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Bhel 1QFY02: Sliding again - Views on News from Equitymaster
 
 
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  • Jul 26, 2001

    Bhel 1QFY02: Sliding again

    Engineering behemoth, Bharat Heavy Electricals Limited (Bhel) has posted a net loss of Rs 1,252 m in its first quarter ended June 30, 2001 as against a net profit of Rs 20 m posted in the same period last fiscal.

    (Rs m) 1QFY01 1QFY02 Change
    Net Sales 8,542 8,881 4.0%
    Other Income 271 332 22.3%
    Expenditure 8,377 9,846 17.5%
    Operating Profit (EBDIT) 165 -966 -
    Operating Profit Margin (%) 1.9% -10.9%  
    Interest 25 200 700.0%
    Depreciation 387 418 8.0%
    Profit before Tax 25 -1,252 -
    Tax 5 0 -
    Profit after Tax/(Loss) 20 -1,252 -
    Net profit margin (%) 0.2% -14.1%  
    No. of Shares (eoy) (m) 244.8 244.8  
    Diluted Earnings per share* 0.3 -20.5  
    *(annualised)      

    The company's inability to keep a tab on its expenditure seemed to have taken the wind out of the company's financials. An 11% increase in its staff costs to Rs 3,374 m and a significant 52% in deffered revenue expenditure to Rs 357 m were the primary spoilsports. A huge jump in debt servicing costs to Rs 200 m during the quarter also contributed to this dismal performance.

    The management has clarified that the first quarter performance has been affected due to change in product mix. However, they expect it to improve during the remaining period of the year, which will witness a balanced product mix. The management expects that the impact of the higher staff costs due to VRS and the DRE to get evened out over a higher quantum of production in the balance period of the year. The management also claims that based on the current status of completion of orders on hand, the outlook for the remaining year appears to be better.

    However, all said and done this dismal performance has once again put a question on the company's operations and stability. It should be remembered that Bhel had reported a huge loss of Rs 1.8 bn till the first nine months of FY01. However, in the fourth quarter it recovered smartly and reported net profits to the tune of Rs 4.8 bn. Based on its huge turnaround in 4QFY01, there was anticipation that it was a shape of things to come.

    While it is quite likely that Bhel may come back strongly in the coming quarters, as it did in 4QFY01, the instability of performance should keep a section of investors away from the stock. To be fair to Bhel, the cyclicality of the power projects makes it impossible to give a stable performance in each quarter. One also appreciates that the rise in staff cost due to VRS is good for the long term, but given Bhel's size of operations one really wonders whether the company should start thinking in lines of HLL and prune its areas of operations.

    Based on these results we will have to downgrade our estimates of Bhel going forward. The stock trades at Rs 170, a P/e of 14 times its FY01 earnings. Bhel's 1QFY02 performance is likely to put pressure on the company's valuations in the medium term.

     

     

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