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B P Rao, Chairman and Managing Director, Bharat Heavy Electricals Limited (BHEL)

23 Dec 2013

Slump in economic growth coupled with high borrowing costs and delays in securing clearances have impacted many infrastructure projects. The developments may not be encouraging for equipment suppliers, but the country’s leading engineering and manufacturing company Bharat Heavy Electricals Ltd (BHEL) is betting on 16,000 mw tenders, which would come up in the next six-seven months and also on metro rail projects to improve its bottom line. Chairman B P Rao, sounds optimistic about the company’s future considering the increase in project finalization during the past one year. Excerpts:

Last year seems to have been bad for power project developers, who have been struggling with fuel shortages, delays in signing fuel supply agreements, projects stuck for want of clearances besides other issues. To what extent was BHEL impacted?
Yes it is true that power sector in India is witnessing a slowdown since the past few years. The sector has been impacted by a host of issues including issues at fuel supply side, land acquisition and fund constraints. The cumulative problems have resulted in non-finalization of new projects. Things were not as bad in the public sector as they are in the private sector; some of the ongoing projects are on a slow execution path. Due to increased finance cost and other issues, companies were not able to pay us money and in some cases it was not possible to work (for customers) if the cash was not coming. Last year was a difficult year, payments had not been forthcoming.
The figure of Rs 40,000 crore as outstanding payment is huge. How difficult is it to work with that kind of outstanding payment and by when do you expect to recover the same?
All of Rs 40,000 crore due cannot be counted as outstanding payments. About 50 per cent of it is dues, which are yet to mature as they are milestone linked payments, and we should receive the same on completion of those milestones. The rest Rs 20,000 crore should be recovered soon as we have clearly told our clients that it would not be possible to deliver equipment if the payments are not made. Clients who do not make payments automatically slip in the priority list and equipment supplies (to them) might be delayed.
Can you name the companies which have delayed in making payments?
It would not be fair on my part to name the companies as they might be facing financial issues at their end. But we are hopeful that we should be able to recover the dues very soon.
Kindly run us through the orders that you are hopeful of getting in this year.
There is a renewed focus on capacity expansion in power generation segment and we hope to get equipment supply orders from about 16,000 mw project tenders that are likely to come up in the next six-seven months. I guess once the tenders are in place, we would be able to have a clarity. I am not saying we will get all the orders but given the competence and profile of BHEL, we are hopeful of significant business.
In these times of high input cost where the margins are under pressure, how do you plan to reduce operating cost within the company?
We have initiated several processes to keep operational costs under check which includes works for improvement of technology absorption levels, improvement of localization, and instilling competition among the vendors to supply at lower prices, and our own productivity in terms of design to cost and lean manufacturing initiatives. As a matter of fact, we have reduced our metal consumption by 1.5 per cent, which translates into saving of Rs 50,000 crore and helps the company become more competitive in the operating space. In-house research and development of products also helps reduce costs. All these factors work towards positioning BHEL very competitively in the market. Though there has been a marginal reduction in profits this year, but 13 per cent in net profit over turnover is something which very few companies are able to deliver.
While the company has been very strong in power sector but now we see diversification in areas such as metro and renewable segment. Can you throw some light on the new areas that BHEL plans to enter to maintain the growth momentum?
Metro rail clearly is a growing segment and we want to be part of the country’s growth story. The capacity of existing plants would be enhanced considering the fact that 25-30 Indian cities would have metro rail network in future. We are positioning ourselves to cater to the market. The capacities at the new plants will be in tune with the growing market demand. The company plans to invest Rs 1,000 crore in developing capacities in areas such as transport, transmission and renewable energy.