BHEL swings into Q2 net profit of Rs 106 crore, revenue rises 28%

Transformer prices have risen 60 percent to 80 percent on average since January 2020, driven by higher copper prices, which have increased more than 40 percent over the same period.

Bharat Heavy Electricals Ltd (BHEL) swung into a net profit of Rs 106 crore in Q2 FY25, from a net loss of Rs 63 crore in the corresponding quarter previous year. The Public Sector Undertaking (PSU)’s revenue from operations increased 28.5 percent on-year to Rs 6,584 crore in the July-September quarter.

The company's revenues from its power segment rose 23.5 percent on year to Rs 5028.28 crore, and its revenue from its industrial business, which is its second-biggest segment, also reported a 48 percent surge in revenues during the period to Rs 1555.82 crore.

The power sector makes for about 70 percent of BHEL's operations, the other major segment being industry, which caters to major equipment supplies and engineering, procurement, and construction (EPC) works for industries including transportation, transmission, defence, aerospace, and captive power plants.

BHEL share price jumped on the results announcement, and was trading at Rs 238.5 on NSE, up 10 percent from the previous close.

The company restated figures from the previous year to reflect adjusted expenses of Rs 5,519.32 crore from Rs 5,753.32 that was reported a year ago. The restated figures include deferred tax and provisions and write-offs, according to an exchange filing.

The government’s renewed focus on setting up thermal power projects and a surge in demand for coal-fuelled power generation have revived the fortunes of BHEL the country's largest power equipment manufacturer.

India's power consumption rose 3.5 percent on year to 145.4 billion units in July, 4.7 percent on year to 144.21 billion units in August and remained flat at 141.36 billion units in September.

Despite the marginal rise in India's electricity consumption seen during July-September the state-run engineering company received orders worth about Rs 52,000 crore for 9.6 gigawatts (GW) of thermal power projects in FY24, the highest ever by value for coal-based projects for the company.

BHEL recorded strong order inflows in Q2 FY25, totalling over Rs 30,500 crore. Key wins include Rs 13,300 crore from Damodar Valley Corporation (DVC) for Koderma thermal power station, Rs 11,000 crore from Adani Power, and Rs 6,200 crore from NTPC for the EPC of Sipat thermal power project.

As of YTDFY25, BHEL has secured 10 GW in project orders and is actively tendering for another 8 GW, expected to finalize by March 2025, according to JM Financial. The order momentum is expected to continue in FY25, with the government planning to set up 80 GW of thermal power capacity by 2032.

BHEL's expenses, which have hurt its earnings in the past four quarters, increased 19 percent to Rs 6,570.6 crore, driven by a 18 percent rise in the cost of materials and services.

The company's management on May 21, 2024 had said that it had won a number of order in 2021-22 and 2022-23 without raw material pass-through variation clauses which has led to its operating margins contracting.

Transformer makers in India had struggled to increase production before 2024-25 due to several issues such as global supply chain hiccups, copper volatility, and raw material shortages. Electrical steel and copper are two crucial raw materials in a power transformer. Bushings, transformer oil, and insulation are other materials used.

According to a recent report by Wood Mackenzie, the lead time for procuring transformers has steadily risen over the past two years, ranging from 120 to 210 weeks globally. Transformer prices have risen 60 percent to 80 percent on average since January 2020, driven by higher copper prices, which have increased more than 40 percent over the same period.

Furthermore, according to transformer companies, meeting short circuit criteria, as outlined by the Central Electricity Authority of India’s (CEA) guidelines, presents a challenge due to the diverse range of ratings and voltage classes selected by developers to optimize the overall costs.

They added that although CEA has expanded its guidelines to accommodate these requirements, many solar developers insist on strict compliance, reducing the pool of available suppliers and exacerbating demand and lead times.