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At a time when the Finance Minister has tried to allay investor concerns about the state of the economy and criticised rating agency Standard & Poor’s (S&P) for not improving India’s rating, the reality presents a completely different picture with a series of project cancellations by India Inc.
For instance, Reliance Infrastructure is in the process of cancelling mega projects worth Rs 20,000 crore on account of inordinate delays by government agencies. Public sector behemoth, BHEL, is exiting its four joint venture (JV) projects with state utilities on account of delays and cash crunch.
On the other hand, nearly 15,000 megawatt (MW) of gas-based power projects worth over Rs 75,000 crore are idling due to non-supply of natural gas from Reliance’s KG basin, reports suggest.
A peculiar case
While all the above cases, which have been reported, point out to a systemic failure, BHEL’s case is peculiar and probably brings out the worst display of planning by the government. One of the reasons cited by BHEL for walking out of the project is a decline in cash balance, though the main reason cited is lack of progress in these projects.
Lack of progress on account of state electricity board (SEB) is a known fact and has been on account of various reasons ranging from poor financial health of the boards to delay in land acquisition and environmental clearances to fuel linkages. However, decline in cash balance is a new one in the long list of excuses and deserves a closer look. This comes at a time when the company has posted a record turnover of Rs 50,015 crore and a net profit of Rs 6,485 crore.
Finances
Despite this, nearly Rs 40,000 crore is still due to the company from power generating firms. Though the profits might look sizeable, BHEL has a negative cash flow on account of its receivables. In other words, its cash inflows are lower than cash outflows despite making profits.
Profits remain in the book but take time to realize and accrue to the company. As a result its net cash level have been coming down and presently stands at Rs 6,000 crore compared to nearly Rs 10,000 crore at the time of conceiving the projects.
This means that the company is depleting its cash pile and would not like to block its resources in projects which are being delayed. Despite the negative cash flows and challenging outlook, BHEL gives away liberal dividends from its cash pile, equivalent to nearly 25 per cent of its net profit.
Though order book of BHEL stands at over Rs 1,15,000 crore, analysts believe nearly half of these are stuck in projects which have been delayed. The company is thus planning to utilise its resources by investing in solar and atomic energy sectors. These, too, are long gestation periods and unlikely to improve the financial situation of the company anytime soon.
Unless the company takes a relook at its dividend policy, there is little hope of plugging the leak in its cash-box.
