India’s power generation equipment and engineering heavyweight, Bharat Heavy Electricals Limited (BHEL) has continuously under performed the indices. One would have expected the company’s stock price to soar given the huge demand supply gap prevalent in the power generation and transmission business.
While nobody doubts its technical capabilities, one has the feeling that the company has spread itself too wide. It manufacturing portfolio spreads from transformers, traction motors, thermal sets, gas turbines, boilers and boiler auxiliaries, wind mills, heat exchangers, insulators, capacitors, compressors, to locomotives, oil field equipment, power devices, defence equipment, light aircrafts…..!
But this wide portfolio only seems to have become its bane. This has led to a lack of focus that comes from being a specialized company. Its public sector undertaking status has led further accentuated its inertia. The company has become a pool of talent without focus. This has also affected its operational performance. Its turnover growth has become stagnant (or even negative). Its huge structure has led to decline in its margins.
This has led BHEL to lose out on market valuations vis-à-vis small-specialized companies like ABB and Siemens. So where to from here?
Though BHEL has initiated steps to streamline operations by reducing its workforce, it is not able to address the real issues. Till now BHEL has managed to maintain its leadership position as India’s No.1 power generation equipment manufacturer (it has so far supplied generating equipment for 65% of India's total generating capacity). But this has largely been due to the fact that the National Thermal Power Corporation (NTPC) sources almost 85% of its requirements from BHEL. But once MNC power majors take active interest in India, most of their requirements might be sourced through ABB and Siemens.
So it is in BHEL’s and indeed in the government’s own interest that, either the company is put up for divestment or better still, the company should be broken into several specialized lean mean entities, which would lend it the focus it so badly needs.
BHEL has announced third quarter results for the financial year 2016-2017. The company has reported an 18% YoY growth in sales, and a Rs 875 million net profit during the period. Here is our analysis of the results.
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