"Our R&D focus has helped beat Chinese competition"

Q&A with Chairman and Managing Director, BHEL

India’s largest power equipment manufacturer Bharat Heavy Electricals Ltd (BHEL) is struggling to preserve margins amid a slowdown in new orders, rising input costs and stiff competition. The company is now busy implementing a turnaround strategy to beat the odds, Chairman and Managing Director (CMD) B Prasad Rao tells Sudheer Pal Singh in interview. Edited excerpts.. 

 

BHEL has historically been known for delays. But it has just commissioned the Rs 814 crore Raichur substation package, part of the Southern grid integration project, six months ahead of schedule. What has changed?

 

BHEL had an image for delays five years ago. That allowed the Chinese companies to capture a part of the market. That was largely due to machinery and manpower capacity constraints. As part of the turnaround, we ramped up capacity quickly. In fact we have recruited over 20,000 people in the last four years – a record across CPSUs. So the average age of the workforce has been brought down from 55 years four years back to less than 35 years now. We have regrouped the transmission business. We have already embarked on the high-end 800 KV HVDC segment that will help evacuate power from the North-East. Also, our capacity was ramped up from 6,000 Mw to 10,000 Mw in 2008. This was doubled to 20,000 Mw in March 20012. In addition, we have ramped up Research & Development (R&D) initiatives. These efforts have helped. Out sales have grown three-and-a-half times from Rs 20,000 crore in 2009 to over Rs 50,000 crore last financial year.

 

Would this expansion drive not backfire in case power demand does not pick up and the sector remains in a slowdown mode impacting your order book?

 

Demand has to pick up soon. Otherwise how would GDP growth take place? Manufacturing sector is not growing as expected. That is because technology depth is declining impacting value addition in the sector. This has to be reversed. GDP has to grow at 8-9 per cent. And that is going to require power. I see demand picking up with political stability post the general elections. Prospects in equipment business have now brightened. We are now able to beat Chinese competition. Their contribution in the overall orders has nearly vanished post 2010. This is because R&D focus has improved the performance parameters like heat rate of our machines. But the slump in orders has become an issue as new project activity has slowed. 

 

Your cash flow took a hit owing to significant receivables. What is the current status of the Rs 40,000 crore unpaid dues from customers? What is the current year's capex plan?

 

The situation has improved. The dues have come down though at a slow rate. I have taken strict actions against such customers to improve cash flow. But there has been no cancellation of orders in the current fiscal. We are on track to invest close to Rs 1,200 crore this year. 

 

What are the steps being taken to offset the impact of the slowdown in the sector on your financials?

 

With the sector facing constraints like delays due to environmental clearances, we have embarked on a major diversification drive away from the core area. Transportation is the next growth area for us. So, we went to the railways and proposed setting up factories for them in lieu of assured orders. That model has clicked and we have signed a MoU for setting up an EMU factory in Rajasthan with a Rs 800 crore investment. It will produce 300 EMUs per year and we will get assured business. Production will begin in 25 months. Renewable energy is the other area we are expanding in significantly. This factor will create business for BHEL’s regional units like those in Bhopal and Jhansi. We are also setting up large-sized solar power projects now.