates are tri-lingually displayed.

Hindi anthakshari, essay writing competitions and Hindi workshops were organised in all the divisions to propagate the use of Hindi. A session on ‘Official Language Policy’ is included in the in-house training programmes.

During the year, the Joint Inspection Committee on Official Language, MoD inspected the Mysore Division and appreciated the progress made in the implementation of Official Language Policy in the Division and also suggested few improvements in its implementation.

AWARDS

During the year, Equipment Division of Mysore Complex was awarded the National Safety Award under Scheme-I and Scheme-II for the year 2003.

The Company was awarded the Best Exporter Award for the year 2001-02, 2002-03 and 2003-04 by the Department of Industry & Commerce, Government of Karnataka. The award was given to BEML in district-wise non-SSI category for increasing product exports from the Mysore and KGF Plants.

The Company also bagged the regional award for highest exports for 2001-02 and a Certificate of Excellence for 2002-03 from Engineering Export Promotion Council, Southern Region.

MANPOWER

The manpower strength as on 31^st March, 2005 stood at 12,189 as against 12,922 of the previous year. With focus on reducing the manpower particularly in the area of unskilled and support workforce, two rounds of Voluntary Retirement Schemes were introduced which was availed by 571 employees at a cost of Rs.3,223.05 lakhs.

Representation of SC/ST and Ex-Servicemen category-wise as on 01.01.2005 and recruitments made are as under:

Representation of SC/ST/Ex-Servicemen as on 01.01.2005

Category / Group	Total Strength As on		No. of SC/ST and Ex-servicemen
			Scheduled Caste		Scheduled Tribe		Ex-Service Men
	1.1.04	1.1.05	1.1.04	1.1.05	1.1.04	1.1.05	1.1.04	1.1.05
Group-A Group-B Group-C Group-D (ESH) Group-D (SH) MREs	1471 830 10430 218 5 4	1574 611 9953 210 0 0	190 116 2294 64 4 1	207 82 2173 64 0 0	44 15 378 13 0 0	47 12 368 11 0 0	12 13 580 2 0 0	15 12 519 0 0 0
Total	12958	12348	2669	2526	450	438	607	546

Recruitment during 2004

Group

General

EX-S

OBC

TOTAL

Group-A

HUMAN RESOURCES DEVELOPMENT & INDUSTRIAL RELATIONS

The HRD department took several initiatives for updating Technical / Professional skills of employees and for improving work culture. Towards this, the Company organized several in-house and external training programs for 7,040 employees covering 14,923 man-days.

The overall industrial relation situation in the company was cordial during the year.

SOCIAL WELFARE

The entire workforce of the company contributed a day’s salary aggregating to Rs.50 lakhs to the Prime Minister Relief Fund towards mitigating the suffering of people affected by Tsunami disaster. Further, the company contributed a sum of Rs.10 lakhs to the Tamil Nadu Chief Minister’s Public Relief Fund and Rs.5 lakhs to Karnataka Chief Minister’s Relief Fund (Tsunami), in aggregate Rs.15 lakhs towards Tsunami Relief.

In the Company adopted village at Dasarahosahalli near KGF Complex, the out patient medical treatment facilities were extended to about 153 families.

To commemorate the 41^st Death Anniversary of Dr. BR Ambedkar, the SC / ST Associations distributed fruits to the patients at TB Sanatorium Hospital, Mysore.

PARTICULARS OF EMPLOYEES

There was no employee of the Company who received remuneration in excess of the limits prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975.

ENVIRONMENT AND POLLUTION CONTROL

In order to protect the environment, tree plantation were undertaken in and around the factory premises / company established townships. Saplings of various types of trees including flower bearing trees were planted in the vacant lands belonging to the Company during various occasions for maintaining ecological balance in the surrounding areas. Further, measures have also been taken to protect the existing flora and fauna from any basic interference.

