Bharat Heavy Electricals Ltd’s (BHEL) shares surged on Thursday morning after the announcement that the languishing state-run engineering giant will be roped in to make rolling stock for Prime Minister Narendra Modi’s dream project to put India on the fast track: the bullet train, in collaboration with Japan.
BHEL shares jumped over 7.13% to Rs 142 on BSE immediately after the announcement. Excluding today’s gains, BHEL shares have returned a little over 8% gains so far in this year 2017, underperforming the benchmark Sensex and Nifty indices, both of which are up 21-23% since January. Concerns over inefficiencies and lack of strategy have of late weighed in on the prospects of the state-run engineering giant.
Narendra Modi and the visiting Japanese Premier Shinzo Abe on Thursday laid the foundation stone for the proposed Mumbai-Ahmedabad bullet train corridor, which will cost India about Rs 1,10,000 crore, and will take about five years to complete. Narendra Modi said on Thursday that most parts of the bullet train will be made in India itself.
The Japanese government will provide a loan of Rs 88,000 crore at a “miniscule” interest rate of 0.1% for the project, which would be repayable over a period of 50 years, with the repayment beginning 15 years after disbursement. The loan interest ranges between Rs 7-8 crore a month and the government claims it will not put any strain on existing financial resources.
Earlier this year, a report by the CAG (government auditor) rapped the state-run engineering giant for its inefficiencies leading to losses at the once-hugely profitable PSU in August. The report had noted, among other things, that BHEL’s failure to diversify its business portfolio and to bridge the technology gap hit the company’s revenues, and essentially turned its profits into losses.
“As BHEL had not effectively diversified into new/less operated business areas, both turnover and profitability declined sharply with slowdown in the power sector,” the CAG report said, adding that BHEL’s turnover, which was Rs 49,510 crore in 2011-12, declined to Rs 26,587 crore in 2015-16; while its profits of Rs 7,400 crore in 2011-12 turned into a loss of Rs 913 crore in 2015-16.
Further, the report also had indicted the company for failing to meet its strategic plan targets. The Ministry of Heavy Industries and Public Enterprises did try to defend BHEL’s reputation, by replying to the CAG’s queries in May 2017, saying that “several attempts” were made to diversify the company’s product offerings and these efforts were still on.