The Hindu Business Line : Growth constraints unlikely for next 2 years

An M.Tech from IIT Madras and a Post-Graduate in Business Administration, Mr K. Ravi Kumar joined BHEL in 1975 after a brief stint in the private sector. Elevated to the position of Chairman and Managing Director earlier this year, Mr Kumar has taken over the top job at a time when the state-owned company is building capacity to meet the aggressive targets for the Eleventh Plan and beyond. Speaking to Business Line, Mr Kumar outlined his plans for the c ompany, especially in the context of the economic slowdown.

Excerpts from the interview:

For the current fiscal, does BHEL’s guidance for topline growth stay at 25 per cent or has it been revised upwards in light of the healthy half-yearly numbers?

As far as the sales guidance is concerned, we continue to maintain that it will be above 25 per cent.

Initially, we said 25 per cent, but after seeing the performance of first two quarters, we had indicated it will be above 25 per cent but less than 30 per cent.

Do you see the current downturn in the economy affecting the projections? There is a view among analysts that slowdown in the industry segment would affect BHEL, possibly with a lag.

Whatever is affecting the country is likely to have an impact across the board. But as far as BHEL is concerned, the orders are there and our motors and transformers are booked for three years. They command a premium. If at all, our competitors may lose out. At least for next two years, I don’t feel there will be any growth constraint as far as we are concerned.

How feasible is the capacity addition target of 78,000 MW? As of now, only around 52 per cent of the balance-of-plant for the Eleventh Plan has been ordered. Is that a concern for you?

My estimate is that at least 60,000 MW should come through. As far as balance-of-plant is concerned, I do not think any non-ordering will affect our revenues, because the customer will still take all of our supplies.

Only the execution portion of 15 per cent may get affected. This impact will not be felt this year. It will be felt only during the time of commissioning.

With the stabilisation of commodity prices, do you see your material costs coming down in the medium term? Also, what proportion of your inputs for the Eleventh Plan is tied-up at firm prices and how much comes under the price variation clause?

The material cost as a percentage of turnover was 62.84 in the second quarter, against 58.75 in the corresponding period last year. Commodity prices are getting stabilised. We should see some positive impact in the period ahead. Our entire material is not tied up (at firm prices). There are certain items such as steel, which we buy for a year only. We buy mostly to meet three months’ requirement. As for critical materials such as thick plates, drum plates, castings and forgings we have tied up for a longer term, as this is based on availability and not price. So to that extent, we will not get the relief for them. But as far as steel is concerned, we will see a decline, probably from the last quarter.

A recent CEA report on Chinese equipment has outlined a number of problems, but has stopped short of asking developers to avoid them. Do you think developers, especially private developers, would be wary of ordering from Chinese players in light of the report?

I have gone through the report thoroughly. The problems (with Chinese equipment) are two-fold. One is short term, on the maintenance side. The other is the credibility of the equipment working under adverse conditions and coal variations. That has to be studied because our boilers are operated with high-ash coal, washed coal, imported coal and blended coal.

And also the grid frequency goes down sometimes. Certain private operators have got the initial advantage of price and delivery, but the long-term fallout still needs to be assessed.

Right now, CPSUs and SEBs roughly account for about 85 per cent of your orders? Do you see private players coming to BHEL in greater numbers, possibly in light of the CEA report?

Now a lot of private operators are coming back to us. The only thing is, they want Chinese prices.

There are reports that China is facing a massive labour problem and wages are on the rise there. Is the price gap between BHEL and Chinese competitors narrowing?

The gap has narrowed down considerably. Since the dollar has appreciated by 20 per cent vis-À-vis the rupee, the Chinese prices have also gone up. The price difference is negligible now. Then there are well-documented concerns about their performance. I do not think Chinese equipment is a real competition for BHEL, right now.

With reference to the order booking pipeline, is your guidance for this fiscal likely to stay at Rs 40,000 crore. Or are last year’s record levels likely to be attained this year as well?

Last year, it was at a historic level, crossing Rs 50,000 crore. And this year, we would like to repeat the performance. Seeing the trend so far, we are expecting total orders of about Rs 50,000 crore.

What are the investment plans for capacity building?

As far as capex plans are concerned, our initial investment for going from 6,000 MW capacity to 10,000 MW saw mainly additions in hydro and certain balancing facilities, and so it was cheaper.

But for moving from 10,000 MW to 15,000 MW, we are investing something like Rs 4,200 crore and for the next stage (15,000 MW to 20,000 MW) it could be around Rs 5,000 crore.

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