Cap goods cos must aim exports post rupee fall: Ravi Kumar

Capital goods sectors which has been worst affected in past two years due to slowdown in investment activity within the economy, can and must try to tap export opportunities going forward, K Ravi Kumar, Former Chairman, BHEL and Director of Abhijeet Power told CNBC-TV18 today.

"There is a big opportunity as far as exports are concerned There is a definite market in Middle East for gas turbines, transformers etc," Kumar said adding that Bangladesh, Myanmar, Sri Lanka can also be tapped as good export markets.

Apart from this Pakistan also has huge power deficiency, while Africa can targeted for transmission business. Investment climate in the country has been sullen in past two years due to infrastructure bottlenecks, policy paralysis, resources crisis and high fiscal deficit,

Larsen & Toubro, one of the biggest capital goods player recently indicated no new investment is taking place in the country and tough times for infrastructure sector may continue for one more year. However L&T has also been efforts to tap export opportunities by diversifying in far east and middle east.

Must read: Don't expect revival in power sector orders soon: Thermax

Kumar pointed that recent depreciation in rupee will also help capital goods exporter as it is now likely to hover in rage of Rs 55-58 against dollar. He hopes that domestic demand scenario for capital goods will improve after two quarters.

Below is the verbatim transcript of the interview.

Q: We have heard very harsh and negative management commentary from many of the companies which reported their results this quarter -- about the domestic order scenario a company like Larsen & Toubro (L&T) pointed out that they will see 6 percent year-on-year growth in FY14 and we do know that the country is faced with many macro and structural issues especially in the infrastructure sectors? What is your opinion on the poor macro situation and how long it would take for us to come out of the woods?

A: There are temporary setbacks; there are headwinds as far as power sector is concerned. One is the land acquisition policy, then there is fuel constrains as far as coal is concerned, there is not enough coal, it is to be imported and the policy is not decided how the imported coal will be distributed to the various companies. There is a transport bottleneck also from the mine to the power station and the distribution company (Discom) losses are contributing to the states not ordering enough. However, there is a supply demand gap and government is also looking at reequipping the Discom losses. Therefore, after two quarters the demand in India will review. In the meantime what is necessary for the industry is to look for international markets and also see that they expand inorganically.

Q: You have been in the business for so long what have you made of the worrying trend that we are seeing where there is heavy margin pressure that many of these infra and capital goods companies are facing so they are accepting orders but these orders are of the cost of margins. Do you think this will continue?

A: I think there is definite advantage because rupee is depreciated. Now it is around 56/USD. Therefore, in the next few months it will be between 55-58/USD. I think that will be an advantage for exports. There is a definite market in Middle East for gas turbines, transformers etc. There is a market in Africa as well.

Pakistan is also very deficient in power. Bangladesh, Myanmar, Sri Lanka also present big opportunity as far as exports are concerned. In transmission also there is an opportunity in Africa. Therefore, if they go global then there is a big advantage.

Q: Analysts have indicated that the revival in the boiler, turbine, generator (BTG) ordering space could be a couple of years away and possibly there is more amount of pain which is expected in the company is operating within that space. What is the on ground scenario looking like and has fresh ordering been stalled given all the problems that we are facing in terms of multitudes within the power sector etc?

A: I think two year is a long period. I feel it should pickup after two-three quarters. Once the Discom losses are removed states will start ordering because Discom will pay the Genco and state Genco will order all the equipments and also the non-conventional renewable energy sources are also picking up. So, I feel 80,000 megawatt will be ordered in the next five years, which means 16,000 mw per year. I think that should happen because there is a demand supply gap of about 9.5 percent and if gross domestic product (GDP) growth is at 6 percent and power deficit to be removed in the next five years, so 8 percent growth must be there in electricity, which corresponds to 16,000 mw addition every year.

Q: One of the key highlights which we have seen within the L&T numbers as well as in Nagarjuna, was the cancellation of slow moving orders. That seems to be a pressing concern in terms of the pressure coming on the working capital cycle of many of these players, which is now getting characterized by the late customer advances like I mentioned 17,000 crore of cancellation of slow moving orders by L&T. Can you throw some light on how bad the working capital picture is at this point in time for the industry?

A: This is because of few stalled projects that will get removed once the coal issues are resolved. So, the projects will pickup. Because there is a sudden stoppage of bank loans to certain private companies, there is a problem and so the banks are insisting on coal supply agreements and other issues because they do not want them to become non-performing asset (NPA). Once this project gets revived, I do not think there will be a problem as far as the companies are concerned.