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Challenging times ahead for BHEL

Feb 06 2014, 03:20 IST
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SummaryRevenues at Bharat Heavy Electricals Limited (BHEL) could slip to less than R40,000 crore in FY14 from R48,400 crore in FY13 with net profits estimated

Revenues at Bharat Heavy Electricals Limited (BHEL) could slip to less than R40,000 crore in FY14 from R48,400 crore in FY13 with net profits estimated to fall to less than R3,800 crore from R6,500 crore. Order inflows have been sluggish—till

December, 2013, the PSU had hit just R11,500 crore or about a fifth of the target for the year. This comes on the back of a 35% fall in the order-book over the last two years—standing now at a little over R1 lakh crore. BHEL has also piled up huge receivables as power projects are slowing down or not taking off. Chairman and managing director B Prasada Rao tells Subhash Narayan that BHEL might continue to have a poor run for a couple of years.

BHEL is seeing poor order inflows as generation projects are not just getting delayed but also shelved as promoters no longer want to set them up...

We get business if there is investment and if there is no investment, there's no business. But it is not only power that has been impacted, there is no capacity expansion in steel or cement and road construction has slowed down, as has construction. We foresee the current year and the next one as challenging for BHEL but we will have to go through this period of pain. However, we are using this time to see that our internal processes becomes stronger and that we become more cost competitive. We are also trying to reduce the cycle time so that when business resumes and new orders come in, we are able deliver faster than we are doing now.

Sluggish order booking seems to be coinciding with a time of high outstandings estimated at close to R40,000 crore.

It is true that receivables are still a problem because banks are not releasing funds for projects. The high outstanding receivables situation is a challenge that has forced us to look at all projects, on a daily basis, and evaluate whether customers are able to pay. We are applying pressure on our customers to pay quickly and have stopped work on projects where outstanding payment has reached a certain limit. We are also evaluating the cash position of companies beforehand to schedule deliveries. Both private and public sector companies are facing payment problems as banks have become cautious about releasing money. There are very few developers who have deliberately delayed our payments.

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