Defence public sector Bharat Electronics Ltd saw its April-June net profit slide 84 per cent year-on-year, to over Rs 19 crore compared with Rs 123 crore last year – and it was the lowest over the last many quarters. The graphs for sales and net profit margin were not too cheerful either.
Anil Kumar, Chairman and Managing Director of the Rs 5,800-crore military radars and communication devices major BEL, explains why it was so and why there is no reason to worry over the company.
What caused the tumble in BEL’s Q1 net profit vis-à-vis last year?
It was known that Q1 this year was going to be lower than the first quarter of 2011-12. The quarter was difficult, we worried from April onwards.
[The lower net] was due to the different product mix this year. There was technology transfer in certain cases. Whatever we are executing now were coming as fully finished items and had a high material content. Cost was a factor.
If you see our internal plan for Q1 for [the current] 2012-13, we had planned for [sales income of] Rs 763 crore; we have actually done better than that with Rs 779 crore.
How will it be made good?
We should not be disturbed by Q1 [numbers.] It will get corrected as we go along Q2, Q3 and towards the year-end. There are certain difficulties which we have to overcome such as material, which we should perhaps, negotiate more aggressively.
Product mix will not be a constant, it changes. Once the SKD and CKD processes for certain equipment start, and the manufacturing becomes more and more indigenous, the material content will get lower and profitability will go up. It should take a year or 18 months. It will get better and the future of the company is good.
Also material cost has gone to 78 per cent and beyond. In the HD4 tube that goes into PNVDs, for example, we have absorbed the cost of the technology transfer into the II tubes.
The cost will get amortised as we start making large numbers [3,000] of PNVDs.
What are these products?
These are passive night vision devices (PNVDs), RTS Mk II and Akash missiles (which we could not deliver because there was a problem in the consortium’s supplies to us.)
You say it is a temporary blip and not because of the vagaries of the sector you supply to.
Yes. It will get corrected to a large extent by the end of this fiscal. Our order book is quite good, Rs 25,820 crore as on July 1, 2012, that is not a major issue. The issue is only the product mix.
We could have done better, in fact.
How?
Rheinmetall Air Defence System was supplying us a few sub-systems for a Navy project; we were also developing or buying some modules. Rheinmetall has been blacklisted [in March this year] by the Government for ten years. Because of that we could not sell two fire control systems worth Rs 100 crore to the Navy in Q1. It would have added to the numbers and given better figures.
How will you get round this particular issue?
We are sorting it out, trying to find an alternative partner or we may do it ourselves.
We have put it on hold for now.
What are your concerns on the expenditure side?
The exchange rate variations. Overall from the time we got an order and now the cost has increased 17-22 per cent. It has a major impact for our company as our products consume a lot of imported material.
So we have to eat out of the value. On materials, it has gone up from 63 per cent to 78 per cent because of the high forex fluctuation from Q1 and before that..
Last year BEL suffered because its Akash missiles project partner did not supply the parts.
The supplies will be normalised this month and the next. BDL (consortium partner and fellow defence PSU Bharat Dynamics Ltd) will clear whatever is its due by Q2.
They have found indigenous and imported supplies. I don’t see any reason for worry.