New Delhi: India’s biggest maker of power generation equipment, Bharat Heavy Electricals Ltd, or Bhel, says its market share may decline to 50% from the current 60% in five years because of increasing competition from domestic and overseas companies.
“We are expecting a 35% growth this year. However, we will not be able to maintain such high levels of growth due to increasing number of entrants in the market,” said K. Ravi Kumar, chairman and managing director of government-owned Bhel.
Balanced view: Bhel chairman and managing director K. Ravi Kumar. Photograph: Sanjit Das / Bloomberg
Bhel’s efforts to secure a Rs9,000 crore equipment order recently from Anil Ambani’s Reliance Power Ltd for the Krishnapatnam power project failed over pricing issues. This order is likely to be awarded to China’s Shanghai Electric Group Co. Ltd, as reported by Mint on 22 August.
In order to remain competitive on the pricing front, Bhel has been trying to contain costs by paring its material requirements.
The government, which realizes the threat Bhel is facing, has been trying to restrict overseas equipment makers from bidding for domestic projects. It is also denying coal supply to electricity plants with foreign equipment, as previously reported by Mint.
“The Chinese equipment are cheaper than Bhel’s equipment by at least 15-20% but they are not very competitive in terms of technology due to issues with their design, leading to higher operating and maintenance costs,” said a Mumbai-based equity analyst who didn’t wish to be named. “Bhel, on the other hand, has a very strong product line with equipment, having very good heat rates.”
Still, project developers such as Reliance-Anil Dhirubhai Ambani Group are placing orders with overseas players such as Shanghai Electric.
Bhel also lost a Rs1,557 crore contract from the Andhra Pradesh Power Development Co. Ltd to a new entrant, L&T-MHI Turbine Generators, a joint venture by Larsen and Toubro Ltd and Japan-based Mitsubishi Heavy Industries Ltd.
“Bhel’s market share on a long term cannot be sustained,” Arvind Mahajan, executive director at audit firm KPMG India, said. “However, even with increasing competition, it can have a significant share, though not a dominant share.”
Bhel is trying to enter sectors such as locomotive manufacturing and the offshore rig business in an attempt to hedge against the risk of an abrupt downturn in its power business prospects.
“While the power business will continue to be the most important constituent of Bhel’s portfolio in the coming years, industry sectors such as railway transportation are expected to expand in a big way,” Kumar had said earlier.
Bhel, which has a manufacturing capacity of 10,000MW per annum, plans to manufacture equipment capable of generating 56,000MW by 2012. The company posted a net profit of Rs2,815 crore on revenues of Rs21,608 crore in 2007-08.