The net profit of Bharat Heavy Electricals Ltd (Bhel), the country’s largest manufacturer of power generation equipment, propelled by a spurt in orders, rose by 42% in 2006-07 compared with the same period in the previous year.
Announcing the results, the company disclosed that it will re-enter the oil rig manufacturing business after 25 years and is hopeful of getting its first major order from the Oil and Natural Gas Corp. (ONGC) worth around Rs680 crore by December.
Bhel’s net profit for the fiscal was Rs2,385 crore against Rs1,679 crore a year ago. The company’s order book rose by 88% to Rs35,633 crore and the turnover was up 29% at Rs18,702 crore.
“Our next target is to reach $10 billion (Rs43,000 crore) by 2011-12 and we plan to have 15,000MW power equipment manufacturing capacity during the 11th Plan (2007-12). We expect to continue with 18-20% annual growth in sales and over 20% in profit over the next five years,” said Bhel chairman and managing director Ashok K. Puri. To expand its manufacturing capacity, currently at 6,000MW, the company plans to invest Rs3,200 crore.
However, power sector analysts cautioned that Bhel will not be able to sustain this growth trajectory on a long-term basis because of more rivals coming in. Apart from China’s Dongfang, Bhel is expected to face competition from Larsen & Toubro Ltd (in association with Mitsubishi Heavy Industries and Toshiba Corp.) when they set up manufacturing facilities in India.
Kuljit Singh of accounting firm Ernst & Young said, “Bhel alone will never be able to add sufficient capacity to meet the next plan’s targets and will increasingly witness competition from overseas firms, particularly the Chinesse suppliers. When China’s domestic demands are met, these firms will start dumping in the Indian market as they will have an immense cost advantage,” he added.
Bhel is also confident about its oil rig manufacturing plans. “ONGC is looking for 10-20 rigs for on-land drilling,” said A.K. Mathur, director (industrial systems and products), Bhel. It has already secured orders worth more than Rs600 crore from ONGC for refurbishing and modernizing 15 rigs, and plans to bid for the supply of three rigs to Cairn India in Rajasthan.
“We were in the oil rig manufacturing business some time back. We had, in fact, supplied some 70 rigs to ONGC, but with the flagship firm’s focus shifting from owning the rig to leasing, Bhel did not get much business. Now with the global rig scarcity, ONGC is again looking at having its own rigs manufactured,” Mathur said.
Bhel is still in talks with ONGC for the specifications of the rigs, which would be manufactured at its Hyderabad plant that has a capacity to build six-seven rigs a year.
“Getting into oil rig manufacturing makes good business sense as it offers them a good avenue for hedging against the ups and downs of the power sector,” Singh said.