Thinking global

Interview with K. Ravi Kumar, Chairman and Managing Director, BHEL.

IN a fiercely competitive environment, Bharat Heavy Electricals Limited (BHEL) secured orders worth Rs.50,270 crore in 2007-08, which is the highest ever recorded in its history. This is a steep increase of 41 per cent over the previous years achievement. Its successful foray into new markets and new product areas are proof of the companys aim to seek out growth opportunities. Excerpts from an interview with Chairman and Managing Director K. Ravi Kumar.

What is BHELs vision for the future?

Our vision is to become a world-class engineering enterprise committed to enhancing stakeholder value. The company is striving to give shape to its aspirations and fulfil the expectations of the country to become a global player.

What are the key challenges to maintain the growth momentum?

Indias quest to sustain a higher GDP [gross domestic product] growth rate means that there will be constant attention on the growth of the power sector. The shortages in the sector also point to the fact that demand will be there for some time to come.

Therefore, the power-equipment market in India will continue to be attractive. Many developments in the market and the initiatives taken by the government point to this.

BHEL could end the year [2008-09] with an order of about Rs.85,000 crore, a majority of which is accounted for by orders from the power sector. Such business opportunities are good for the company. But at the same time they pose challenges.

The challenges are in dealing with competition from new players in the market and in executing projects on time.

With an economic slowdown being predicted, how do you see the business environment for BHEL going forward?

While the economy has grown at an average rate of 8.5 per cent per annum during 2004-08, financial markets around the globe have witnessed turbulence in the last quarter or so because of the sub-prime crisis in the U.S., the rise in oil prices and inflationary pressures in the domestic market. In this backdrop, the Economic Advisory Council to the Prime Minister had estimated that the GDP growth in 2008-09 would be around 7.7 per cent.

However, our country is emerging as an important driver of growth in the Asian region. What is significant is that growth in our country has been investment-driven. In these circumstances, BHEL secured orders worth Rs.50,270 crore in 2007-08, the highest ever recorded, and this was a steep increase of 41 per cent over the previous years achievement. This indeed is a commendable performance while operating in a fiercely competitive environment where we are constantly defending our existing businesses and seeking out growth opportunities.

The power sector saw an order intake of Rs.41,069 crore during the last fiscal, while the industry sector businesses saw an order intake of Rs.7,860 crore and the international operations an order intake of Rs.2,312 crore.

There is a view among analysts that the slowdown in the industry segment would affect BHEL. How are you gearing up to tackle this? Are you taking any measures against payment risks, especially from private-sector players?

Whatever is affecting the country is likely to have an impact across sectors of the economy. But as far as BHEL is concerned, its industry segment deals mostly with captive power.

Already 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. But in the case of equipment such as transformers and motors, there is no slowdown. At least for the next two years I dont feel there will be any growth constraint as far as we are concerned.

About 85 per cent of the orders are from State governments and Central PSUs such as the DVC [Damodar Valley Corporation] and the NTPC. Only about 15 per cent are orders from private-sector customers. We supply material only against letter of credit (LC). That is a company policy. We do not supply material without the customer opening an LC in favour of BHEL. If you consider the collectables as number of days of turnover at the beginning of April 1, 2008, there is a significant improvement in the same figure at the end of the second quarter.

Could you elaborate on the foray into the power sector and the industry market?

Despite intense competitive pressure in the power-sector business segment, BHEL secured all-time high orders worth Rs.41,069 crore last year from the domestic market. In terms of power-plant equipment, the orders amounted to 14,556 MW. Major highlights of the year included the first-ever orders for new rating thermal sets of 270 MW, 525 MW and 600 MW in the subcritical range, and 660 MW supercritical boilers, and receipt of all thermal orders finalised by the NTPC and its joint ventures as well as all hydro orders placed by the NHPC during the year.

Also, order booking of Rs.2,357 crore for the supply of spares and services was recorded.

Another major achievement was the receipt of orders for 17 500-600 MW sets, which is the largest number in a year. We also received the order for a turbine generator and secondary cycle piping system for the countrys first 500 MWe nuclear set for the Fast Breeder Reactor to be set up at Kalpakkam in Tamil Nadu.

BHELs efforts in building up its industry-related business during the year saw many first-time achievements. The highest value order was received from Hindustan Zinc Limited for a 4 x 80 MW captive power plant on EPC [engineering, procurement and construction] basis. This is the fourth consecutive order from this customer. Similarly, the highest-ever orders for centrifugal compressors were received from petrochemical and refinery industries.

A breakthrough was made in the transportation business with bulk orders for fifty 25-kV electric locomotives from the railways after a gap of more than eight years. In addition, BHEL made an entry into coach building for the railways when it received a developmental order for nine air-conditioned EMU coaches.

Any significant foray into the international market?

We took several significant steps during the last fiscal to enhance BHELs global footprint with a successful foray into new markets and new product areas, apart from firmly establishing the companys presence in existing markets and areas.

Mention needs to be made of our entry into a new market New Caledonia, an island in the south-west Pacific Ocean, with an order for 2x135 MW environment-friendly CFBC boilers from Koniambo Nickel SAS, an overseas joint venture of Extrata, Switzerland. This is also the first ever overseas order for CFBC boilers for utility application.

BHEL also secured its first ever order for power-generating equipment from the United Arab Emirates from the Ras Al Khaimah Investment Authority for the supply and supervision of 2x42 MW gas turbine generator sets for its Al Ghail power plant in Ras Al Khaimah. This path-breaking achievement is expected to pave the way for more opportunities not only in the UAE but also in other West Asian and North African countries.