BHEL's annual profit dips first time in 11 years

Last Updated: Tue, Apr 09, 2013 06:40 hrs

Bharat Heavy Electricals Ltd (BHEL) on Monday said it would miss its 12th Plan revenue target of Rs 1 lakh crore, as a slowdown in the power sector had squeezed cash inflows. The company also announced that its net profit for the last financial year dipped eight per cent, declining for the first time in 11 years. However, it does not anticipate drastic problems as government orders continue to account for the bulk of its business.

The largest power equipment manufacturer in the country posted a net profit of Rs 6,485 crore in 2012-13, compared with Rs 7,040 crore in the year before. Turnover increased by a marginal one per cent to Rs 50,015 crore from Rs 49,510 crore. "We had a turnover target of Rs 1 lakh crore. Now, we are taking a re-look at it," chairman and managing director B P Rao said at the company's annual press conference.

He attributed the decline in 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 2000-01," he said.

Despite what Rao said was a "depressing power scenario", the low-base effect pushed BHEL's order inflow 43 per cent during the year ended March 2013. The company witnessed a fresh order flow of Rs 31,528 crore in 2012-13, 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 financial year's orders of Rs 31,528 crore included the 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 totalling Rs 22,553 crore came in from the power segment, largely placed by government entities. At the end of 2012-13, cumulative orders in hand for execution this year and beyond stood at Rs 1.15 lakh crore. Also, BHEL-make capacity commissioned increased 11 per cent to 10,340 Mw during last financial year.

Rao added the company's dues stand at a massive Rs 40,000 crore currently. "Half of these dues, around Rs 20,000 crore, falls 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 this financial year. This would be a 71 per cent increase over the Rs 700 crore invested in 2012-13. BHELs' 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. The private sector accounts for the rest of the 7,000 Mw capacity in the country.

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 per cent 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 the power sector continue to remain overhang on the stock," said Amit Patil, research analyst-capital goods at Angel Broking. He, however, expects Bhel's margin to gradually decline over the next few years due to tough competition.

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