Effluent treatment plants have been constructed inside the factory premises of the production units for treatment of effluents. Further, treatment plants / oxidation ponds for treatment of natural process of treating effluents have been installed in various locations inside the factory and township. Treated effluent water is being utilised by the landscaping department in the production units.

ENERGY CONSERVATION

The Company continues to give emphasis on conservation of energy. The efficiency of energy utilization is closely monitored to attain a high level of effective conservation. Some of the measures adopted during the year for energy conservation are :-

1. Round the clock monitoring of the hanger lights and controlling them to barest necessity.

2. Decentralization of compressed air system by providing portable compressors, wherever possible.

3. Shutting of electrical machinery / appliances during un-productive hours.

4. Providing BEBLEC energy saving device in manufacturing Hydraulic, HT Shop, CNC Complex and Administration Buildings.

5. Periodically calibrating energy meters at shops for better monitoring on power consumption.

6. Improving the efficiency of DG sets by proper tuning and adjusting the fuel system and eliminating the over heating of DG engines by proper cooling arrangements.

The particulars as prescribed under sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules 1988, are annexed to this report.

AUDITORS

M/s. Rao & Swami, Chartered Accountants, Bangalore, were appointed as Statutory Auditors for the year 2004-05.

In pursuance of the directives received from the Department of Company Affairs, Cost Audit was conducted for IC Engines and Heavy Earthmoving Equipment.

Reply of the Board of Directors to the observations made in the report of the Auditors on the Accounts are given in addendum to this report.

REVIEW OF ACCOUNTS

The review of accounts by the Comptroller and Auditor General of India for the year 2004-05 is attached to this report at Annexure-II.

DIRECTORS

Shri N.K. Sreenivasan, Executive Director (Marketing) was appointed as Director (Marketing) by the President of India. Shri APVN Sarma ceased to be a Director and member of Audit Committee consequent upon resignation from the Board. Shri P.Sathyanarayan, Director (HRD) ceased to be a Director consequent on reversion. The Board placed on record its deep appreciation of the valuable services rendered by Shri APVN Sarma.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Board of Directors of the Company confirm :

i) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with the explanation relating to material departures ;

ii) that the selected accounting policies were applied consistently and the Directors made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31^st March, 2005 and of the profit of the Company for the year ended on that date ;

iii) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities ; and

iv) that the annual accounts have been prepared on a going concern basis.

ACKNOWLEDGEMENTS

Your Directors express their grateful thanks to the Company’s valued customers, in particular M/s. Coal India Limited, M/s. Singareni Collieries Company Limited, M/s Neyveli Lignite Corporation, Defence Services, Railway Board and M/s DMRC for their patronage and confidence in the Company. The Directors also express their grateful thanks to M/s. Bucyrus International, USA, M/s. Bumar, Poland, M/s. Rotem, South Korea, M/s. Tatra Sipox Limited, UK, and others for their valuable assistance to the Company.

The Directors express their appreciation to the State Bank of India and other members of Consortium of Banks and Financial Institutions for their continued support to the Company’s operation. The Directors also thank all the shareholders / investors and Depositors for reposing continued confidence in the Company.

The Directors wish to thank the Comptroller & Auditor General of India, the Principal Director of Commercial Audit & Ex-officio Member, Audit Board, Statutory Auditors and Suppliers for their valued co-operation.

The Directors also gratefully acknowledge the valuable assistance and guidance received from various Ministries of Government, in particular Ministry of Defence and the Ministry of Railways. The Directors are also grateful to the Government of Karnataka for the co-operation extended.

Your Directors take this opportunity to place on record their appreciation for the valuable contribution made and co-operation extended by the employees and officers at all levels for the progress of the Company.

