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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (7707)	10/3/1999 11:53:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

CompanyWatch : BHEL Ltd - Powering up bhelis.com bhel.com Stock price as of 10/01/99 on NSE : Rs 259.45 on BSE : Rs 257.00 P/E : 15.62 Book Value:Rs 106.02 Power sector drove up BHEL's net in '98-99 Jaideep Misra (ET) NEW DELHI 3 OCTOBER THE latest annual results of Bharat Heavy Electricals Ltd (BHEL) reveal that there has been a big change in sales to the power sector. That is, there has been a sharp rise in sales under such heads as renovation and modernisation (R&M) contracts, besides the rise in sales of services like operations and maintenance, spares, and other technical services like life extension studies. Of the turnover of Rs 6,795 crore (US$ 1.51 billion) for the last fiscal, power sector sales added up to about Rs 3,652 crore, or just under 54 per cent of the aggregate. But R&M, O&M, spares and other customer support services total Rs 975 crore, up from no more than Rs 76 crore in the previous year. In fact, BHEL's 53 per cent-plus sales figure in the core power sector is at a five-year high. The rise has been attributed to the massive twelve-fold increase in support services. For this fiscal, the projections are for a healthy 30 per cent growth in sales in the `soft' segment, so as to touch Rs 1,200 crore. One reason for the big increase in BHEL's R&M and related turnover is the fact that the public sector major has formed two JVs specifically for the soft-end of its business. BHEL has floated the venture Powerplant Performance Ltd with Siemens AG of Germany for turning around dated thermal plants. It also formed the BHEL-GE Gas Turbines Services Ltd with GE of the US for the repair and servicing of heavy duty gas turbines. As per the arrangement, the arrangement the JVs source materials and services from the parent companies. Also, there is a growing demand for R&M. Given the high cost of setting up new capacities, utilities are increasingly focusing on retrofitting and life extension, and which can often be done at a small fraction ? of just about a fourth ? of the cost of setting up brown-field capacity. Also, institutional lenders like the Power Finance Corp for instance are all set for heightened R&M lending, at attractive interest rates. One recent study estimates the potential for R&M at least 20 per cent of the total pan-India installed base. Meanwhile, given the continuing sluggishness in both power and non-power sector demand for fresh capacity, BHEL's current emphasis on R&M and related works has been crucial for profits and realisations. Here it may be noted that PAT for 1998-99, at Rs 545 crore, is almost a fourth lower than that in the pervious year. Another fortuitous development has been the sharp fall in borrowings, with that for '98-99 down by a huge 56 per cent, to no more than Rs 1,701 crore. Now, almost 98 per cent of BHEL?s borrowings focus on working capital expenses. And a slowdown in project works would show up in the need for lesser working expenses as well. Also, working capital needs at the soft-end of the business would be comparatively much less, given shorter gestation. Thus, the focus on the R&M segment has been doubly rewarding. The bottomline in the increasingly competitive power equipment industry is: when the going gets tough, the tough thrive on `soft' solutions!