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Bhel: Good comeback but…

Jan 28, 2002

India's No. 1 engineering behemoth, Bharat Heavy Electricals Limited (Bhel), continued its journey towards recovery. Against a loss of Rs 1,980 m posted in December quarter last year, Bhel posted a net profit of Rs 802 m in December quarter 2001. The engineering major's gross sales (including excise duties) are up 16% during the quarter.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Gross sales 13,888 16,098 15.9% 35,865 41,673 16.2%
Other Income 348 288 -17.3% 1,040 1,103 6.0%
Expenditure 14,986 14,115 -5.8% 36,162 38,371 6.1%
Operating Profit (EBDIT) -1,098 1,983   -297 3,302  
Operating Profit Margin (%) -7.9% 12.3%   -0.8% 7.9%  
Interest 91 329 259.6% 144 714 394.2%
Depreciation 420 469 11.6% 1,196 1,297 8.5%
Profit before Tax -1,262 1,473   -597 2,394  
Deffered revenue exp. write off 749 580 -22.6% 1,244 1,380 10.9%
Tax -32 92   0 -1  
Profit after Tax/(Loss) -1,980 802   -1,842 1,014  
Net profit margin (%) -14.3% 5.0%   -5.1% 2.4%  
No. of Shares (m) 244.8 244.8   244.8 244.8  
Diluted Earnings per share* -32.4 13.1   -10.0 5.5  
Current P/E ratio (x)   11.4     27.0  
*(annualised)            

On a nine month consolidated basis (April - December, 2001), the company has recorded a 16% YoY growth in topline and a net profit of Rs 1,014 m (as compared to Rs 1,842 m loss last year). Bhel was hit last year by a huge jump in its staff costs. Moreover, the previous year had seen sluggish topline growth (down 12% YoY).

Bhel has raised Rs 5,000 m through issue of bonds to meet its long term funds requirements. As a result, its debt servicing cost (interest expenses) shot up this quarter. Had it not been for the higher interest burden, Bhel would have finished the quarter with an even better performance.

However, despite this recovery Bhel still has a long way to go. In the nine month period of FY00 (April - December 1999), the company had declared Rs 2,459 m as net profit. Compared to this, its profits of Rs 1,014 m in the current year's nine months, pale in comparision. Also, Bhel has had the benefit of negligible taxes in the current year. There is likelihood that going forward the tax liability will not be low.

At Rs 149 the stock trades at a P/E of 27x annualised nine month FY02 earnings. The valuations seem higher as the earnings are low. Inconsistency in performance has always been Bhel's weakness and as such its valuations are likely to remain range bound.


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