Bharat Heavy to Triple Nuclear Investments After Pact

Bharat Heavy Electricals Ltd., India's biggest power-equipment maker, plans to triple spending in nuclear components once overseas companies are allowed to supply technology and fuel under an agreement led by the U.S.

``If the nuclear deal comes through we are quite confident there will be a lot of orders in this area and we don't want to be left out,'' Chairman and Managing Director K. Ravi Kumar said in an interview at his office in New Delhi, where the company is based. ``We will invest depending on the volume.''

Bharat Heavy rose the most in five months in Mumbai on optimism the government's victory in a confidence vote last night will lead to the lifting of a ban on overseas supplies of nuclear technology. Areva SA, the world's biggest maker of reactors, and General Electric Co. may win orders when the accord between India and the U.S. is sealed, Nuclear Power Corp. of India has said.

``The orders could be divided and companies such as Areva, Siemens AG and ABB Ltd. will be involved,'' said Taina Erajuuri at Glitnir Asset Management in Helsinki, which manages $158 million in Indian assets, including Bharat Heavy. ``The government may prefer some local companies as well, like Bharat Heavy and Larsen & Toubro Ltd.''

Shares of state-controlled Bharat Heavy surged 11 percent to 1,773.35 rupees at close of trading in Mumbai. Larsen, India's biggest engineering company, rose 7.8 percent to 2,772.9 rupees.

Investment Plans

Bharat Heavy plans to spend 15 billion rupees ($351 million) in two years building plants to supply components for reactors of 1,600 megawatts capacity, Kumar said yesterday. Without the accord, Bharat Heavy will invest 5 billion rupees to build steam turbine generators and other components for 700 megawatt plants designed in India, he said.

The accord with the U.S. can generate more than $10 billion of orders for Indian companies, including Bharat Heavy and Larsen & Toubro Ltd., by 2012 if the planned projects are awarded, UBS AG analysts Suhas Harinarayanan and Pankaj Sharma wrote in a note to clients on July 10.

``We estimate Bharat Heavy's business potential at about 25- 30 percent of the contract size for the turbine generator sets and electrical equipment,'' the analysts said. They have a ``neutral'' rating on Bharat Heavy stock.

Joint Venture

Bharat Heavy will set up a 50-50 venture with state-run Nuclear Power Corp. that will supply components for nuclear plants with a capacity to generate 700 megawatts, 1,000 megawatts and 1,600 megawatts of power, Kumar said. The company will also seek overseas partners to provide technology for these plants, he said, declining to name the companies.

The company aims to expand its nuclear power-plant business because of wider profit margins, Kumar said. The gross profit margins for such plants would be as much as 30 percent, compared with about 22 percent for thermal power plants, Kumar said.

Bharat Heavy has provided 80 percent of the equipment used by Nuclear Power Corp.'s installed capacity of 4,120 megawatts. In April, Bharat Heavy agreed to set up a venture to make nuclear plants that will seek technology to make steam turbine generators of 700 megawatts or more.

Areva, GE

Areva, General Electric, Toshiba Corp.'s Westinghouse Electric Co. and Russia's atomic energy agency Rosatom are among four manufacturers of reactors that would share $14 billion of orders from India when the U.S. agreement is signed, Nuclear Power Corp. said in August.

NTPC Ltd., the nation's biggest utility, rose 5.5 rupees, or 3 percent, to 190.45 rupees. Reliance Infrastructure Ltd. surged 10.6 percent to 1,016.7 rupees. Areva T&D India Ltd., a unit of Areva, gained 79.05 rupees, or 4.9 percent, to 1,686.45 rupees.

The agreement will allow India to generate as much as 40,000 megawatts of nuclear power by 2020, sufficient to light up four cities the size of New York, from 4,120 megawatts now. Electricity demand in Asia's third-biggest economy during peak hours widened to 17 percent in the last fisal year from 14 percent a year ago.

Singh was forced to seek a vote of confidence in the nation's lower house of parliament after his former communist allies withdrew support over the accord with the U.S. The Left parties have said the nuclear agreement will weaken India's ability to pursue an independent foreign policy.

Fuel Imports

The accord will allow India to import technology and fuel without joining the 1970 Nuclear Non-Proliferation Treaty. India last week presented a nuclear inspections agreement to the United Nations' International Atomic Energy Agency, which needs to approve the plan before the government in New Delhi can push forward with expansion of power production.

The IAEA's board will vote Aug. 1 in an extraordinary meeting on whether to endorse the plan, which will give inspectors access to 14 civilian atomic reactors. The inspections agreement is a key condition for a U.S.-Indian nuclear cooperation treaty.

Nuclear suppliers have been barred from providing India with atomic technologies since it tested a nuclear weapon in 1974 without being listed as an atomic weapons state in the Nuclear Non-Proliferation Treaty.

(Source: Bloomberg)