BHEL struggles in next-gen market as slowdown continues in power sector

Once having a monopoly on the supply of equipment and services to thermal power units in India, Bharat Heavy Electricals (BHEL) is now struggling to find a market for itself. Tough times are likely to continue for BHEL, one of the country's largest engineering and manufacturing companies, in view of late diversification and slowdown in the power sector.
 
The state-run company earned Rs 34,600 crore in revenues in FY19, a meagre 16 per cent increase over FY16 when BHEL suffered its worst financial loss. In the first quarter of FY16, BHEL plunged into the red with a net loss of Rs 1,477 crore.
 
BHEL ventured into newer areas and with the loss, it increased focus on the solar, the railways and the defence equipment businesses. On Monday, BHEL signed an agreement with Container Corporation (Concor) for jointly setting up a rail-based Logistics Terminal in Haridwar.
 
But the new businesses, so far, have hardly brought in orders worth Rs 10,000 crore. Last year, barely Rs 5,000 crore worth of orders came in from these segments, according to an analysis by IDFC Research.
 
The order book of BHEL has remained stagnant at around Rs 1 trillion for the past four years. The share of new orders has come down by 70 per cent in FY19 over the previous year, and 45 per cent from that in FY16, revealed its financial results.
 
“BHEL has been late in moving in the new businesses and there are already established players in those businesses,” IDFC Securities stated.
 
Multiple calls to the office of chairman and managing director for comment did not elicit any response. Spokesperson of BHEL did not respond to e-mailed queries and phone calls.
 
 Barring from NTPC, there are no fresh order for boiler turbine generator (BTG), a traditional product for BHEL. The private sector remains a pain point for BHEL.
 
There close to a dozen thermal power units awarded to private companies in this decade wherein BHEL is the BTG supplier. But the commissioning of these plants is declared “uncertain”, reveals the monthly review of the Central Electricity Authority. Half of these are now stressed assets standing on the verge of insolvency.
 
BHEL, so far, has applied for only one asset to recover its dues from Visa Power, which was submitted before the National Company Law Tribunal last year. BHEL and L&T submitted to the insolvency professional that they wish to recover unpaid dues of Rs 20 billion from the company as operational creditors.
 
The stock of BHEL is in a free fall and a major cause of worry for shareholders. From Rs 322.5 a share in 2010, the stock price currently stands at Rs 65 a share. The contribution to the exchequer, an indicator of income, halved in five years to Rs 2,908 crore in 2017-18, revealed the annual report.
 
But, market watchers continue to bet on BHEL given its robust record. India Ratings in 2016 rated BHEL with AA+ Negative outlook, from AAA Stable. However, the year next, it was revised to AA+ Stable. BHEL paid an interim dividend of 40 per cent or Rs 279 crore for fiscal 2018-19.
 
“BHEL made progress on certain slow-moving projects, thus reducing the quantum of slow-moving orders in the order book,” said India Ratings in November 2018. It also warned about “any significant debt-led investment, large acquisition, significant decline in cash balance and order inflow leading to a fall in revenue; a delay in the rise in the Ebitda margin; and/or an increase in the working capital cycle leading to deterioration in credit metrics could lead to a negative rating action”.
 
In a statement, BHEL said its solar photovoltaic portfolio has surpassed 1 Gw with new engineering procurement consulting contracts. These orders are again mostly from state-owned agencies, especially NTPC.
BHEL has a solar cell and module manufacturing facility, as well. But cost economics continue to favour Chinese solar panels with more than 85 per cent of Indian solar capacity built on the same.
 
IDFC said BHEL can target the entire ecosystem of renewables and electric vehicles. "Solar equipment and solar EPC, lithium ion batteries, electric vehicle charging, and possibly manufacturing of wind turbines are potential business opportunities for it," it said.

 

Sources: IDFC Securities*; BSE - fiscal year's highest recorded price**;#BHEL annual report