Apr-Dec order flows at BHEL hit just a fifth of FY14 target

Written by Subhash Narayan | New Delhi | Updated: Jan 21 2014, 18:41pm hrs
BHelThe company is set to declare its third-quarter results next week.
Public sector Bharat Heavy Electricals (BHEL) continues to be bogged down by the dismal flow of new orders and the resultant drop in the orders at hand, a preview of its yet-to-be-released December quarter figures by FE show. The company is facing the grim prospect of not meeting even its internally downwardly revised turnover target of Rs 43,000 crore for 2013-14.

Persisting with the trend since 2011-12, the capital goods manufacturer booked fresh orders worth just R7,197 crore in October-December 2013, or 47% of the quarter's R13,696-crore target. This means that including R4,470 crore of orders received in the first half, BHEL could manage to get fresh orders of just R11,667 crore in April-December. That was just 21% of the target of Rs 54,714 crore for all of 2013-14. BHELs new orders stood at Rs 60,507 crore in 2010-11.

As per ministry of heavy industries data, till end-December BHEL's turnover was R24,799 crore, or just 58% of the annual target, with fresh orders hitting just about 34% of the target for the period.

It looks likely that the company would even struggle to take its new order achievement this year to last year's level of R31,650 crore, although it expects to clinch some big orders in the last quarter.

The company, which reported a more than halving (64% drop) of net profit to Rs 456 crore in the second quarter of this fiscal on a 15% drop in net sales to R8,819 crore, has internally kept its top-line target for this fiscal at R43,000 crore, less than last years achievement of R50,156 crore and the R49,510 crore clocked in FY12.

Not achieving even the revised target could be an unprecedented development for the engineering major, which has consistently posted an increase in turnover in absolute terms.

The situation as it exists today could also result in a turnover of even lower than Rs 40,000 crore (for 2013-14). However, all hopes are on the last quarter when bids for a substantial portion of 16,500 MW of new capacity are expected, said a company official, who did not wish to be identified.

On a positive note, however, BHEL's April-December new orders grew 9.1% over orders worth Rs 10,693 crore booked in the same period of the previous fiscal. The company is set to declare its third-quarter results next week.

According to company sources, apart from the 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 BHELs calculations. Also, a persisting lack of clarity on coal linkage for scores of private power projects despite Coal India signing fuel supply agreements on a government directive has hit the power equipment manufacturer. The latest hit is coming from a fall in demand for state utilities that has already pushed the country's peak power deficit levels to a low of 4% in the December quarter from a high level of 9% in the first quarter.

Domestic thermal power segment has traditionally accounted for three-fourths of BHELs revenue, with the other major contributors being transport and industrial equipment, refinery and piping. The current situation has once again pushed analysts to put BHEL in negative territory with expectations of a further decline in revenue and net profits in Q3.

The situation could not have been worse as BHEL is not only seeing a decline in fresh orders but execution of earlier orders have also slowed down, resulting in lower supplies. While the company's performance is expected to be bettered in coming months, it would still be grossly underutilising its annual power-equipment capacity of 20,000 MW, the company official quoted earlier said.

Interestingly, while order flows have slowed, the company has maintained the production target, achieving 92.5% of the Rs 26,818-crore projected for the first nine months of the current fiscal. BHEL had an order backlog (those yet to be executed) of Rs 1,02,300 crore as of September 30, 2013.

BHELs share in the Indian power equipment market is likely to be eroded further in coming years due to tough competition from Chinese equipment manufacturers and from a clutch of joint ventures like Alstom-Bharat Forge, Toshiba-JSW, L&T-Mitsubishi and BGR-Hitachi. A slew of large private sector power projects that have been stuck for long due to delays in statutory clearances and short supply of fuel are about to take off now, but BHEL could be left high and dry in many cases, industry observers feel.

BHELs sluggish order booking has come at a time when it is also facing problems in recovering money from the some of the power projects developers. As of June 2013, the company had unpaid dues of Rs 39,000 crore dues.

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