BEML shrugs off CAG inventory-pile swipe

Bangalore-based Bharat Earth Movers (BEML) is confident of growing its non-mining infrastructure equipment business and clearing its inventory this fiscal, said chairman & managing director VRS Natarajan.

He said that the recent Comptroller and Auditor General’s report on the same was not a cause for worry.

The CAG report, tabled in Parliament, said the state-owned BEML had started producing dealer model equipment (DME) or non-mining equipment without valid orders and testing marketing conditions, according a news agency report last month. CAG noted that 22 equipment valued at Rs5.86 crore were lying in stock for more than two years.

“Earlier to 2009-10, 78 equipment valuing Rs25.89 crore were lying with regional offices. Out of 44 DME valuing Rs11 crore dispatched to regional offices during 2009-10, eight equipment valuing Rs2.04 crore were lying in stock there,” the CAG report said.

The report added that the quality of DME supplied by BEML and after-sales service was poor, resulting in return of equipment by the customers and creating a negative image for its products.

“We welcome CAG’s comments and take them as guidance, but we just want to say that no product we have made in the last 46 years has remained unsold,” Natarajan told DNA Money by phone on Friday.

He said that BEML had re-entered the DME business in 2007 after exiting it a few years earlier.

“We were a miniscule player in low-end excavators and 200 tonne backhoe loaders used in the construction of roads and airports so we appointed 21 dealers and aggressively pushed the products but then the slowdown happened and banks were not lending to contractors.”

BEML reported revenues of Rs300 crore from DME last year.
“As on March 31, we had inventory of Rs329 crore, half of which was mining equipment and the other half DME. We are quite confident of selling it all this fiscal,” Natarajan said.

BEML is also present in the railway, defence, dredging and metro segments.

It has an order backlog of Rs4,000 crore.

For the three months ended June 30, BEML’s profit after tax rose 10% from a year earlier to Rs15.9 crore on a 5% increase in net sales to Rs554 crore.

Asked if BEML would write to CAG on the issue, Natarajan said no. “It was just an observation and we take note of it.”
CAG had earlier said that BEML had inflated its sales in the 2005-08 period by Rs894 crore.

“We declared our accounts as per the accounting standards. Nothing has changed. Whatever declaration had to be made has been made,” said Natarajan.