A casualty of the coal block allocation scam could be public sector equipment-maker Bharat Heavy Electricals Ltd (BHEL).

According to global financial services group Nomura, BHEL may face cancellation of 28 per cent of its total order book.

BHEL said it has an outstanding order book position of about Rs 1,32,900 crore at the end of first quarter 2012-13. Nomura says orders worth Rs 53,217.80 crore run the risk of cancellation. Of this, orders worth Rs 31,262.80 crore have already been classified as ‘slow’.

The reasons cited by Nomura are: Either non-availability of coal linkage or cancellation of existing coal mine or linkage as a fallout of the allocation scam.

However, those associated with BHEL say the company executes orders worth nearly Rs 50,000 crore annually. “Considering this, the order book is full for next 28-30 months.”

Delays, deferment

“While the status of coal mines allotted to BHEL remains uncertain, we highlight the potential risk to its order book from projects that were ordered on the back of these mine allocations,” Nomura analyst Amar Kedia told Business Line.

Nomura has also indicated further risk to BHEL earnings in the current fiscal. The equipment maker could face delays in new order flows as well as order deferment.

Despite several attempts, BHEL Chairman and Managing Director B. Prasada Rao could not be contacted.

In the first quarter of 2012-13, BHEL reported earning Rs 6,771 crore from the power segment out of the total revenues of Rs 8,743.6 crore. It reported a net profit of Rs 920.9 crore during April-June 2012.

Commodity prices

Nomura has also flagged the upside and downside risks to the equipment manufacturer.

On the upside, BHEL may benefit from developments in new coal sourcing that could drive new power sector investments.

Second, any decline in commodity prices would be a key risk, as nearly 50 per cent of its order book is on fixed price contract.

The factors that would hit BHEL are worsening fuel availability for new projects or those in hand, leading to delays in new and existing orders.

And growing competition could drive pricing even lower, putting pressure on margins.

siddhartha.s@thehindu.co.in

(This article was published on September 11, 2012)
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