X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
BHEL: Is it undervalued? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 22, 2000

    BHEL: Is it undervalued?

    Have the markets been fair in their valuation of Bharat Heavy Electricals Limited (BHEL), India’s largest engineering company and one of the major power plant equipment manufacturers in the world.

    The stock currently trades at a P/E multiple of 6.3, almost one fourth the P/E enjoyed by its contemporary Asea Brown Boveri (ABB). To a certain extent the bias towards ABB is justified. BHEL is a government owned PSU with employee strength exceeding 60,000 till recently. Compared to this ABB is a well known MNC, which runs a relatively lean mean operation.

    But take a look at both companies performance in FY2000. BHEL outperforms ABB in all aspects be it operating margins, net margins, returns on assets, equity or capital.

    FY00 (Rs m) BHEL ABB BHEL/ABB
    Sales 71,832 7,758 9.3
    Other Income 5,727 176 32.5
    Expenditure 60,759 7,007 8.7
    Operating Profit (EBDIT) 11,073 751 14.7
    Operating Profit Margin (%) 15.4% 9.7% 1.6
    Interest 317 61 5.2
    Depreciation 1,433 158 9.1
    Profit before Tax 9,323 532 17.5
    Tax 3,877 160 24.2
    Profit after Tax 5,446 372 14.6
    Net profit margin (%) 7.6% 4.8%  
    Return on assets (%) 7.0 5.0  
    Return on equity (%) 15.0 10.1  
    Return on capital (%) 16.1 11.6  
    Earnings per share (Rs) 21.4 9.0  
    P/E Ratio (X) 6.3 24.2  
    Market Price (Rs) 136.1 217.2  

    In FY2000 it has trimmed its workforce by about 8,000. As a result its employee costs have declined significantly and hence it has reported better operating profits in FY2000. Still its employee costs constitute almost 21% of its turnover and about 23% of its total expenditure. In future BHEL is looking at trimming its workforce further, which would enable it to become more profitable in future.

    More importantly, investments in the power sector (a major user industry) are set to surge in the next few years and BHEL is likely to benefit largely from this. Added to that, there is talk of a 51% divestment by the government, which by the way is full of hurdles.

    Even then there is no reason for this engineering and power equipment behemoth to get such a shoddy treatment on the bourses.

     

     

    Equitymaster requests your view! Post a comment on "BHEL: Is it undervalued?". Click here!

      
     

    More Views on News

    BHEL: Margins Dip into the Negative (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The company also saw order inflows of Rs 18 billion during the quarter, which was a massive 41% YoY lower than the previous year's quarter.

    BHEL: The Somber Performance Continues (Quarterly Results Update - Detailed)

    Jun 16, 2017

    BHEL has announced fourth quarter results for the financial year 2016-2017 which has seen its fortunes continue to decline.

    BHEL: Project Execution Up, Inflows Down (Quarterly Results Update - Detailed)

    Feb 13, 2017

    BHEL has announced third quarter results for the financial year 2016-2017. The company has reported an 18% YoY growth in sales, and a Rs 875 million net profit during the period. Here is our analysis of the results.

    Cummins Ltd: Domestic Revenues the Saving Grace (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The domestic economy continues to grow largely in areas which are positively impacted through continuing government investments in infrastructure.

    ABB: Large Orders Remain Muted (Quarterly Results Update - Detailed)

    Aug 2, 2017

    Decisions on government initiatives and private investments were stalled in anticipation of upcoming tax restructure.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    BHEL SHARE PRICE


    Aug 22, 2017 03:36 PM

    TRACK BHEL

    BHEL 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE BHEL WITH

    MARKET STATS