New Delhi: Bharat Heavy Electricals Ltd (BHEL), the state-owned blue-chip power generation equipment manufacturer, is hoping to leapfrog into the future with a lithium ion battery plant.
But before it can move forward, the public sector behemoth will have to shake-off its disastrous recent past.
BHEL, which heralded the era of indigenous heavy equipment manufacturing in the country almost 55 years back, is today a stark example of yet another public sector giant whose heydays are history.
In the last four years alone, its turnover has fallen 27 per cent — to Rs 27,850 crore in 2017-18 from Rs 38,389 crore in 2013-14.
Its net profit too has seen a sharp 77 per cent drop during this period — to Rs 807 crore in 2017-18 from Rs 3,460 in 2013-14.
In between, it even registered a loss of Rs 710 crore in FY16, just a year after it posted a profit Rs 1,419 crore.
This decline is also reflected in the performance of the BHEL share in the stock markets.
The company’s market capitalisation, a key indicator to assess its value, has shrunk significantly — from Rs 49,062.14 crore on 30 September 2014 to less than half at Rs 22,198 crore as of 5 March 2019, or a 55 per cent fall.
Three BHEL officials, including one still with the PSU, told ThePrint on condition of anonymity that faulty diversification, expanded workforce, altered requirements of market forces and the very public sector characteristic of the company have impacted its efficiency and bottom line.
A report by the Comptroller General of India (CAG) in 2017 had pointed out that it was imperative for BHEL to enhance its competitiveness through cost reduction to maintain the growth momentum.
ThePrint reached BHEL chairman and managing director Atul Sobti and the firm’s spokesperson for comment but there was no response until the time of publishing this report. It will be updated when they respond.
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Lack of diversification
In its report, the CAG had said adequate and effective diversification into areas which were profitable was not done by the company and this led to a sharp decline in its turnover and profitability.
It also highlighted that while the company was quick in identifying the problem areas and the changes required, it failed in their resolution.
For the period 2012-17, BHEL put in place ‘strategic plan’ targets with focus on diversification and innovation to cope with the changing times and the resultant challenges. However, it was poorly implemented.
Mismanagement of manpower
“Rationalisation of manpower according to level of operation was essential to maintain margin, competitiveness and business growth as manpower cost constituted significant component of the Company’s expenses,” the CAG report had said.
It noted that despite slowdown in power sector since 2010-11 and dampening investment sentiments, BHEL inducted 9,346 employees in the calendar year 2011 and 2012 as against retirement of 5,844 employees during this period.
As a result, the percentage of employee cost to turnover increased consistently from 11.04 per cent in 2011-12 to 20.84 per cent in 2015-16.
A senior BHEL official who retired recently said, “For BHEL, market forces and requirements changed but it failed in diversifying appropriately and in a timely manner.”
The company has also suffered for being in the PSU framework, said the former official on condition of anonymity.
“There have been problems in efficient decision-making required to make quick changes. When you are a PSU, you are bound by so many parameters that often are detrimental,” added the former official.
BHEL’s annual report of 2017-18 said that after witnessing a declining performance trend up to 2015-16, the company “gave utmost priority to expeditious execution of orders coupled with strict cost control, efficient utilisation of resources through consolidation, and enhancing speed of response through simplification”.
However, Pranav Haldea, managing director, Prime Database, said, “The problem is not just with BHEL but most PSUs. The decision making process is slow and most of them lack the required governance standards, red tape-ism still exists.
“Besides, now they have to face intense competition with more and more companies coming to India and trade between countries going up,” added Haldea.
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