The take-over by the Navratna BHEL was recommended by the Board for Reconstruction of Public Sector Enterprises (BRPSE) set up in December 2004 to advise the government on strengthening, restructuring and reviving public-sector enterprises.
While setting up a greenfield unit would have required significant investments and would involve a long gestation time, supporting an existing entity like the Visakhapatnam-based BHPV "makes better business sense where economies of scale can be achieved by enhancing the capacity with brownfield investments," K Ravikumar, BHEL's chairman and managing director said in a statement.
To enable the merger, the central government has written-off Rs 415.6 crore of loans due from BHPV and transferred its shareholding in the company to BHEL at "nominal rate" while the state government has transferred the title of 386.73 acres of land as "gift" and has also waived registration and stamp duty on that. It has also waived sales tax arrears of Rs 42.16 crore and other taxes worth Rs 3.96 crore.
BHPV has about 1,400 employees and 300 temporary workers. The target is to make it a Rs 1,000 crore company in five years, with a capital expenditure of Rs 236 crore spread over three years.
The market for BHPV's products , especially in process equipment and cryogenics, is expected to grow rapidly, said the statement. BHPV has been handicapped due to its financial constraints in participating in some tenders but that would be mitigated once the financial restructuring is completed and BHEL takes over.
BHPV can be also developed as a dedicated centre for industrial boilers, ensuring better delivery, it added.
Though the current cost structure of BHPV is similar to BHEL, costs are expected to come down due to factors like increased volumes and better financial capability leading to lower working capital borrowing costs.
