Bharat Heavy Electricals Ltd,cold to competition heat, says rivals not strong

From near domination now to a cut-throat environment in a couple of years, one would argue that times are going to be quite different for B Prasada Rao and Bharat Heavy Electricals Ltd, the only employer he has had in his 32 years of professional life.

However, Rao, chairman and managing director of the state-owned power equipment maker, seems least perturbed.

“None of the players has the strength Bhel has, and the company doesn’t really book an order which will cut its legs,” he said in an interview.

Mention that Bhel had a near monopoly status so far which will go away in a couple of years, and Rao—excruciatingly laconic—objects to the reference.

“This is a myth (that Bhel had a monopoly). We got projects because we are competitive. We haven’t got projects on a nomination basis. Even NTPC didn’t give orders on nomination basis. None of the players has the strength Bhel has. By the time they have 5,000 mw, we will have 20,000 mw capacity. So the scale itself is different. We are an integrated power equipment manufacturer,” Rao said.

He refused to share his outlook on the margins in the super-critical segment, which will see tough competition.

“Bhel has been in business for last 40-45 years. We make auxiliaries, we make a lot of control instrumentation systems. Other players don’t have the depth of products we have. These factors have to be considered when we talk of margins.”

In the good old days, Bhel was the sole large power equipment manufacturer, and its largest client was public sector peer NTPC Ltd.

But as the economy grew, the country’s power sector came to be known as a laggard, a bottleneck in the country’s march towards a 10% growth rate.

At the same time, environmental concerns, till then meant for children’s textbooks, too became front-page news and the government slowly started moving towards more efficient super-critical power projects, which have a rating of 660-800 mw.

As things stand today, there are at least seven domestic companies with their respective foreign partners waiting to grab a share of the pie, which is not expected to grow commensurately.

All of them are setting up capacities to make super-critical equipment, which should be ready in one to three years.

Investor community, expectedly, is concerned over Bhel’s ability to sustain margins in the face of competition.

The company had EBIT margin of 15.5% in the last financial year.
From 78,577 mw generation capacity expansion the government had initially planned for the current Five-Year Plan that ends March 2012, it has now brought down the target to 63,000 mw.

Initial estimates for the next plan’s generation capacity addition target stand at 100,000 mw.

Bhel, which currently has 15,000 mw capacity, will scale it up to 20,000 mw by December next year.

“We are going to take a call after two years, when on the ground we see 100,000 mw or beyond that. By the time, capacity (from competition) comes up, half of the 12th plan will be over. For our expansion, we can’t just look at the 12th Five-Year Plan. We have to look beyond that and decide whether we go beyond 20,000 mw or remain at 20,000 mw,” the chairman said asked if and when the company planned to raise capacity beyond 20,000 mw.

Rao expressed confidence that the company will be able to  beat its 2010-11 upper-end target of Rs39,500 crore for the topline. It is targeting sales of Rs38,000-3,9500 crore this fisca.
NewsWire18