Bhel may buy stake in overseas power plants; set up new facilities

Bhel may buy stake in overseas power plants; set up new facilities

New Delhi: State-owned Bharat Heavy Electricals Ltd (Bhel) said it will pick up 10% equity in power projects abroad that would buy its equipment.

“As and when we find the opportunity, we will take equity stakes to sell equipment...while we plan to take 10% equity in overseas projects to land orders, this will be around 26% for domestic projects," said chairman and managing director K. Ravi Kumar.

The country’s largest power generation equipment manufacturer also looks to acquire companies and start joint ventures to access new markets, a senior company official said, asking not to be named.

Besides setting up manufacturing or servicing facilities in Europe, Oman, Egypt, Saudi Arabia and Indonesia, the company also aims to establish a joint venture in West Asia with a local partner to make valves and other equipment to cater to the growing oil and gas exploration and production market in the region, the official added.

Bhel may also start a joint venture in Saudi Arabia to service and repair transformers. “We are scouting for partners for these ventures," the official said.

Bhel has cash reserves of Rs8,000 crore. It posted a net profit of Rs2,859 crore on revenues of Rs21,401 crore in the fiscal year to March and aims to become a $10 billion (Rs47,800 crore)-plus company by 2012.

As part of its global push, the company aims to leverage the Indian government’s disbursement under the line of credit, which is around $1 billion a year, to get orders.

Bhel currently has orders worth Rs1.10 trillion. Its international projects contributed Rs3,200 crore till date to Rs24,000 crore worth of orders generated in the fiscal year that began in April.

The company plans to triple export orders to Rs10,300 crore by 2012, in a bid to hedge against currency fluctuations related to raw material imports, as reported by Mint on 4 November.

While organic growth is expected to contribute Rs6,200 crore to the company’s order book by 2012, the remaining Rs4,100 crore will come from acquisitions and joint ventures. This is expected to go up to Rs8,000 crore each (through organic and inorganic growth) by 2017.

Bhel’s focus on exports also stems from a concern that its market share in India may come down to 50% from the current 60% in the next five years because of increasing competition from local and overseas companies.

“A similar approach was adopted for the Chinese power generation equipment players in India. They were asked by the financial lenders to take equity stakes. Bhel needs to focus on exports," said Madanagopal, an equity research analyst at Mumbai-based Centrum Broking Pvt. Ltd. “However, this approach of taking stakes will affect their rate of return."

Bhel, which has manufacturing capacity of 10,000MW a year, plans to produce equipment capable of generating 56,000MW a year by 2012.