Any tariff protection moves could benefit BHEL: Fitch

Rating agency Fitch today said that any "tariff protection" measure against imported power equipment could be beneficial for state-run BHEL.

The comments come at a time when the government is mulling 14% duty imported power equipment, especially from China.

According to Fitch Ratings, any "tariff protection measures by the Government of India against imported equipment may be beneficial to BHEL".

Tariff protection measures refer to proposed plans to slap duty on imported equipment.

The company is facing competition from India-based and foreign players, which could put pressure on its margins in the medium term, it added.

Fitch also affirmed the company's 'AAA' national long term rating with a stable outlook.

'AAA' generally refers to highest investment grade.

The rating reflects BHEL's leadership position in the Indian power equipment segment and its strong liquidity position with cash balances of Rs 7,950 crore at the end of September 2011, Fitch said in a statement.

Power sector orders make up for around 80% of BHEL's order book.

"BHEL's order flows have remained low over the last three years at around Rs 60,000 crore, largely due to the various issues facing the power sector projects in India resulting in slower order inflows," the statement said.

However, Fitch pointed out that it expects the slowdown would be corrected in the near to medium term driven by the government's increasing focus towards improving power situation in India.

Meanwhile, BHEL is expected to generate large positive free cash flow in the medium-term due to its strong order book position of about Rs 1,60,000 crore at the end of September.

"Consequently, Fitch expects the company to remain a net debt negative company over this time frame. Further, BHEL's capex for capacity expansion to 20 GW by FY12 from the current 15 GW is being completely funded through internal accruals," the statement said.