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Aug 09, 2012, 02.56 PM IST
K Ravi Kumar, former chairman, BHEL and now with Abhijeet Power, says that the continuous decline in numbers in the last five months is a reason for worry. High interest rates and weak order pipeline is affecting the capital good sector.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Current capital goods number are negative compared to last year's decent performance. How does the situation look on the ground? Will people invest any time soon at all?
A: Last year, there was a growth of 38% and correspondingly the base is quite high. This year, we have minus 28% figure. That is a small issue. But the continuous decline in numbers in the last five months is a reason for worry. High interest rate is affecting the capital goods sector. The working capital requirement is quite high in the entire capital goods sector. One needs to import raw materials, ship them, get them converted and then send to sites.
Second is weak order pipeline due to land acquisition problems and other factors. However, there are two silver lining; one that the demand for electricity is going up everyday and second, the hike in tariffs by all the electricity boards. so that sense a lot but to some extent it is being utilized because we have to send more electricity in the farm sector which is subsidized.
From the fourth quarter the capital goods sector may receive some orders from the state electricity boards. I think state and private sector orders will flow from the last quarter of the financial year or the Q1 of the next financial year.
Q: How are input cost doing at this point hence consequently what sort of impact can we see on margins for capital goods companies?
A: For capital goods companies the sales order is similar to last year so the margins may not be affected. The dollar depreciation to certain extent will affect if there is exports.
Companies like BHEL and L&T can offset that to some extent. Margins may not be of a high decline but weak order pipeline is a cause of worry.
Q: Is there a lot of competition on the ground at this point in time then considering the scarcity of orders hence there would be more players trying to bid for it?
A: Recently, Chinese have bagged 35% of the order. But, depreciation of the rupee and a 6% reduction in custom will help domestic manufacturers. There is a need for domestic companies to globalise rather than concentrating on Indian operations alone.
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