BHEL Pursues Joint Venture to Manufacture Nuclear Forgings with European Firm

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Researched by Industrial Info Resources (Sugar Land, Texas)--Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (New Delhi), a state-owned heavy engineering firm, is in talks with a European firm to form a joint venture to manufacture nuclear forgings. While BHEL is yet to disclose the name of the European entity and the financial details of the proposed joint venture, the deal is expected to entail a technology transfer agreement with BHEL procuring technology from the European firm. The deal will be finalized this year. Media reports last month suggested that BHEL was in talks with Sheffield Forgemasters International (Sheffield, United Kingdom) and Kobe Steel (TYO:5406) (Hyogo-Ken) for the proposed joint venture with the possible involvement of Bharat Forge Limited (BSE:500493) (Pune, Maharashtra) as well.

As India is embarking on its ambitious nuclear program of generating 63,000 megawatts (MW) of nuclear power by 2020, Indian firms are drawing up plans to invest more than $50 billion over the next five years to establish and expand their manufacturing base in the nuclear sector. Firms such as BHEL and Larsen & Toubro Limited (BSE:500510) (Mumbai) are drawing up plans to develop local manufacturing facilities dedicated to manufacturing critical equipment for nuclear power plants that are not widely available worldwide. According to estimates provided by industry experts, India would require 700 to 800 nuclear forgings weighing 100,000 tons in the next 20 to 25 years and would need to set up at least two to three manufacturing facilities to cater to the estimated requirement for nuclear forgings.

Restrictions imposed on the country, prior to the waiver granted by the Nuclear Suppliers Group last year, restricted the inflow of technological prowess in the nuclear sector from the west. Despite having a 40- to 50-year-old atomic and space research program and a mammoth steel industry to boast of, India does not have a production unit to manufacture large open-die steel forgings and large steel castings that would meet the stringent quality standards required of nuclear reactors.

The total installed manufacturing capacity of nuclear forgings worldwide is less than 50% of the global demand. With more countries joining the clean nuclear power bandwagon, the shortfall will be more acute, making it imperative for India to manufacture the products indigenously and, thereby, economically, by saving on precious foreign exchange. Japan Steel Works (TYO:5631) (Hokkaido, Japan) and China First Heavy Industries (Qiqihar, China) are some of the largest current manufacturers of heavy forgings in the world. JSW commands 80% of the global market for large forged components for nuclear power plants with an annual capacity of four nuclear reactors and associated components that is set to triple by mid-2012.

BHEL is foraying into the nuclear power sector through a 50:50 joint venture with Nuclear Power Corporation of India Limited (Mumbai). The firms are in talks with Skoda Power (Plzen, Czech Republic), Alstom SA (EPA:ALO) (Levallois-Perret, France), and two other firms for a technology partnership. The joint venture will supply components for nuclear plants with power generation capacities of 1,600 MW, 1,000 MW and 700 MW. Last month, BHEL announced plans to set up an office in Shanghai to source nuclear castings and forgings from China. In September 2008, BHEL entered into a memorandum of understanding with Heavy Engineering Corporation Limited (Ranchi, Jharkhand), a leading manufacturer of machine tools and capital equipment for core sector industries, to set up a joint venture to manufacture castings and forgings for nuclear and supercritical power plants.

With a current order book value of $9.25 billion, BHEL is looking to register a growth rate of 30% for the next three years. It is also expecting to grow at a rate of 25% to 30% with sales at $7 billion for the current fiscal year despite the prevalent financial turmoil. The firm plans to raise its power equipment manufacturing capacity from the present 10,000 MW to 15,000 MW by the end of 2009 and further to 20,000 MW by 2012 at a total investment of $865 million. The firm has already spent $410 million of the $2.05 billion fund earmarked for organic expansion in the ongoing Eleventh Five-Year Plan period (2007-12). It recently secured approval from its board to invest $987 million in expansion initiatives in the next fiscal year, 2009-10. The firm is currently modernizing its manufacturing facilities in Bhopal, Hardwar, Hyderabad, Jhansi and Tiruchirapalli.

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