In an intervuew with ET Now, K Ravi Kumar, Former CMD, Bharat Heavy Electricals Ltd (Bhel) , says if the company can concentrate on new orders and maintain the same order growth for next two years, there will be a pickup in margins as well.
How are you looking at the rise in the order flows for the cap good sector up — 70% on a year on year basis — that is closer to 3 lakh crore? Would you attribute it mainly to the base effect or is there a change in the trend here?
Yes, there is a big growth in order books for the current year. We are likely to end the year with Rs 37500-crore order book during the year and Rs 117000 crore total order backlog so that means about current earnings of course it is 3.7 times the current earnings. So definitely there is a big pick up in orders wherever there level they have picked up those orders so this year has been boom year for Bhel Rs 37,500 crore. Any order after six months the revenues will come because these are all EPC contracts. Next year would be a good year for Bhel as far as the revenues are concerned. Definitely the order book will be a challenge for next two years because this year has been exceedingly good, if they concentrate on new orders and if they can maintain the same order growth for next two years, there will be a pickup in margins as well. It will cover the fixed cost and there will be a big jump, at least 75% jump is expected in margins.
Do you think, by and large most of the order wins in the sector are driven by government spends on urban development, roads and railways or are we seeing a pickup in private capex as well?
These orders are mainly government based actually this year what has been booked is in UP, in say Telangana, then Maharashtra all these orders recent orders have come from the government sector but there is going to be some pickup in private capital basically when the issues have sorted out with the private capital players then there is going to be definitely some improvement in private sector capital because the issues have sorted out then there will be a big change.
As we see there is a jump in tariffs if you see it was Rs 3.6 per unit but it has already gone up to Rs 4 per unit, 3.95 last month so it is expected to go up to 4.25 and the industrial growth is expected at 7.4% and inflation around 3.8 to 3.9% for the entire year. So there is going to be definitely growth in order book as far as Bhel is concerned next two years if they maintain then there will be a revenue growth from these projects.
You are aggressively pursuing growth in solar, water and defence space. What kind of potential do you see for the company from these segments?
Exports are not that much but if they can go to 60% from power sector and about 25% from industry sector and 15% from exports and R&M, definitely there is going to be a big change in Bhel's outlook.
Analysts suggest Bhel profits can double in FY19 as order inflows have risen 61% year-on-year, do you see a turnaround story at play for the company?
No, I think first two quarters may not be that because any order on the fifth or sixth month it gives the revenues so third quarter, fourth quarter definitely there will be a 75% growth in revenues.
Do you think Bhel is an incumbent market leader and an oversupplied the industry, how do you think it will tide over this concern?
No, as far as the basket is concerned, Bhel is getting the entire order. You have only L&T and Bhel left now. Thermax is in low boiler segments and turbines. In low boiler segments they are leaders. So as far as the big power projects are concerned, it is mostly Bhel .
This change is affecting Bhel That is why in the last two years, it has been bad because the whole basket has come down but as far as Bhel is concerned they are maintaining around 80% of the order book which is available. The other players are not able to match Bhel and imports have also come down rapidly but because there is now a 10% cess is there and Make in India programme is also there.
As far as the percentage of order is concerned, definitely Bhel is getting almost all the orders and it is not going to other players. Only L&T has got some orders but other players are not in play right now. So, the order value itself is becoming too low. They must start a two-pronged strategy; one is to book orders whatever is available in India, second is exports and third is renovation and modernisation (R&M), particularly FGD (Flue-gas desulfurization) basically because of all the old units, about 10-15 megawatt of FGD will come in a year or so for fitting the new emission norms.
There is going to be orders on renovation and modernisation. They can concentrate on the industry sector and if they can bring the value of 25% of the total orders and exports and if they can concentrate the order booking, I don't know why it cannot be same this year for the next two years.