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Bharat Heavy Electricals Ltd’s (BHEL) September quarter performance sustained the positive momentum generated in the previous two quarters.
The improved performance compared to the same quarter previous year was due to better project execution and tight control over project costs.
The order book towards the end of September 2016 was ₹1,03,000 crore, marginally lower than ₹1,08,000 crore recorded at the end of June quarter.
The company’s thermal power orders worth nearly ₹20,000 crore are delayed due to lack of environment clearance in Yedadri and Bhadadri in Telengana. But, the favourable judgment in the long-pending Ennore super critical project came as a relief to the company.
Execution of this project should add close to ₹8,000 crore to the company’s revenue over the next few quarters.
The operating margins was 2.3 per cent in the September quarter, improving from an operating loss in the quarter ending September 2015.
This improvement can be attributed to three reasons.
First, a 12 per cent increase in revenue for the quarter ending September 2016 compared to the year-ago.
Second, reduction in number of employees by close to 2,600 between September 2015 and September 2016, helped keep the manpower cost in control.
Third, a decrease of 3.5 per cent in raw material cost, despite an increase in revenue proved helpful.
Though BHEL has performed impressively by growing its revenue to ₹12,073 crore (a near 20 per cent increase) compared to the same period a year earlier, it will be a challenging task to reach revenue target of close to ₹30,000 crore for FY-17.
It is also doubtful whether BHEL will be able to sustain the current growth in revenue, given the fragile demand from the global market and the lack of long-term visibility in order flows.
Other upcoming divisions such as solar power and defence manufacturing still form only a fraction of BHEL’s total portfolio.
Besides, BHEL’s solar power portfolio is a mere 350 MW. But, the recent regulations controlling the emission of nitrogen oxides and sulphur oxides by thermal plants is expected to lead to orders for equipment in the near term.
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