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Current orderbook at over Rs 40,000 cr; expect Rs 13,000 cr more this year: MV Gowtama, BEL

Discussion in 'Indian Defence Industry' started by layman, Apr 17, 2017.

  1. layman

    layman Aurignacian STAR MEMBER

    May 1, 2012
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    In a chat with ET Now, MV Gowtama, CMD, BEL, says that BEL’s export business is 6 per cent of total turnover and the plan is to increase it to 10 per cent this year. BEL is working on the next generation tactical missile programme called quick reaction surface to air missile programme, which is a joint development between Bharat Electronics, BDL and DRDO.

    How would you characterise FY17 for BEL given that government is committed to modernise India’s defence requirements?

    We are looking forward for a much better show during FY17-18. Today we have more than Rs 40,000 crore order book and we are expecting another Rs 13,000 crore plus order requisition during the current year. We have a well proven product range which certainly all three services are looking for acquiring during this year. Last year we had about 17% growth rate and I expect this year also we continue at that growth.

    What is your current order book position and what could be the division between the expectations from domestic as well as exports going forward?

    Our order book today is above Rs 40,000 crore and during this year we expect to acquire another Rs 13,000 crore orders. Our export business is roughly about 6% of our turnover and we are planning to increase it to 10%.

    How much of your current business is your default business?

    About 80% of our business is our core area.

    So that 80% of your business which you currently get is coming to you without any competition since defence is a sensitive area, you do not have to compete for that business. It is Government of India’s requirement which flows directly to you?

    80% business is within core are but we have competition in it. There are many orders which we won over the private competition, for example, our Chennai unit is upgrading the L-70 guns, which we won that against a very stiff competition from private.

    When it comes to government order, how does the entire pricing mechanism work, is there inflation costs which is built in or your margins are fixed and then you work on a cost plus basis?

    There is no cost plus formula now. All our contracts are fixed price contracts and there is a firm negotiation that happens before signing the contract. Government permits us to have above 12.5% as the profitability for every contract. The profitability increases when we improve our efficiency factor year on year.

    There is a worry that platform delays can actually drag execution, is that a niggling and a persistent worry for you as well at BEL?
    Certainly. Even in the just concluded financial year more than Rs 200 crore worth equipment was lying inside BEL for non availability of supply of platforms from the users.

    How the top line order is related to Government of India’s defence spend and is there a direct correlation between your business, order book and Government of India’s spend?

    Yes, you can link it with the Government of India’s modernisation funds what they are releasing to the services, the defence expenditure, the defence outlay per se and our turnover is going to be directly proportional to what the government is expecting us to deliver. We have higher capacity built in already in executing some more large volume contracts.

    Analysts have been saying that the Seventh Pay Commission revision will lead to a muted EPS growth of 6% on year on year for you. What is your EPS expectation for FY18?

    We are expecting a little downward trend. The pay commission will have effect on our employee cost. We are making some provision for the first quarter already. But the negotiations are yet to start between government and the CPSEs, as well as between CPSEs and the trade union. Maybe in another four-five months we will have definite figures on hand with which we can estimate and give you guidance.

    Can you outline as percentage of your total sales what is going to be your R&D spend and how progressively that number has moved in last three years and how this will move in next two years?

    Currently, we have R&D expenditure of more than RS 700 crore and in next two years we are looking forward for R&D expenditure between Rs 900 to Rs 1,000 crore. We have initiated many programmes with DRDO and also within Bharat Electronics. One of the major programme is quick reaction surface to air missile system which the armed forces require in large numbers. BEL is investing a huge amount, nearly Rs 300 crore is provided for developing the programme.

    Has there been any indication from the government that they are looking to sell stake in the company that is BEL, something similar as was indicated for BEML?

    They are already completed 5% OFS, during the last financial year and this year they may not go for any more disinvestment in BEL.

    As percentage of your new business or as percentage of your current business, how much is coming from new offerings?

    Today, the new business is typically around 25% of our turnover, 75% is coming from the proven products which we are delivering.

    What could be that big leap for BEL? Is there a platform which you are working on? Is there a new missile project, or anything else which you are working on which really is going to move you to a different league and help you to take a different leap?

    We are working on the next generation tactical missile programme called quick reaction surface to air missile programme. This is a joint development between Bharat Electronics, BDL and DRDO. Couple of Indian private industries are also involved in this and in order to make our missiles more efficient in the future, we are working on different seekers. The present missiles like Akash they are all guided missiles. The ground electronics guide the missile towards the incoming target whereas the future missile systems are having self guidance which is fitted on to the warhead and we are working on developing couple of seeker electronics. We are closely working with various DRDO laboratories in this regard.

    GSLV Mk III likes this.

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