We are expecting significant number of orders from thermal sector over 3-4 years: Nalin Shinghal, BHEL

“But now things are looking up significantly because as we are all aware, the thermal sector is picking up, though we all understand it is for a medium period. It is not for a long period,” says Nalin Shinghal, CMD, BHEL.

Walk us through first with a bird’s eye view of what exactly is happening to the sector because last couple of years, some would say for BHEL, they actually have been mixed.
Yes, that is true. So, if you are looking at an overview of how the business has been moving, we all know that almost three years, our primary business, we had been focusing on the thermal sector and almost for a complete three year period from August 19 till September 22 there was no orders in the thermal sector so that had affected us immensely. The material costs had been going up, steel prices, copper prices, and there have been project delays, COVID related and otherwise so that whole thing was hitting us pretty badly.

But now things are looking up significantly because as we are all aware, the thermal sector is picking up, though we all understand it is for a medium period. It is not for a long period.

But in the shorter period, we are expecting over the next two to three, four years, significant amount of orders in the thermal side. And we have made huge efforts at diversification which have started bearing fruit. So we saw the Vande Bharat order happening recently, which 80 Vande Bharat train with 35 years of maintenance that is one of our biggest orders and then of course, thermal orders are coming in.

Coal gasification is another area that we are looking at. Defence, we have got an order for 22 upgraded SRGMs so the total defence order is almost Rs 3600 crores in the last year.

So diversification is paying off and non-thermal has been 40% of our order book in the last year so that is a big change and going forward, I think this should really help us.

Okay, order book is back, diversification is evident, whether it is defence of Vande Bharat. What would be the timeline of executing this order book? What is short duration? What is long duration? And when will the real cash come back into the company?
Let me put it this way that typically our orders are long cycle orders. It is only after the second year, third year, fourth year onwards that the major cash flows start coming in. Similarly, Vande Bharat is a 78 month order which only after two years, we say we deliver the first prototype, thereafter the second prototype and then the flow start.
The defence order is about 24-25 is when our deliveries start. So 24-25 onwards, we are and you see the order we have been the nuclear order that we have got.

There also in the current year, we are ramping up and next year, major portions will start happening. So by 24-25, we should start the turnover and the things should start looking much better. Cash flow should also improve because our contract assets, a lot of the thermal projects which are in the closure phases, they will also get completed, the older projects. So that part of it also will improve for 24-25 onwards.

What I also wanted to talk about was in FY23, you had booked the highest ever orders in the defence sector. For FY24, which sector do you think is going to lead your order book?
We have already got a very major order from the railways in April itself. Now further orders we are looking at happening in thermal. The number of orders are coming in in the thermal sector so I think they will balance out. They should balance out and over a period we are looking at non-thermal becoming the largest share of our turnovers.

Most of the brokerages, they have covered their EBITDA target for FY24 and FY25. They are of the view that the transition where you will move from your traditional thermal business to the new business that will take at least three to four years. Do you think this transition, yes important, but it will not be a very swift transition?
It will certainly not be a swift transition. It is a very major transition happening. So the ordering has started happening, the delivery will follow. And yes, it will certainly take two to three years for that to be fully in place.

Also sitting on a lot of surplus land and there are a lot of government companies which have sold their surplus land SCI, BEML. Is BHEL also thinking on those lines?
You see, while we have a huge land banks, the issue really is that this is all on a right to use basis. So we do not really own it in that sense. There are some bits which we do own where we have put some proposals in place for monetisation. But the big numbers that we all talk about or hear about, those are all right to use where we will not be able to do it.

Orders which you are getting, whether it is defence or whether it is from the railways, Vande Bharat, are you getting this largely because of being a government entity and you are getting a preference or this has been won through comparative bidding?
No, all our tenders are competitive bidding. There is nothing we get on getting preference. So these are all coming through competitive bidding. Vande Bharat was very, very tough fight and we have done that.

You had to cut the prices by 12% to match the bidder?
That is right.

So then how will you make money, if you cut margins, if you cut it by 12%, that is the other part that you are getting orders but where is the money?
No, the money you see, there is a huge effort on cost optimization, on the engineering.

Engineering the entire thing, looking at our complete procurement cycle and then timely deliveries. And you see, this has a very major maintenance component where we expect substantial gains to come. So both sides we are working, there is a lot of effort going in for ensuring profitability in the delivery itself and thereafter in the services side.

The other thing is that manufacturing, the capex theme that is really the hot topic in the market right now and within the investment fraternity. Tell me how BHEL is going to play a part in the next five years? What is your long term vision, so to speak?
The entire Atmanirbhar Bharat and Make in India, that is a very major plus for us. We have been working for indigenization of our own imports. We have done a huge effort in that. And then we have worked for other PSUs, how to indigenize their import components.

And then in addition to that, we are also looking at doing non-OEM spares for the power sector. So I think this whole thing is going to really help us substantially.

Five years from now, hypothetically, if we are engaging in a similar conversation on the same channel, 2028, what we should expect from BHEL?
We should expect diversified and fast moving engineering major, which is supplying to the world and supplying spread across the sectors. I think that is what we should expect.

Triple your turnover in next five years, that is a growth of 30% looking at your diversifying so that should not be difficult?
Unfortunately, I would not give numbers because that is one thing we do not give into any numbers on the projections or any advice on that.

Without getting into a specific, I am just trying to understand that now that you are rebooting yourself, what is going to be that new normal for BHEL? I mean, I understand that the ambition and the vision is to be world class. Now, that’s a very qualitative kind of comment but if you have to be specific in terms of the linearity, you got to give a view of something?
As I said, without getting into numbers, let us look at the areas we already talked about. We talked about railway, we talked about defence. Then in addition to that, coal gasification, while thermal power is on the downturn but then we already have a target for 2030 for 100 million tons of coal gasification.

BHEL has the only proven technology for gasification of the Indian coal. And we have now commercialized, gone to the commercial scale with that. We are in the process; we have already signed an MOU with Coal India in the process of setting up a JV for that.

So that is going to be another very major sort of a business coming up. So these put together, when I say world class, the elements are in terms of the engineering capability, which you would you would agree that there are very few organizations in the country which can match BHEL’s engineering capability as well as manufacturing capability.
So quality is another very major initiative that we have taken on that. And over the last three years, we have been quality first, we have worked on a quality first initiative, which has already started paying us dividends.