Under the DJU clause, the domestic manufacturer has to furnish a guarantee from one of the collaborators, a large international technology company such as Siemens AG/Alstom.
fulfilled by BHEL and hence in its future orders, it will not need to furnish DJU which is likely to increase its gross margins.
The three conditions that need to be fulfilled include eight supercritical boilers manufactured/supplied in India by the company have achieved commercial operation; four such boilers should have achieved commercial operation for a duration of at least one year; and performance guarantee tests have been successfully completed by any two boilers.
Under the DJU clause, the domestic manufacturer has to furnish a guarantee from one of the collaborators, a large international technology company such as Siemens AG/Alstom.
In order to provide guarantees, collaborators have been taking a higher share of the orders, thus impacting the gross margins of BTG manufacturers. As of October 2016, BHEL commissioned 12 sets of supercritical boilers and 10 sets of supercritical turbine generators.
The order book of BHEL now has supercritical set contracts with DJU clauses, thus the gross margin expansion in India Rating s opinion is some time away. The execution of the new projects without DJU clause, will begin to reflect in the gross margins only once BHEL wins new projects, it said.
India Ratings notes that through this advisory, BHEL s gross margins in future projects can expand. However, the overhang of slow moving order book, high employee cost, lower ordering activity given the subdued PLFs, limited participation from the private sector and stretched working capital cycle will continue to weigh on the overall financial profile of the company.
(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)
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