For and on behalf of the Board of Directors

V.RS. Natarajan

Chairman & Managing Director

Balance Sheet

as at 31st March 2005

Rs. in lakhs

Schedule

2005

2004

Sources of Funds

Shareholders Funds

Share Capital

3,687.22

3,687.22

Reserves & Surplus

69,781.05

56,437.24

73,468.27

60,124.46

Deferred Tax Liability

2(a)

264.07

1,557.88

Loan Funds

Secured Loans

7,491.08

3,148.27

Unsecured Loans

180.25

7,491.08

3,328.52

81,223.42

65,010.86

Application of Funds

Fixed Assets

Gross Block (at cost)

54,395.37

54,333.62

Less: Deprecication

42,737.80

40,948.73

Net Block

11,657.57

13,384.89

Add: Capital Work-in-progress

625.08

177.67

12,282.65

13,562.56

Investments

252.64

278.65

Current Assets, Loans & Advances

Inventories

62,079.61

57,326.78

Sundry Debtors

60,820.14

44,356.38

Cash and Bank Balances

39,628.86

50,794.87

Other Current Assets

1,450.45

1,266.11

Loans and Advances

33,275.88

10,002.95

197,254.94

163,747.09

Less: Current Liabilities & Provisions

Current Liabilities

113,696.07

110,670.83

Provisions

18,900.39

5,143.52

132,596.46

115,814.35

Net Current Assets

64,658.48

47,932.74

Miscellaneous Expenditure

4,029.65

3,236.91

(to the extent not written-off or adjusted)

81,223.42

65,010.86

Notes on Accounts

[Schedule 1 to 25 and Accounting Policies

annexed to and forming part of Accounts]

Refer our report of even date

For and on behalf of the Board of Directors

For M/s. RAO & SWAMI

P. MAZUMDAR

V. RS. NATARAJAN

Chartered Accountants

Director (Finance)

Chairman & Managing Director

Profit and Loss Account

For the year ended 31st March 2005

Rs. in lakhs

Schedule

2005

2004

Income

Sales

185,600.98

176,574.59

Less: Excise Duty

12,321.87

9,356.18

173,279.11

167,218.41

Other Income

5,878.10

4,306.41

Increase / Decrease in WIP/ FGI

2,994.30

(7,388.19)

Excise Duty on Finished Stock etc.,

1,368.69

2,622.11

183,520.20

166,758.74

Expenditure

Cost of Raw Materials & Spares

Consumed / sold

103,505.53

105,319.15

Employees Remuneration & Benefits

35,616.37

34,678.21

Depreciation

2,299.00

1,828.79

Other Expenses

21,216.41

26,217.88

162,637.31

168,044.03

Less: Expenditure other than materials

allocated to Capital & Other Accounts

6,485.60

6,383.29

156,151.71

161,660.74

Interest

178.72

148.41

156,330.43

161,809.15

Profit for the year

27,189.77

4,949.59

Prior Period Adjustments

(89.75)

(68.55)

Profit Before tax

27,279.52

5,018.14

Provision for tax

24(a)

9,751.19

2,601.54

Profit After tax

17,528.33

2,416.60

Add: Balance of Profit and loss a/c. C/F

299.29

338.21

Add: Withdrawal of excess Income Tax of Pr. Yrs

25.41

Profit available for appropriation

17,827.62

2,780.22

Appropriations :

Proposed Dividend

3,123.28

734.89

Tax on Dividend

438.04

96.04

Interim Dividend & Tax thereon

623.20

General Reserve

12,000.00

1,650.00

Balance Tranfered to Balance Sheet

1,643.10

299.29

17,827.62

2,780.22

Notes on Accounts

[Schedule 1 to 25 and Accounting Policies

Annexed to and forming part of Accounts]

Refer our report of even date

For and on behalf of the Board of Directors

For M/s. RAO & SWAMI

P. MAZUMDAR

V. RS. NATARAJAN

Chartered Accountants

Director (Finance)

Chairman & Managing Director

H. ANIL KUMAR

K.C. MEDAPA

Partner

Company Secretary

Place : Bangalore

Date :