The board of Bharat Heavy
Electricals Ltd that met on
March 15, 2011, deferred its
decision on the creation of an
equipment financing arm. First
promulgated in October last year, the
proposal to create a financing outfit
that would operate as a non-banking
financial company is an important
diversification for the cash-rich
engineering firm. BHEL has
appointed CRISIL to act as advisor in
the proposed diversification.
According to original plans, BHEL
intended to set up the financing
entity in joint venture with a
financial partner.
As analysts point out, the move
to create a financing outfit was a
serious attempt to shore up its order
inflow. The new order inflow for
BHEL has come under pressure in
recent years thanks to serious
competition from Chinese and
Korean equipment suppliers. By
offering financing options to
clients, BHEL would be in a position
to secure new orders and also
leverage its cash reserves that stood
at around
15,300 crore, as of March
2010. For a frame of reference,
BHEL's current reserves are
comparable to the value of main
plant equipment of around 5,000
mw of thermal power capacity.
In the business of supercritical
power units where BHEL is facing
major competition from both
domestic and international
companies, BHEL has been "securing"
orders by offering equity
participation. A joint venture with
Tamil Nadu Electricity Board for the
Udangadi supercritical power project
in that state is a case in point. Similar
JVs, with BHEL holding 26 per cent,
have been proposed in Maharashtra,
Gujarat and Karnataka. Such joint
ventures also mark BHEL's new
avatar as a power developer.
BHEL's mainstay of business has
been supplying main plant
equipment (boilers, turbines and
generators) to thermal power
projects. With new orders from the
domestic market declining, or at
least not growing appreciably, BHEL
has taken steps to promote newer
and hitherto lesser prominent areas.
Last year, BHEL announced that it
would focus on the power
transmission sector where new
business opportunities are aplenty.
Transport equipment is another area
that the PSU navaratna is keen to
look at more seriously.
The PSU engineering firm has
also planned to renew its thrust on
its international business. During
FY10, BHEL's order inflow from the
international market stood at
3,571 crore, representing only 6
per cent of its total order inflow of
59,031 crore in that year. The
company has also planned to set up
overseas equipment manufacturing
plants to come closer to its
international market. Its plan to set
up a transformer manufacturing
unit in Kenya, in order to make the
African markets more accessible, is
a case in point.
Meanwhile, BHEL is apprehensive
of meeting its new order inflow target
of
6,000 crore set for FY11, which
means that the engineering giant
may actually see a year-on-year
decline in fresh order receipts. The
new order inflow in the first three
quarters (April to December) of 2010-
11 stood at
3,600 crore but with a
seasonal pick-up expected in the
fourth. BHEL's order outstanding
book position stood at
1,58,000
crore as of December 31, 2010.