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BHEL FY10 provisional results: Our view - Views on News from Equitymaster
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BHEL FY10 provisional results: Our view
Apr 6, 2010

BHEL recently announced its provisional results for FY10. Its sales grew by 21% YoY. Profit before tax was up 31% YoY. Net profits however saw a much larger rise of 37% YoY. This is seemingly due to a lower effective tax rate during the year. Order inflows during the year remained almost flat at about Rs 590 bn. However, the company's order book at the end of the year stood at 1,438 bn (a growth of 23% YoY). This is 4.2 times its FY10 sales. It should be noted that BHEL commissioned about 6,500 MW of power plant equipment during FY10. This is much lower than the 10,000 MW of capacity that it had at its disposal.

Capacity addition: BHEL has completed its long awaited capacity expansion to 15,000 MW per annum. It aims to further take this up to 20,000 MW by FY12. It also set up a plant to manufacture super critical equipment during the year. A plant for high rating transformers was also set up during the year. Further, in a bid to improve its erection capabilities at various project sites, the company procured 31 new high capacity cranes.

Expansion of capabilities: BHEL ventured into the supercritical business in FY09. In FY10, it won its first supercritical order. It was for a capacity of 1,980 MW for the Jaypee Group. It also signed a technology transfer agreement with Sheffield Forgemasters of UK for manufacture of large size forgings for high rating equipment. It also upgraded its technology for control & instrumentation for power plants through a collaboration with Metso Automation, Finland. BHEL also entered into partnerships with global majors like Toshiba, Alstom & GE for technology transfer in the transmission and transportation sectors.

The company's R&D spend for FY10 stood at Rs 7.9 bn. This is higher by 14% YoY. R&D is an essential part of the company's operations. Thus it is of tremendous long term strategic importance to BHEL. In FY10, the company spent 2.3% of its sales towards R&D.

At the end of the year, BHEL's equipments formed 66% of India's total installed capacity. Despite this, the company built sets contributed 74% of the power generated in the country during the year. That speaks volumes about the quality of the company's equipment.

What to expect?

As per the management, the company is well on its way to earn Rs 450 bn in sales by FY12. At the current price of Rs 2,525, the stock is trading at a multiple of 22.8 times our estimated FY12 earnings. Given this, we maintain our cautious view on the stock from a 2 to 3 years perspective.

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