BHEL shares sink after CAG’s scathing report on company’s strategic failures

By: | Published: August 9, 2017 10:08 AM

BHEL shares were trading deep in red today after a government auditor CAG's report rapped the state-run engineering giant for its inefficiencies leading to losses at the once-hugely profitable PSU.

BHEL shares have returned less than 10% gains so far in this year 2017, underperforming the benchmark Sensex and Nifty indices, both of which are up 21-22% since January. (Image: Reuters)

BHEL shares were trading deep in red today after a CAG (government auditor) report rapped the state-run engineering giant for its inefficiencies leading to losses at the once-hugely profitable PSU. Shares of Bharat Heavy Electricals Ltd fell as much as 2.6% to Rs 131.25 on Wednesday morning trade before making a slight recovery, but were still down 1.2% at Rs 133.25. The company’s shares underperformed the benchmark indices, which were also in losses today. BHEL shares have returned less than 10% gains so far in this year 2017, underperforming the benchmark Sensex and Nifty indices, both of which are up 21-22% since January.

Earlier yesterday, the Comptroller and Auditor General made public a scathing report on its findings from an audit of BHEL’s operational performance. The report 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 indicted the company for failing to meet its strategic plan targets. “BHEL had fixed Strategic Plan targets for the period 2012-17 with focus on diversification and innovation. However, BHEL did not set year wise milestones for implementation of the envisaged strategies.  BHEL could not achieve any of the strategic plan targets till 2015-16 and shortfall ranged between 23.33% and 113.91% against specific goals,” the CAG report said.

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. However, CAG’s final report noted that “The reply… is to be viewed against the fact that BHEL could not implement strategic approaches envisaged in Strategic Plan 2012-17 in potential growth areas, viz., transportation, transmission and industrial products.”

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