Bharat Heavy Electricals Ltd (BHEL) has been a standout performer in the infrastructure stock space. K Ravi Kumar, CMD of said, "This year we closed with an order book of Rs 120,000 crore and we expect to get orders worth Rs 50,000 crore in FY10."
CNBC-TV18 shares with domain-b its exclusive interview with K Ravi Kumar
We had spoken with you few weeks back, you were confident of delivering solid sales growth of nearly 30 per cent for this year. Is your new order intake slowing down as you go into FY10 or still remains at the robust clip that has been for 2009?
This year we closed with an order book of about Rs120,000 crore that is outstanding orders and during the year we got about Rs60,000 crore worth of orders - Rs45,000 crore from power sector, Rs3,000 crore from spares and services, Rs10,000 crore from industry sector and about Rs3,000 crore from international operations. So we have booked the order for Rs60,000 crore.
Next year we have given a projection of Rs50,000 crore and definitely we are on track to get Rs50,000 crore. We have finished negotiation for certain orders in the last six days. So I think we should be able to go through the year with Rs50,000 crore order book.
How much of this Rs50,000 crore would be from NTPC and are you seeing any signs of a slowdown at NTPC which is one of your larger client?
We just negotiated an order with NTPC for 500 MW and we are expecting the bulk ordering during the financial year. We are also expecting two orders from Muzzafarpur. So with that I am quite sure that NTPC orders will continue to flow in and the total order that we are expecting from power sector is around Rs35,000 crore.
You guided us to about 25-per cent growth in profits in FY10 that against the single digit percentage performance for FY09. Can you walk us through what's going to contribute to this big jump in your bottomline?
Last year we have provided about Rs1,800 crore. To be precise we have provided about Rs1,770 crore towards wage revision and also the one-time gratuity arrears from Rs3.5 lakh to Rs10 lakh and the dearness allowance margin announced in the last two-three days of the financial year. We have provided that in our balance sheet.
If you take out that the growth is in line with the sales and one-time refund, we got year before last and if you take that out the growth is coming to about 29 per cent profit after tax which is in line with sales. So no such provision is necessary in the next financial year. So to that extent I feel at least the wages will come down by 100-150 basis points (bps).
But there is a material content also; we are expecting that it should come down by at least 200 bps if current levels exist. But the composition is slightly changing, so we are getting more construction orders where the margin is not very high. So engineering, procurement and construction (EPC) contract, the construction and balance of plant margins are not very high. So, if you take all into account, I feel in about 20 per cent sales growth should result in 25 per cent profit growth and if we can grow at 25 per cent then the profit growth will be about 30 per cent.
There have been some concerns though about competition. You maybe facing from some of your Chinese counterparts in areas like sub-critical boiler space etc. How would you respond to them?
As far as sub-critical is concerned that much competition is not there because there was a problem of sizes. We are doing 250-500 MW sizes. There was sudden requirement of 300-600 MW sizes; it is more of Chinese design. So now we have come out with a 600 MW module and recently we have bagged orders of about eight number of 600 MW modules.
The dollar has appreciated with respect to the rupee with the rupee also having depreciated with respect to dollar, which is helping us. I think we have survived the Chinese competition in the sub-critical segment and unless they dump the prices we do not expect much competition from China in this financial year.
If I heard you correctly - you were saying that if things go well you could actually outdo your 20-per cent sales guidance and may be stretch it to 25 per cent. If that is delivered then on the Rs62 earnings per share that you have delivered this year, do you think there is a reasonable chance of BHEL delivering more than Rs80 next year?
If we can do 25 per cent growth in sales definitely Rs80 EPS is possible but what we have projected is only 20 per cent as of today. But as the quarters go by the sales reach a higher base, it becomes more difficult. Moreover, the new capacity will be added only by December.
But if the trend continues in the Q3 and Q4 we can go to 35 per cent level but as of today company has projected 20 per cent growth in sales and 25 per cent growth in profits. But if things go well we should land up at 25 per cent and 35 per cent respectively.