Don't see slowdown in capital goods industry: BHEL

CS Varma, CFO, BHEL said that their current order book stands at Rs 81,856 crore and that they have a total capex of Rs 4200 crore over the next two years.

Speaking to CNBC-TV18, Varma said he sees no slowdown in the capital goods industry. According to him, they are the only bidders for NTPC’s bar extension programme and they may bag the order soon. He added that they have bagged orders to the tune of 38385 megawatts.

Excerpts of CNBC-TV18’s exclusive interview with CS Varma:

Q: The last IIP numbers that came out said that the capital goods industry has grown at just 2.1%, it was something that was sharply lower than it’s comparative figures. In your assessment, are you sensing a slowdown in the industry and order intake at this point of time or do you think that this was just one of, as a blip?

A: Not at all, in fact, for the purpose of proper comparison we have to take the figures for the year as a whole and not some periodic figure. So a proper comparison will be when we take the figures of the year as a whole. I have given you the brief synopsis of how BHEL is booming and it is playing a major part in the power sector. Power sector is a very important sector in the total infrastructure sector in the Indian economy.

Q: How does this translate into what your order book is currently standing at and how do you think that this would grow, going into FY09?

A: As on date, our order book position in financial terms is at Rs 81,856 crore. The power sector accounts for a majority of the orders which is about Rs 70,000 crore, the industry sector is about Rs 8300 crore and international operation is about Rs 4200 crore. I have already mentioned that the capacity addition programme of the Government of India, in the 11th 5-year Plan is 79725-megawatt. Out of this, the bulk of the orders have already been placed. Except for 9800-megawatts, all the order is complete and BHEL has secured orders in physical terms of 38,385-megawatt which constitutes about 55% of the total orders placed in power sector.

Q: You mentioned the industrial segment, spares and services, R&D, international operations, will all those make an increased contribution to your revenues for the year ahead before the 12th year plan orders start kicking in?

A: We are already having a strategic plan for the terminal year which is 2011-2012 whereby we have envisaged the role of power sector, industry sector, international operations. Power sector is booming, at the same time our industry sector is also keeping pace with the growth of industry in India.

Q: How much would its contribution to your revenues go up by?
A: About 25% is being contributed by the industry sector.

Q: Specifically in terms of rupee-crore, between now and 2009-2010, what is the outlay that BHEL has in terms of capital spending?

A: About our capital investment programme, our capex is Rs 4,200 crore. As far as the rupee movement is concerned, we are having a natural hedge. Our imports and exports are more or less equal and as a matter of strategy, we have taken a decision to put all our inflows in the EFC account. Now the government of India has permitted interest payment, in a limited way, in the inflows being put in this account. Thus there is a natural hedge but we are also having a foreign exchange policy approved by the board of directors of BHEL. So as and when there is a benchmark limit which is reached, we take option cover including, the vanilla cover.

Q: We believe that you have emerged as a lowest cost bidder for NTPC and SEB orders on the super critical units and you believe to be in talks with two state governments as well to pick up equity stakes in power plants based on the super critical technology. What is the kind of investment that is likely there and when is it likely to actually take full shape?

A: Our capex programme for the eleventh 5-year plan is Rs 4,200 crore and this takes into account our investment in the super critical technology also. Now we are bidding and we are likely to get the orders.

We are already L1, we are the only bidder in case of the bar extension project of NTPC and I think the order is likely to be placed very shortly. We have also bid in the Apgenco Krishnapatanam. Earlier we were the loan bidders, but then since we were the loan bidders, the bid was cancelled. Now they had again invited bids where we have bid along with one more bidder L&T.

The evaluation is under process and I think BHEL will come out as a winner. This order, if it is coming to BHEL, will come in the first quarter of the next financial year. Besides we are also going through the JV route, we have formed a JV in association with the TNEB.

Q: One very big concern that analysts have with regards to your company is the concern over super critical technology and the kind of contracts that you have tied up to that effect. Is that a concern at BHEL?

A: Not at all, in fact, all our future technologies are super critical only. As per the estimates given by the Planning Commission, a 10% capacity addition programme in the 11th 5-year plan will be based upon super critical. This 10% will go to 70% in the 12th 5-year plan. We are fully geared up to face this challenge.

ref:
http://www.moneycontrol.com/india/news/market-outlook/dont-see-slowdowncapital-goods-industry-bhel/15/22/331740