BHEL posts first annual profit decline in eleven years

The company likely to revise 1 lakh crore revenue estimate downwards

Bharat Heavy Electricals Ltd (BHEL) today said it will miss its 12th Plan revenue target of Rs 1 lakh crore as slowdown in the power sector has squeezed cash inflows.

The company also announced its net profit for last financial year dipped 8%, declining for the first time in eleven years, but it does not anticipate drastic problems as government orders continue to account for a bulk of its business.

The largest power equipment manufacturer in the country posted a net profit of Rs 6,485 crore in 2012-13 as compared to Rs 7,040 crore in the previous financial year. Turnover increased by a marginal 1% to Rs 50,015 crore from Rs 49,510 crore in previous year.

“We had a turnover target of Rs 1 lakh crore. Now, we are taking a re-look at it,” Chairman and Managing Director (CMD) B P Rao said at the company’s annual press conference.

He attributed the decline in last fiscal’s profit to increased manpower cost at the back of increased Dearness Allowance (DA) for its 49,000 strong workforce, increased cost of financing and the dip in interest cost as a few customers delayed payments squeezing resources being parked in banks. “The last time annual profit had dipped was in the year 2000-2001,” he said.

Despite what Rao said was “depressing power scenario”, low-base effect pushed BHEL’s order inflow 43% during the year ended March 2013. The company witnessed fresh order flow of Rs 31,528 crore in 2012-13 as compared to Rs 22,096 crore in 2011-12. This is in stark contrast to the annual order inflow of around Rs 60,000 crore in the previous three financial years.

Last fiscal’s orders of Rs 31,528 crore included private sector’s orders of around Rs 6,000 crore in the industry segment (Rs 4,086 crore) and international business segment (Rs 2,004 crore).

A majority of the orders totaling to Rs 22,553 crore came in from the power segment, largely placed by government entities. At the end of last fiscal (2012-13), cumulative orders in hand for execution this year and beyond stood at Rs 1,15,180 crore. Also, BHEL-make capacity commissioned increased 11% to 10,340 Megawatt (Mw) during last fiscal.

Rao also informed that the company’s outstanding payment dues stand at a massive Rs 40,000 crore currently. “A half of these dues, around Rs 20,000 crore fall in the non-collectable or deferred debt category. This means these dues would be paid only on the achievement of some milestones by us,” he said. He refused to name the companies which have defaulted on payments.

The company plans to invest close to Rs 1,200 crore next financial year. This would be a 71% increase over Rs 700 crore invested in 2012-13. Company’s Director (Finance) P K Bajpai attributed the small size of capex to the saturation of additional capacity requirement.

BHEL added 10,340 Mw of new generation capacity in 2012-13 taking the total capacity to 20,000 Mw annually currently. Private sector accounts for the rest of the 7,000 Mw capacity in the country at present.  

Experts indicated BHEL has managed to perform rather well given the sector’s health. “BHEL’s financial results are better than our expectations. Although Net Profit declined by 8.6% to 6,485 crore, it was still better than expectations.

However, slow execution on account of client deferrals (due to slowdown in investment cycle) and various problems in power sector continue to remain overhang on the stock,” said Amit Patil, Research Analyst-Capital Goods at Angel Broking. He, however, expects expect BHEL’s margin to gradually decline over next few years due to tough competition.