Capital goods majors such as Bharat Heavy Electricals Ltd and Larsen & Toubro are at the receiving end of the negative investment sentiment in the power sector,coming in the wake of continuing worries on the fuel front as well as funding woes.
The Rs 43,000 crore BHEL,which is in the process of steadily ramping up equipment manufacturing capacity over the last five years,is suddenly faced with a sharp drop in order inflows. With orders down to a trickle in the last nine-months,advances that come in at the time of new order bookings have suddenly dried up,translating into a drop in cash balances for the countrys largest power equipment firm.
In the first nine months of 2011-12,BHEL has managed to book only two orders for coal-fired boiler and turbine package during the first three quarters of the fiscal. On top of that,a large private sector order worth an estimated Rs 5,800 crore got cancelled last quarter. As a result,the companys cash balance at the end of the December quarter was down to Rs 5,000 crore.
During the corresponding period in 2011,the companys net current assets were estimated at about Rs 14,100 crore,of which cash was close to Rs 8,000 crore.
While it may be sitting pretty on a total order book of Rs 1,46,541 crore,the main worry for the equipment major is the rapid deterioration of the upbeat sentiment in the power sector less than three years back,when the firm was under tremendous pressure to up capacity to meet burgeoning demand from power project developers.
All capital goods manufacturers particularly from heavy electrical equipment sector are badly affected by current business environment. Nevertheless,we have strong order book as of now but we cant be left untouched by negative sentiments of our customers and investors, BHEL chief BP Rao said at a recent analyst meet.
Private sector engineering major L&T too is has been forced to cut its order book guidance. A slowdown in orders this year would mean lower revenues in the next couple of years. L&T has already opened up its situation rooms,letting section heads innovate on what to do with idling capacities in sectors such as power.