BHEL expects order inflows of Rs 40K cr in FY09

BHEL or Bharat Heavy Electricals Ltd. has announced its FY08 results (provisional). The company's FY08 provisional net profit stood at Rs 2,800 cr. Ravi Kumar of BHEL said the Q4 margins were low due to provisioning of wage increases. The biz expects order inflows of over Rs 40,000 cr in FY09.
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Apr 03, 2008, 03.36 PM | Source: CNBC-TV18

BHEL expects order inflows of Rs 40K cr in FY09

BHEL or Bharat Heavy Electricals Ltd. has announced its FY08 results (provisional). The company's FY08 provisional net profit stood at Rs 2,800 cr. Ravi Kumar of BHEL said the Q4 margins were low due to provisioning of wage increases. The biz expects order inflows of over Rs 40,000 cr in FY09.

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BHEL expects order inflows of Rs 40K cr in FY09

BHEL or Bharat Heavy Electricals Ltd. has announced its FY08 results (provisional). The company's FY08 provisional net profit stood at Rs 2,800 cr. Ravi Kumar of BHEL said the Q4 margins were low due to provisioning of wage increases. The biz expects order inflows of over Rs 40,000 cr in FY09.

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K Ravi Kumar, Chairman, BHEL
BHEL  or Bharat Heavy Electricals Ltd. has announced its FY08 results (provisional). The company's FY08 provisional net profit stood at Rs 2,800 crore (Rs 28 billion) versus Rs 2,415 crore (Rs 24.15 billion), reports CNBC-TV18 quoting NW18.

K Ravi Kumar , Chairman of BHEL said the Q4 margins were low due to provisioning of wage increases. But he doesn't think additional wage provisioning will be required going ahead. The company expects order inflows of over Rs 40,000 crore in FY09.

Excerpts from CNBC-TV18's exclusive interview with K Ravi Kumar:

Q: Can you start out by lining out for us what exactly the performance has been in Q4 both in terms of sales and profits this quarter around?

A: As far as Q4 is concerned, overall the company has grown by 15% for the year 2007-08 and profits have grown by 18% - profit after tax and profit before tax. So, there is a growth of 15% in sales turnover over Rs 18,700 crore to Rs 21,500 crore.

In the last quarter, we have increased our turnover by 8%. But the margins are slightly lower in the last quarter because we have provisioned about 40% in wage increase and also certain contractual obligations that we have given as provision.

Q: What exactly has the net profit performance been in this quarter, because it seems lower than most analysts were estimating this time?

A: I really do not think that it is lower. If you see the quarter wise results, the net profit has gone up by Rs 2,815 crore for the year. It is a 17% growth over the previous year. Profit before tax has gone to Rs 4,395 crore, which is about 18% over the previous year.

Turnover has grown 15% and profits have increased by 18% and 17%. This is inspite of wage increases that we have provided by 40% and increase in material costs and also the increase, which has come in terms of contractual obligations provided for the new projects.

Q: I just want to talk a little bit about your order book as well, the backlog seems quite strong. But can you just flesh out what you have seen by way of new inflows of orders and what you are expecting over the next two to four quarters because the market is concerned or nervous about the fact that inflows are now slowing down for capital goods companies like yours?

A: As far as inflows are concerned, this year has seen a high record, the previous year that has gone by. We have received more than Rs 50,000 crore of orders in the previous year. Next year also we are expecting quite a good order book. It will be of the order of Rs 40,000-50,000 crore that we are expecting in the next financial year. We are already in dialogue with so many electricity boards and also for exports.

We are quite confident we will be able to reach beyond Rs 40,000 crore in the next financial year also. As far as execution is concerned, we have already tied up material. We have already ordered long lead items and we have taken manufacturing action even before the receipts of orders. I do not think there will be any pressure on execution as far as the new order book is concerned.

Q: What exactly is the wage provisioning this time, does this include the previous wage settlements or does this also take into account the Sixth Pay Commission recommendations and what will it mean in terms of money you will now have to set aside for wage compensation?

A: As far as wage compensation is concerned, we have factored around 40% in the last quarter.

Q: And that includes the pay commissions recommendations or do you think that would require a significant add up?

A: No I do not think. I think 40% must be sufficient and if there is a small additional provisioning required, that will be taken care of by higher execution during the next financial year. We have an MOE target of Rs 25,000 crore in the next financial year and normally we exceed the MOE targets and we are quite confident. The additional implication if any, by wage revision will be taken care by the higher turn over next year.

Q: How much is the slippage in the margins this quarter and where do you reckon they would settle at in the next 4-6 quarters?

A: At the end of the year we provide some provisions for new contracts and we provide a 2.5% contractual obligation and suddenly we have increased it to 40% wage increase, but I do not think next financial year this will have a huge impact and we should be able to maintain our margins in the next financial year corresponding to the growth in turnover.

Q: Raw material costs have gone up quite significantly and many capital goods companies have hedged those positions, especially for commodities or they have gone in for some kind of a forex loan or a forex derivative product. Is there something like that BHEL has been working with as well, either a commodity hedge or otherwise?

A: Our forex takes care of our physical and deemed exports. Between exports and imports there is a parity, so to that extent there is a saving grace. The raw material increase is going to impact our profits slightly, but higher turnover for next year should take care of this. We should be able to maintain the same profit margins as growth in turnover.

Q: Can you just leave us with an update on how many supercritical units BHEL will be bidding for and whether this might come at the cost of lower margins?

A: We have received two orders from Barh, that is from NTPC. A 2X660 MW SG package, and 2X800 MW we are establishing on our own along with TNEB, the 26% equity that will be located in Tamil Nadu and we are in a dialogue with other state governments.

We are also bidding for the Krishnapattnam 2X800 MW project for APGenco. So these will be our foray into supercritical projects. We will have a slightly reduced margin on all supercritical projects. But that constitutes a small 5% of our turnover.

Q: How long will this wage provision continue to weigh down on the margins?

A: It is about 5% of the market share of the turnover and that will be for the next 3 years, we may not have good margins o super-critical areas but that will be more than compensated by sub-critical profit margins. 

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BHEL expects order inflows of Rs 40K cr in FY09

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