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Excise cuts will help us in the Indian market
December, 18th 2009

BP Rao, chairman & managing director, BHEL in an interview with ET Now says that excise duty cuts will help the company in the Indian market 
and dismisses threat of Chinese competition.

Talking about Chinese comperition, equipment excise and customs duty has been reduced. Do you see this as a larger threat for your own business?

No. Excise duty cuts will help us definitely in the Indian market but I dont see the threat. The threat was as it was. There is no any change in that but you have seen that our success rate in the recent past about in the last six to eight months has been such that most of the private sector orders have come to us and these people were earlier patronising Chinese equipment and they have come back to us. There is an indication of the competitive and technical stunt of the BHEL equipment.

A question mark that analyst community has is on the execution over the next two years. The order book is large but would BHEL will be able execute at top priority almost all or the majority of the order book in order to bring in the revenues?

BHEL has expanded its capacity from 6,000 to 10,000 and we are already on the way up to 15,000 megawatt by the end of this year and coupled with this, the ramping up of the resources like manpower will help us in liquidating the orders as scheduled.

The current order book of about 1,30,000 crores is really scheduled to be liquidated over a period of next three and a half years. The project schedules will go up to next three and a half years so we will be doing the projects as per the schedule deliveries. So we have no problem in terms of time constrain, in terms of capacity or any other restrictions. The only factor to be watched out is the supply chain.

We are dependent heavily on the imports of casting and forgings so here we still have some worries that the committed deliveries whether those supplies will be able to maintain. In addition, wherever there is an EPC project, the BOP equipment is also is a cause of worry because these suppliers were also failing to commit to adhere to the schedules what they commit otherwise from BHEL side there is no problem.

You said that you are seeing more and more orders coming in from the power equipment side. Where do you see BHEL now bringing more value in and how were you scoring over your Chinese competitors?

Basically, it is equipment performance and also the competitiveness. Both the factors are helping us to get back win back these orders.

So are you saying that Chinese equipment is failing at this point and there is a little bit of question mark on performance consistency?

Yes. If you look at the operating availability and equipment performance of BHEL equipment vis--vis the Chinese equipment or any other equipment for that matter in the country, BHELs equipment performance has been consistently two per cent higher than the other equipment and operating availability is also higher. So with these performance parameters and also the competitive rates of the equipment, most of these customers are coming back to us again.

The analyst community is also fairly well coming out with lot of paper on the plans to acquire a TGR. Where does TGR or similar acquisitions fit 
in BHEL strategy?

Company will look for some opportunities and amend together new IPRs or excess to new markets or in supply chain wherever we have problems to look into some vertical integration particularly in the castings and forgings area. We have not started any separate activity to look at these opportunities but when opportunities come our way, then we examine those opportunities. Once these opportunities, like the TGR, come, we examine the opportunity.
Coming to nuclear power business, we have already seen L&T come out very aggressively with the foray and win a couple of orders already. How much revenue do you see generating and really any kind of foreign JVs that you might be looking in that space?

See the nuclear BHEL is present in a big way than any other company in the country. 70-80 per cent of the existing nuclear plants have the BHEL equipment. Having said that, there is a recent order from Nuclear Power Corporation Of India for steam generators for the existing technology and we are also actively working with Nuclear Power Corporation Of India to have a joint venture in a steam turbine generator sets. This is almost in the final stages of execution and we will probably be announcing it shortly.

We have already signed a MOU with GE Hitachi and we are also actively discussing with the other multinationals and our plants are going jointly along with the Nuclear Power Corporation.

There is news floating around that BHEL as a company has signed a deal with the Nigerian government for projects. Would you be able to clarify or give us more details on that?

This is a surprise to me. I dont know what is this Nigerian deal. There is absolutely no truth in that.

Report say that L&Ts order wins have been at a substantially lower price and that will cap the upside and also the margins for you as a company as well. Is there any truth to that?

No. The order what we have last is the order which is in focus. It is not really that there is not much of difference in the price. It is just below one per cent. It is difference that to on loading on the import content so it is not true that the price has become really a great differentiating factor but L&T also had probably the entry strategies in this particular case. So I dont even expect that there is any problem as on the pricing front. In fact, BHELs portfolio of products gives us a natural advantage for pricing so I dont expect that on pricing we will be filing short at any point of time in any case.

Do you think this quarter around we can expect more and more revenues to come in as order start to trickle into the revenue stream?

As far as BHEL is concerned last quarter - that is the second quarter - we have shown a revenue growth of 21 per cent and bottom line growth of nearly 40 per cent. So I expect the similar kind of growth to continue in the third quarter and also by the end of the year.

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