Rearguard action saves BHEL the blushes

A recent surge in orders may save state-run Bharat Heavy Electricals (BHEL) the embarrassment of closing financial year 2013-14 as one of its worst performances lately.

The company has got new orders of about Rs 11,500 crore in March alone, which is almost on a par with the Rs 11,667 crore of business it got in the nine-month period ended December 31, 2013. With this, BHEL is learnt to have ended the year with overall orders of about Rs 24,000 crore, lower than last year's Rs 31,650 crore, but much higher than the pessimistic estimates made in the middle of the year, which projected a mere Rs 12,000 crore for the full year.

As per data from the ministry of heavy industries, BHEL is likely to close Q4 of 2013-14 with new orders worth R11,500, or 55% of the targeted new orders for the quarter of Rs 21,098 crore. For the full year, BHEL is expected to reach just about 45% of the annual target of Rs 54,714 crore. In terms of capacity, BHEL could reach about 5,000 MW of new orders in 2013-14.

NTPC has been BHEL’s saviour as it gave the engineering firm two big orders in March — a Rs 7,900-crore engineering, procurement and construction (EPC) order for its 1,980 MW North Karanpura project and a Rs 3,000-crore order for a supercritical boiler at its Darlipalli project.

“We had expected a late pick-up in orders last year. What is good is that BHEL has beaten competition to bag NTPC orders. With more projects reaching the order stage in 2014-15, the situation should improve for the company, which has faced slowing down of new orders in the wake of the general slowdown in the economy and delays in project clearances,” said a board level official at BHEL.

The company reported a 41.2% decline in net profit to Rs 694.8 crore, its sixth straight drop, in the third quarter ended December. The drop was mainly on account of a historic slowdown in fresh orders, coupled with huge outstanding dues from customers. The fall is expected to continue in Q4 when the numbers are released.

As per the BHEL official quoted earlier, the company faces the grim prospect of not meeting even its internally cut turnover target of Rs 43,000 crore for 2013-14, ending the year with a figure less than Rs 40,000 crore. Not achieving even the lower target — BHEL had kept its top-line target for the last fiscal at Rs 43,000 crore, less than previous year’s Rs 50,156 crore and the Rs 49,510 crore clocked in FY12 — would be unprecedented for the engineering major, which has consistently posted an increase in turnover in absolute terms. In 2012-13, BHEL’s turnover crossed the Rs 50,000-crore mark for the first time.

Till end December, BHEL's turnover was Rs 24,799 crore, or just 58% of the annual target. This is likely to improve in Q4, but the numbers will still fall short of the Rs 43,000-crore target.

Deutsche Bank recently cut BHEL’s order inflow estimate for FY14 by 22% to Rs 24,300 crore. The PSU’s earnings per share (EPS) dropped to Rs 27.03 in FY13 from a high of Rs 28.76 previous fiscal. The brokerage house has cut BHEL’s EPS forecast for FY14 by 5% and for FY15 by 14%.

“It is true that this year would probably be the lowest in terms of orders. I am foreseeing that this year and next would be challenging for BHEL. We will have to go through this period of pain. But I consider economic slowdown as an opportunity for the company to see that our internal processes becomes stronger and we become more cost-competitive,” BHEL chairman and managing director B Prasada Rao said.

According to company sources, apart from unanticipated delays in award of two ultra mega power projects — Bedabehal in Orissa and Cheyyur in Tamil Nadu — the absence of bulk orders from public sector power generating companies, NTPC and DVC, have upset BHEL’s calculations. Also, continuing lack of clarity on coal linkages for scores of private power projects — despite Coal India signing fuel supply agreements on a government directive — has hit the power equipment manufacturer.

Rao believes 2014 would provide opportunities for orders of over 10,000 MW, apart from the two UMPPs. This should substantially improve the company's position this fiscal.

BHEL’s sluggish order booking has come at a time when it is also facing problems in recovering money from some power project developers.

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