Bharat Forge, Areva to Develop $200 Million Nuclear Equipment Manufacturing Facility in India

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Researched by Industrial Info Resources (Sugar Land, Texas)--Bharat Forge Limited (BSE:500493) (Pune, Maharashtra), India's leading forging company, and global power equipment manufacturer Areva SA (EPA:CEI) (Paris, France) have signed an agreement to develop a nuclear equipment manufacturing facility in India. According to reports, the joint venture has identified Mundra and Dahej in Gujarat as possible locations. The final decision is expected to be taken shortly.

About 50 acres of port-based land will be required for the $200 million project. Upon commencing operations, the plant will manufacture equipment for thermal and nuclear power plants in India. Nuclear equipment also will include manufacture of pressurized heavy water reactors.

In January this year, the two companies agreed to build a state-of-the-art forging unit. The locations identified were Dahej and Mundra. The 14,000-ton, open die-forging press, which is expected to be operational in 2012, will supply heavy stainless steel forgings to the local market and address requirements for other products, such as components for power plants, steel plant rolls, generator rotors and turbines. Project officials have indicated that the nuclear equipment manufacturing facility will be located in the same site as the proposed forging facility.

Areva is developing the Jaitapur nuclear power park in Maharashtra for Nuclear Power Corporation of India Limited (NPCIL) (Mumbai). The project will consist of six units of European pressurized reactors, each with a capacity of 1,650 MW.

Areva posted revenues of $14.34 billion for the first nine months of 2009, a year-on-year increase of 6.4%. This includes revenues of $10.35 billion from international markets, which accounted for 72% of the total income. As of September 30, 2009, Areva's order backlog stood at $70.37 billion, a year-on-year growth of 22.3%. The company's nuclear equipment business grew 27.5% year on year, while revenues from the reactor division during the first nine months of 2009 increased 2.3% year on year to $3.32 billion.

Bharat Forge, part of the $2.4 billion Kalyani Group, recently received clearance to proceed with the proposed $150 million qualified institutional placement to raise money for new projects. The funds will be utilized for developing Bharat Forge's non-automotive business. As a result of the economic slowdown, the company's global and domestic automotive business witnessed a sharp decline. In the first quarter of 2009, Bharat Forge's consolidated revenues dropped 50% to $129.7 million. The company is hence shifting focus to the non-automotive business, which includes transportation, energy, capital goods and oil. Experts indicate that this move is expected to help Bharat Forge take advantage of the potential in the non-automotive sector and decrease risk in the company's existing business.

Company officials are confident that the non-automotive business, which presently contributes about 28% to the company's revenues, will account for 50% of the total income in the next three to four years. The operating margin in this sector is reportedly 4% to 5% higher than in the automotive business. Experts have observed that Bharat Forge's recently established ventures with Alstom SA (EPA:ALO) (Levallois-Perret, France), NTPC Limited (BSE:532555) (New Delhi), and Areva are the first steps in this direction.

In a related development, the Central Electricity Authority (New Delhi), in a bid to boost power equipment manufacturing capacity in India, has recommended a waiver of import duties on supercritical power equipment manufacture. Several Indian and foreign firms have formed joint ventures in this sector. The proposal aims to waive duties of about 22%, which includes customs and additional customs duties of 7.5% and 4%, respectively; a countervailing duty of 8%; and an educational tax of 2%. Presently, power equipment manufacturers have to invest about $310,625 to set up a manufacturing facility of 1 MW capacity. If the proposal is approved, the investment is expected to be reduced considerably.

India, which has an installed nuclear power generation capacity of 4,120 MW, aims to develop 40,000 MW of additional capacity by 2020. NPCIL, which has a cash surplus of nearly $2.6 billion, will be able to construct only about 10,000 MW of additional nuclear power generating capacity. Private sector investments also are critical for expansion of this sector in the future. Indian energy companies, including NTPC, GMR Energy Limited (Bangalore, Karnataka), Jindal Steel and Power Limited (BSE:532286) (New Delhi), Tata Power Company Limited (BOM:500400) (Mumbai), and Vedanta Resources plc (LSE:VED) (London, England), have expressed interest in being part of India's nuclear power generation sector.

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