India's BHEL to Establish First Overseas Electrical Equipment Manufacturing Facility in Africa

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian power equipment and engineering major Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (New Delhi) has announced plans to establish the company's first overseas production facility in Africa. Earlier, BHEL had proposed to set up a manufacturing unit in the United Arab Emirates. Industry experts have observed that Africa, West Asia and Central Asia are key international markets for BHEL. The production facility in Africa will be strategically located to address demand in these markets.

Presently, Africa accounts for about $215.8 million of BHEL's export revenues. The proposed plant is expected to manufacture transformers and switchgears. This production facility is likely to be BHEL's first international manufacturing venture. Officials have indicated that the site and location of the proposed plant in Africa has not been finalized. BHEL is in discussions with several African nations to identify the location for the project.

BHEL manages exports and international trade through regional centers in Indonesia and Dubai. The production units in India cater to demand from 70 countries for power generation equipment in the thermal, gas, and hydropower sectors. The company has set a revenue target of $2.22 billion from its global exports business by 2012. Around 15% of BHEL's revenues come from international markets. In 2008-09, BHEL's international business increased 41% year over year, reaching $704.5 million.

BHEL has been focusing on setting up international production units and acquiring companies abroad. Earlier, the firm planned to acquire the manufacturing facilities, including railway coach and boiler production units, of Czech power equipment producer, Skoda Power AS (Plzen). The plan did not materialize, and South Korea's Doosan Heavy Industry and Construction Company (SEO:034020) (Changwon) will acquire Skoda. For additional details, see September 18, 2009, article - Doosan Heavy Industries to Acquire Skoda Power for $657 Million. BHEL decided to venture on its own and set up a production facility overseas.

There are reports of BHEL carrying out due diligence exercises to acquire a majority stake in Hungarian power engineering company Transelektro Ganz Rock Boiler and Power Equipment Company Limited (Budapest). Transelektro manufactures pressure components for power plants. The products include super heaters, water walls, headers and re-heaters. Industry experts state that the acquisition will help BHEL tap the plant-refurbishment sector in Europe.

In a related development, BHEL has announced that it will finalize the technology partner for an electricity-transmission equipment joint venture in the next three months. The company is in talks with several global energy equipment companies. The proposed joint venture will manufacture transmission equipment with capacities of 765 kilovolts (kV) and 1,200 kV.

The company is also planning to establish a wholly owned subsidiary to handle power projects. This move is aimed at consolidating its equity stake and investment in several power projects in India. BHEL holds a stake of 26% in supercritical power plants in Maharashtra, Karnataka and Tamil Nadu, and plans to develop similar projects in Madhya Pradesh and Gujarat. BHEL is currently engaged in power plant construction projects with combined capacities of 8,800 megawatts (MW).

BHEL has proposed capital expenditure plans of $517.9 million for this fiscal year, which includes increasing power-equipment production capacity to 15,000 MW by the end of this year. The company is expecting orders of about $3.31 billion this fiscal year, mainly from private power producers, state government projects and NTPC Limited (BSE:532555) (New Delhi).

In 2008-09, BHEL recorded a net profit of $655 million on revenue of $5.93 billion. By 2012, BHEL hopes to achieve revenues of $10 billion company.

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