New Delhi: With equipment orders from power projects declining, state-run Bharat Heavy Electricals Ltd (Bhel) is planning to diversify into sectors such as oil and gas, transportation and defence to tap new growth avenues, chairman and managing director B. Prasada Rao said on Tuesday.
The company posted a 14% increase in net profit to Rs 6,868 crore in the year ended 31 March from Rs 6,011 crore in the previous year through improvements in operational efficiency, Rao said. Revenue rose nearly 14% to Rs 49,301 crore from Rs 43,337 crore.
“Raw material prices were a major concern. We tried to mitigate its impact by improving our supply chain, which resulted in better operational efficiency,” said Rao. “Because of this, the money spent on raw materials went up by only 0.5% as compared with the last year.”
The power equipment maker’s order book, however, fell to Rs 22,096 crore in the year from Rs 60,000 crore in the previous fiscal because of sluggish demand in the power sector.
“Number of projects getting finalized in the country has come down,” said Rao. “Last fiscal, only 4,000 megawatts (MW) of projects were finalized due to issues such as land acquisition, financing, environmental clearance and coal linkage, as compared with around 16,000MW in 2010-11.”
Rao said orders worth Rs 5,800 crore had been cancelled by the third quarter. This has prompted the company to explore new business opportunities.
“We are definitely focusing on oil and gas segment. Onshore oil rigs are a special focus. We are introducing new technology and are also looking for others customers such as Oil India Ltd, who will also be sourcing these kind of rigs,” Rao said. “Second product is the valves. Piping compressors for gas pipelines.”
In oil and gas, Bhel aims to become a sub-supplier to builders of offshore rigs. It is also addressing a big order from Delhi Metro Rail Corp., planning alternative propulsion for railway locomotives, and building a new factory for windmills.
Rao said the introduction of metro connectivity in new cities offers a business opportunity for the company. “Transportation will be the next growth area for the company,” Rao said. “Nearly 25 new cities have been identified to get metro connectivity. First tender of Delhi Metro has come and we are interested in that.”
The state-run company will be interested in partnerships to work on Metro projects. It has formed a focus group to look into new opportunities.
For defence, it is looking for a technical partner to make big naval guns. “We are now trying to make bigger guns required by navy. The navy has nominated Bhel as a partner. In years to come, this will also be a major portfolio,” the chairman said.
The diversification efforts are a part of the government’s mandate for energy firms to look at other sectors, said an expert at a leading consulting firm. “The move was on expected lines. It is a combination of many factors. First slowing down of orders and second, government’s mandate to diversify,” said the expert, who requested anonymity because Bhel is a client. “They have been trying to get into renewable energy, nuclear energy among others. It will help them to utilize their cash reserve.”
The company has a cash reserve of Rs 6,800 crore, which will be spent as capital investment on its locomotive factory in Jhansi, apart from joint ventures. Currently, Bhel has a cumulative order book worth Rs 1.34 trillion. Bhel plans to deliver about 22,000MW of equipment in 2012-13. “We are targeting 15,000-16,000MW of new orders in the next year (2012-13), out of which, about 7,000-8,000MW is expected in the first quarter,” Rao said.
Bhel anticipates increasing its annual revenue to about Rs 50,000 crore this fiscal. “But our internal target is much higher than this,” Rao said.
Meanwhile, the Indian government has decided to put on hold plans to sell a stake in Bhel, finance director P.K. Bajpai said on Tuesday, according to a Reuters report. The company earlier said it had withdrawn initial papers filed with the capital markets regulator for the share sale.
In February, heavy industries minister Praful Patel said the share sale in the power equipment maker may happen in fiscal 2013. The sale, which was approved by the cabinet in 2011, had been expected to raise about $1 billion.