You could be excused for thinking B Prasada Rao heads a railway equipment manufacturing company. As we settle into our meeting, bolstered by steaming cups of filter coffee, he delves deep into the technologies that go into making different types of rail locomotives. The talk then shifts to a ₹1,000 crore investment in a greenfield facility at Bhilwara, Rajasthan, to make electrical multiple units (EMUs) and then to the opportunities in the urban metro rail market. All very interesting, but we are in the office of the chairman and managing director of Bharat Heavy Electricals (BHEL) and what is conspicuous by its absence in Rao’s conversation is a discussion on power equipment, the ₹50,015-crore public sector undertaking’s mainstay.
It’s a telling omission. BHEL is India’s largest power equipment manufacturer, with a 57% share in total installed generating capacity contributing 69% to the total power generated; at ₹39,577 crore in FY13, the power business accounted for nearly 80% of the maharatna’s turnover. But now, there are plans to change that. In the next four-five years, BHEL wants to increase the share of non-core business from the current 20% to 30% of revenue and by FY22, that is, the next eight years, wants to take it to as much as 50%. The contribution of the locomotive sector, says Rao, will then increase “from the current 4-5% to 10% of turnover”. It’s a dramatic change and one driven as much by the declining prospects in BHEL’s bread-and-butter business as by growing opportunities in the non-power space. How does the public sector behemoth plan to go about this shift and, more importantly, will it work?
First, though, a little background on what’s been happening in the power business. From its inception in 1964 till the mid-2000s, BHEL enjoyed a virtual monopoly in a highly profitable business, supplying power equipment to state and central power utilities. In FY13, though, for the first time in 11 years, the PSU posted a 6% drop in profit after tax and stated it would miss its FY17 revenue target of ₹1 lakh crore. And in Q1FY14, it posted net profit of ₹465.43 crore, nearly 50% lower than the ₹920.90 crore in Q1FY13.
But, truth be told, the business started losing power much earlier. When Rao came on board in O