Rising input prices are forcing companies in the country's power sector to look for new ways to bring down escalating project costs, including procuring raw materials from foreign markets.
Bharat Heavy Electricals (BHEL), the country's largest power equipment manufacturer, for instance, is plannning to seal bulk purchase deals for critical raw materials from countries like China.
“We are now planning to procure bulk supply of raw materials from overseas countries, especially countries like China, where steel is available at cheaper prices," said a senior BHEL official.
Most of the companies admit that their margins would be under pressure against the backdrop of rising raw material costs.
The prices of hot rolled coils (HRC) of steel in the country have increased from Rs 29,000 per tonne from January 1 this year to Rs 34,000 per tonne.
This price rise in addition to the rise in prices of other raw materials has led to project costs shooting up for companies like BHEL.
The power index has declined 47.4 per cent from 4,647.66 since January 1 to 2444.42 points now. The benchmark Sensex, however, has declined 30 per cent from 20,300.71 to 14,220.0 points in the same period.
The company had earlier announced its plans of setting up in-house fabrication units to cut down on rising transport costs due to the hike in the price of motor fuels.
The power transmission companies are also at the receiving end of the raw material costs. "Our project costs have gone up. Steel and aluminium are used heavily as raw materials by us for setting up infrastructure like towers and conductors," said a senior official from Power grid Corporation of India (PGCIL), the country's largest electricity transmission utility.
Experts believe that the situation might become acute in coming days because of a shortage of raw materials. The equity constraints may make the situation worse for the companies.
These concerns regarding profit margins of power companies to be hit have also caused a significant decline in the Bombay Stock Exchange's (BSE) power index, an indicator of the stock performance of power sector companies.
