BHEL may miss FY11 order target

India's top power equipment maker Bharat Heavy Electricals  may miss its new order target of Rs 600 billion (USD 13.2 billion) for the fiscal year ending this month as it faces a slowdown in domestic orders, its chairman said on Friday.

The state-run firm hopes to garner several large orders in March as potential customers rush to complete their budgeted spending before the fiscal year-end, but may see some contracts pushed into the next year.

"The sector has been witnessing reduced growth because there are issues of environmental clearances, coal linkages, and also financial closures," BHEL Chairman and Managing Director B Prasada Rao told Reuters by telephone.

"Things that took six months earlier, now take eight months, maybe," he added.

While India aims to halve its peak power deficit within two years and add generation capacity of 100,000 MW during 2012-17, delays relating to land acquisition, environmental issues and coal sourcing have hampered growth and dampened the overall investment climate in India.

A spate of corruption scandals, meanwhile, has slowed decision-making by the government, while rising interest rates are driving up costs.

"I expected a lot of hastening up of projects happening, but that has not happened," said Rao, adding that recent delays do not cloud the longer-term picture for order growth.

"It is very difficult to achieve, but I am still maintaining my guidance, if luck favours," he said, referring to the current fiscal year.

Rival Larsen & Toubro warned in January it might not meet its full-year order book growth target without a pickup in the current quarter, blaming slower decision making for postponement in new orders.

Big Backlog

BHEL, which faces intensifying competition from Chinese and South Korean rivals, won new orders worth Rs 360 billion  in the first three quarters of the fiscal year, and had an order backlog of Rs 1.58 trillion at December-end.

Industrial output growth in Asia's third-largest economy has slumped on the back of a high base effect and after a series of interest rate hikes by the central bank to curb high inflation.

On Friday, government data showed industrial output in January rose an annual 3.7%, although IIP for the full year is expected to rise more than 8%.

India's main stock index is down nearly 12% this year, among the worst performers among major Asian markets, as worries about corruption scandals and regulatory uncertainty keep investors on edge.

"Probably if some of the structural issues can be settled quickly, it can be hastened," Rao said, referring to order growth.

Power shortage

India faces a peak hour power shortage of nearly 14%, and sector players have lined up to expand capacity to satisfy a rapidly urbanising population and rising industrialisation.

Rao said recent developments could revive momentum.

"We have seen the environment ministry relax norms, they are giving mines to players, and other concerned ministries are also taking up the issues now," he said.

BHEL, which earns 70% of its revenue from power equipment, aims to double its business in the transmission and transportation equipment segment, where it sees high growth and with the aim of diversifying its revenue mix.

"We see big growth here because the needs are enormous. These are also akin to our core businesses, and we will derive benefits from our expertise," Rao said.

Both segments could contribute nearly 20% of revenues in three years, from about 9-10% now.

BHEL is also finalising plans to set up an infrastructure finance unit to fund planned projects, which will also help it secure equipment contracts. It will also help the cash-rich firm generate higher returns from its cashpile, Rao said.

The company has appointed CRISIL as an advisor and hopes to set up the unit in the coming quarter.

BHEL, valued by the market at USD 22.3 billion, is a favourite with foreign funds keen to invest in India's infrastructure story.

The stock, which has underperformed the main stock index so far this year, fell as much as 3.9% in afternoon trade in Mumbai. At 0845 GMT, the stock was down 3.7% at Rs 1,972.70.