Engineering major Bhel shot up 3.6 per cent to around Rs 223 on news of the Prime Minister’s Office advising the Cabinet to impose a 5 per cent import duty, 10 per cent countervailing duty and 4 per cent special additional duty on power generation equipment. The cabinet will decide on the issue within the next two weeks.
While the news is definitely positive for the company, it may be too little and too late to revive the fortunes of the company.
It’s almost two years since Bhel has been talking of unfair competition from Chinese and other power equipment manufacturers who have the benefit of lower financing and government support. As per a Royal Bank of Scotland report, the imposition of duty was first suggested by the Arun Maira Committee in July 2010, which was agreed by the Group of Secretaries.
However, the report says that the Minister of Power and private power developers strongly opposed the duty imposition and ensured that the duty imposition was delayed till the end of the Eleventh Plan. This delay has resulted in most of the players placing their orders for capacities to be added between 2013 and 2017. So now Bhel will have to wait for another five years to see a growth in its order book.
RBS adds that in order to circumvent this issue of import duty, Chinese manufacturers are considering setting up manufacturing units in India. This will also help them counter the slowdown in power equipment demand in China and the impact of currency depreciation.
Added to this is the competitive bidding seen in the recent past, where orders were bagged on single digit operating margins. The power sector continues to be impacted by non-availability of fuel for the producers, which is expected to affect decision making for new plants.
It seems the better trade would be to utilise the rise in Bhel’s stock price to exit from it as both order book growth visibility and implementation are at risk.
