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BHEL: Power segment suffers

Jul 27, 2011

BHEL has announced first quarter results of financial year 2011-2012 (1QFY12). The company has reported 10.0% YoY growth in sales while its net profits have grown by 22.1% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow by about 10.0% YoY in 1QFY12. Growth aided by a 19.1% YoY increase in the company's 'Industry' segment. However, the 'Power' segment recorded a muted 7.6% YoY growth during the quarter.
  • Operating margins expand by 0.7% YoY during the quarter owing to a fall in staff costs as a percentage of sales.
  • Net profits increase by 22.1% YoY during the quarter. This is mainly due to the expansion in operating margins and rise in other income partially offset by increase in interest and depreciation expenses.
  • The company is contemplating a follow-on public offer (FPO) by the end of October. It may be noted that in the last quarter Government (majority shareholder) had decided to divest 5% of its stake in the company through FPO.
  • The company plans to incur a capex of Rs 12 bn in the current fiscal.

Financial performance snapshot
(Rs m) 1QFY11 1QFY12 Change
Sales 64,797 71,257 10.0%
Operating income  1,213 1,458 20.2%
Expenditure 56,360 61,583 9.3%
Operating profit (EBDITA) 9,650 11,132 15.4%
Operating profit margin (%) 14.9% 15.6%  
Other income 1,635 2,487 52.1%
Interest 38 88 131.6%
Depreciation 1,269 1,709 34.7%
Profit before tax 9,978.0 11,822.0 18.5%
Tax 3,301 3,667 11.1%
Profit after tax/(loss) 6,677 8,155 22.1%
Net profit margin (%) 10.3% 11.4%  
No. of shares   490  
Basic & Diluted earnings per share (Rs)   16.66  
P/E ratio (x)*   14.8  
* On a trailing 12-months basis

What has driven performance in 1QFY12?
  • The 10.0% YoY growth in BHEL's topline during 1QFY12 was largely a result of a robust performance from its 'Industry' segment'. The sales from the 'Industry' segment increased 19.1% YoY while the 'Power' segment grew at a modest pace of 7.6% YoY during the quarter. The overall revenue growth was impacted as new systems were introduced for clearances at various ports. As a result, imported inventory was stuck in the clearance process thereby impacting sales.

  • The order intake during the quarter stood at Rs 24.7 bn. Despite a slowdown in order intake management maintains its full year target of 10% growth in order book. It has also reiterated its revenue growth targets for the fiscal.

    Segment-wise performance
    (Rs m) 1QFY11 1QFY12 Change
    Revenue 53,733 57,803 7.6%
    % share 79% 78%  
    PBIT margin 19.9% 16.5%  
    Revenue 13,879 16,529 19.1%
    % share 21% 22%  
    PBIT margin 13.9% 22.6%  
    Gross Total*
    Revenue 67,612 74,332 9.9%
    PBIT margin 18.7% 17.8%  
    * Excluding inter-segment adjustments

  • BHEL's operating margins expanded by 0.7% YoY during 1QFY12. This was largely due to a fall in staff costs as well as a fall in raw material expenses partially offset by increase in other expenses (as a percentage of sales).

  • The expansion in operating margins along with a rise in other income led BHEL to post a growth in net profits of about 22.1% YoY during to quarter.

What to expect?
At the current price of Rs 1,858, the stock is trading at a multiple of 11.1 times our estimated FY14 earnings. The company is sitting on a healthy order book of Rs 1,596 bn at the end of 1QFY12. However, as majority of the backlog caters to the power segment execution worries remain. Nonetheless, we believe that most of the concerns are already factored into the price. As a result we maintain our positive view on the stock.

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