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BHEL FY09 prov. results: Our view - Views on News from Equitymaster
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BHEL FY09 prov. results: Our view
Apr 9, 2009

BHEL recently announced its provisional results for FY09. While its sales saw a rise of 29% YoY, net profits were up by a mere 6% YoY. One of the major reasons for this was the provisions it made during the year for wage revisions, as also the volatility in raw material prices . If it were not for the provision for wage revision, the company’s net profit would have increased by 25% YoY. The company saw a decent 19% YoY rise in order inflows during the year which speaks well of the stability of its business considering the slowdown witnessed during the period. It ended the year with an impressive order book of Rs 1,170 bn to be executed in the years to come. Further, the management expects sales to grow by 20% to 25% in the current fiscal (FY10).

Capacity Addition: BHEL is currently in the process of scaling up its power equipment manufacturing capacity from 10,000 MW per annum to 15,000 MW per annum expected to be reached by the end of this calendar year. It aims to further take this up to 20,000 MW per annum by FY12.

Expansion of capabilities: FY09 saw the company make maiden forays into some segments of the supercritical and nuclear technology businesses. This included orders for 800 MW supercritical boilers and 660 MW supercritical turbine generator sets as well as entire supercritical thermal power plants. The nuclear segment too had its share of ‘first times’ with BHEL’s first ever order for nuclear steam generator sets of 700 MW rating. It also signed an agreement with GE-Hitachi for further ventures in the nuclear sector. It has also signed a joint venture with Bharat Electronics for a venture in the solar photovoltaic business to manufacture silicon wafers, solar cells and modules.

The company’s R&D spend for FY09 stood at Rs 6.5 bn which is 40% higher compared to the previous year providing further testament of the company’s aggressive attitude towards technology development. Also, BHEL is planning to invest another Rs 8 bn towards R&D during FY10 which would be about 25% higher as compared to its spend in FY09.

At the end of the year, the installed capacity of BHEL supplied power generation equipment in India stood at 87,646 MW, which is 64% of the country’s total installed capacity. Despite that BHEL built sets contributed 73% of the power generated in the country during the year. That speaks volumes about the quality of the company’s equipment in terms of higher than average PLF and low down time.

What to expect?
As per the management, the company is well on its way to becoming a Rs 450 bn turnover company by FY12. At the current price of Rs 1,518, the stock is trading at a multiple of 19.1 times our estimated FY11 earnings per share. At this point in time, we maintain our view on the stock from a 2 to 3 years perspective.

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