BHEL diversification positive: Heavy industries Secy

MF Farooqui, secretary, ministry of heavy industries and public enterprises, says that in the long run, BHEL also needs to identify what possibilities exist for them to diversify. BHEL has high technological strength in the field of heavy electricals and going forward they can eye other areas of economy, especially areas related to infrastructure where they can diversify and try to improve their overall basket and reduce their dependence on one sector. BHEL is pursuing this long-term strategy.

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is the situation in terms of fresh orders for either the 12th plan or the 13th and whether you are witnessing any fresh orders coming in for the heavy industry space?

A: BHEL already has orders of around Rs 120,000 crore. There are some challenges in the power sector which are being addressed by the government. Going forward, we hope that the pace of fresh orders would also improve. However as of now, BHEL has good amount of order.

Q: We understand that BHEL has started seeing order cancellations, not so much fresh order inflows. Could you just update on that and what the figure may stand at in terms of cancellations the company is facing?

A: I won't say cancellation. Yes, there are some players who have placed orders and might have difficulties in executing them immediately or after floating the tenders there might be some delay in placing the orders. These can be attributed to a variety of reasons but as of now there is no concern. In fact the government is addressing those issues separately and the five year plan target is quite ambitious. So going forward things would improve but we are going through some challenging times.

Q: Has that led to payment problems for BHEL because in certain cases BHEL may even be looking at withholding the supply in order to get the payment from some of their clients?

A: Yes, in some cases there has been delay on the part of the clients to make payment. We hope that various measures which are being taken for restructuring in the power sector and those should also get addressed. Receivables have been an issue which needs to be addressed by BHEL. Hopefully, with the cooperation from their clients this should improve.

Q: What are the solutions being provided because this is leaving BHEL in a rather tough spot is it not where cash levels are falling because payments aren't coming in, fresh inflows have dwindled to almost nothing that is our understanding and even existing orders are not being able to be executed as planned?

A: In the long run, BHEL also needs to identify what possibilities exist for them to diversify. BHEL has high technological strength in the field of heavy electricals and going forward they can look at other areas of economy, especially related to infrastructure where they can diversify and try to improve their overall basket and reduce their dependence on one sector. BHEL is pursuing this long-term strategy.

Q: Do you mean that BHEL has not been up to the game amongst the peers in its sector and is suffering for not having moved fast enough?

A: No. Positively, BHEL is looking at diversification more aggressively and they have identified those areas and hopefully they will reduce their dependence on one sector.  

Certainly, this sector will continue to play a major role. Any big company which has a growth strategy will always expect their core sector to continue to excel. And then they need to build upon new sectors, identify new sectors where they have future potential and other sectors where they do investment in R&D and make sure that something is adopted as a part of their portfolio at a later stage.

So, as a strategy any large company like BHEL has to naturally diversify. The diversification should be well planned and executed with due deliberation because their numbers have strategic relevance. I think BHEL has taken a positive step and the future looks good for them.

Q: Of the Rs 1.20 lakh crore, what kind of fresh inflows has BHEL seen just in the last three months, what has the experience been there in terms of fresh orders?

A: I don't have the figures.

Q: That seems to be the problem, it is not so much what the total figure looks like it is that they are facing more order cancellations, the order inflow itself has dwindled and this seems to be an industry phenomenon as well and part of the fault seems to fall on the fact that coal and power availability is not there so order traction is not moving. I believe this issue has been taken up with the PMO as well. Any suggestions or plans in terms of how to resolve it over the next few quarters?

A: The issue is being addressed and all players need to come together. We are hopeful, the five year plan targets are ambitious and we will remain on track. These issues are being addressed and will be addressed shortly. Let us not get too carried away by the challenges which are immediately visibly and look at the medium term prospects and long-term prospects of the company and the sector.

Q: BHEL will be approaching the equity market soon for raising some capital and I imagine all these questions will be asked by potential investors. Are the Heavy Industries Ministry and the PMO working in order to address some of these issues before BHEL gets to the market which is in a month and a half?

A: These issues are very critical to the growth and the targeted growth in the five year plan is possible but it should be complimented with certain growth in this sector. If growth takes place, then BHEL will have a big share in that because it is not only a leading player but a competent player. It has been proving its competence and ability in this field for a long time. So we do hope that things will improve and we’ll all work together for it.