With BHEL first-half orders down to a fifth of target, topline in trouble

Written by Subhash Narayan | New Delhi | Updated: Nov 5 2013, 15:28pm hrs
After a sharp drop in its order book position in the last couple of years owing to delayed power projects, public sector Bharat Heavy Electricals Ltd (BHEL) was expecting a rebound this fiscal banking on an expected pick-up in the power sector, but that was not to be. The capital goods manufacturer has booked fresh orders worth just Rs 4,470 crore or 22.44% of the target of Rs 19,920 crore during the first six months of the current fiscal. This means that BHELs targeted order booking of Rs 54,714 crore (including non-power business) for FY14 would be missed by a wide margin and in all probability new orders this fiscal could be even less than last years Rs 31,650 crore.

The company, which reported a halving of net profit to R465 crore in the first quarter of this fiscal on a 24% drop in net sales to Rs 6,353 crore, has internally kept its top-line target for this fiscal at Rs 47,000 crore, less than last years achievement of R50,156 crore and the Rs 49,510 crore clocked in FY12. This is an unprecedented move as over the years, BHEL has consistently posted an increase in turnover in absolute terms.

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.

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 company is set to declare its second-quarter and first-half results next week, and analysts expect the decline in revenue and net profits to continue during the quarter.

The situation as it exists today is very bad. Fresh orders have not picked up while execution of earlier orders have also slowed down, resulting in lower supplies. While the H1 order book performance is expected to be bettered in coming months, the company would still be grossly underutilising its annual power-equipment capacity of 20,000 MW, a company official told FE, requesting anonymity.

Close to 40% of the order booking of Rs 4,470 crore for H1 has come in September (Rs 1,745 crore). But even the September bookings formed just 40% of the target of Rs 4,367 crore for the month.

Interestingly, while order flows have slowed down, the company has maintained the production target, achieving 98% of the Rs 16,562 crore projected for the first half. BHEL had a order backlog (those yet to be executed) of Rs 1.15 lakh crore as of March 31, 2013.

BHELs share in the Indian power equipment market is likely to be eroded further in the coming years due to tough competition from Chinese equipment manufacturers and 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 got 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 was to be paid Rs 39,000 crore dues. Company officials, however, said that out of this amount only Rs 13,000 crore was recoverable as on date as the recovery of the balance outstanding is subject to some supply-related milestones being achieved.

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%.