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

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SummaryThere has been a a sharp drop in Bhel's order book position owing to delayed power projects.

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 BHEL’s 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 year’s 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 year’s 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 BHEL’s 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 BHEL’s 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%

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