Political turmoil in Africa, West Asia worries Bhel

Company says regions contribute two-thirds to global order book; sees share of domestic market shrinking

Bharat Heavy Electricals Ltd (Bhel), India’s largest manufacturer of power generation equipment, fears that political unrest in West Asia and North Africa will hurt overseas orders at a time when its share of the domestic market is also shrinking.

“The orders are slowing down,” said a senior Bhel executive, asking not to be identified. “There will be some impact as they (West Asian and North African nations) are not making fresh investments. However, going forward, whenever there is peace, they will push forward their economic agenda.”

Pro-democracy protests have spread from Tunisia to Egypt, Libya, Algeria, Syria, Jordan, Yemen, Oman and Bahrain since December, throwing business in turmoil. Limited protests have also taken place in Saudi Arabia. All these countries are ruled by monarchies or military dictatorships. West Asia, Africa and Central Asia are Bhel’s main international markets.

West Asia earlier contributed around half of the state-owned firm’s overseas orders, but the three regions now contribute equally to its overseas order book. The company posted a net profit of Rs.6,011 crore on revenue of Rs.43,337 crore in the year ended 31 March. It received international orders worth Rs.3,700 crore during the fiscal, a major chunk of which was from Yemen. This fiscal, it hopes to win orders worth Rs.5,000 crore from the international market.

Bhel plans to engage with oil and gas-rich countries in West Asia as part of India’s larger strategy for the region and the move stems from the fact that these countries have over half of the world’s proven reserves of crude oil and a little over a third of global gas reserves.

“There will be impact on our orders from African and West Asian markets. The order activity has become sluggish there,” said another senior Bhel executive, also on condition of anonymity as the company is planning a follow-on public offer of shares.

The company’s focus on exports is also driven by concerns that increasing competition will drive its share of the domestic market down.

Bhel has an order book position of at least Rs.1.64 trillion and an annual capacity of 15,000 megawatts. It aims to become a $10 billion (Rs.45,000 crore)-plus firm by 2012.

“There will be a short-term impact, which doesn’t look very encouraging,” said Monish Chatrath, executive director at consultancy firm Mazars India.