BHEL keen to diversify revenues

Wed, 21 Apr 11:30 am

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The benchmark indices shed some of their opening gains during the previous two hours of trade as investors booked profits. Apprehension over the performance of companies during the earnings season seems to be keeping investors on the sidelines. Stocks in the realty and banking space continue to enjoy investor interest while stocks in the capital goods space are witnessing a sell-off by investors.

BSE-Sensex is trading higher by 38 points while NSE-Nifty is trading 16 points above the dotted line. BSE-Midcap Index is up by 0.9% while the BSE-Smallcap index is trading 1.4% above yesterday’s closing. The rupee is trading at 44.38 to the US dollar

As per a leading daily, BHEL is looking to form four to five joint ventures by the end of 2010 to diversify into the railway business. This is a step taken by the state owned heavy industry giant to reduce its dependence on the power equipment business. As per a company official, the Indian Railways will have a stake of 26% in these joint ventures while the remaining stake will be held by BHEL and its third partner. These joint ventures will bid for railway projects for manufacturing of diesel and electric locomotives, railways ancillary, electrical multiple units (EMU) and coaches, including those for metro networks coming up in various urban cities.

One project which the company is set to bid for is the setting up of a facility at Kanchrapara in West Bengal for the manufacture of EMU and coaches. This project will supply 500 units to the railways every year and already around 150 acres of land has been earmarked for this factory. This is a positive step for BHEL as it would help the company diversify its revenue stream.

As per a leading daily, the average gas tariff charged by for GAIL India for its piped gas is likely to rise by 40% next year. This is a result of the Petroleum and Natural Gas Regulatory Board (PNGRB) provisionally approving the new gas carriage charges. The new charges of Rs 53.65 per tcf (thousand cubic feet) is an increase of 88% over the old rates and will be applicable on GAIL’s parallel pipeline being laid along the existing 1,100 km line in northern and western India. However, the regulators have lowered the tariff on GAIL’s old pipeline by 11% to Rs 25.46.

According to regulations, tariffs are set on the basis of a fixed return on the amount invested by companies (usually 12% per year). In case of the new pipeline, GAIL has claimed an investment of Rs 91.6 bn while PNGRB has approved an investment of Rs 36 bn for the old pipeline. The fear was, due to supply of gas to fertilizer plants, the tariff would be reduced. However, an increase in tariff rates is a positive surprise for the company. A note of caution in this case is that the approval of tariffs for the new pipeline is provisional and will be fixed on the basis of actual investment made. Moreover, in the past the Petroleum Ministry has overturned decisions by PNGRB. We would like to wait and watch to see if such a thing happens in this case as well.