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BHEL: A preview… - Views on News from Equitymaster
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  • Jul 28, 2003

    BHEL: A preview…

    BHEL, the largest engineering company in India, is going to declare its June quarter results tomorrow. Though the first quarter numbers are not the true reflector of an engineering company’s expected annual performance, still we have made an attempt to look in the past and see how this company has fared in same quarter in previous years as well as in FY03.

    Let’s start with FY03…

    (Rs m) FY02 FY03 Change
    Net Sales 68,798 69,782 1.4%
    Other Income 1,867 2,284 22.3%
    Expenditure 59,375 60,422 1.8%
    Operating Profit (EBDIT) 9,423 9,360 -0.7%
    Operating Profit Margin (%) 13.7% 13.4%  
    Interest 970 526 -45.8%
    Depreciation 1,692 1,878 11.0%
    Profit before Tax 8,628 9,240 7.1%
    Deffered revenue exp. write off -2,000 -1,535 -
    Tax 1,949 2,534 30.0%
    Profit after Tax/(Loss) 4,679 5,171 10.5%
    Net profit margin (%) 6.8% 7.4%  
    No. of Shares (m) 244.8 244.8  
    Diluted Earnings per share* 19.1 21.1  

    In FY03, Bhel had reported just over 1% topline growth and nearly 11% net profit growth. Due to Iraq war the topline of the company got a big hit and it was not able to ship orders worth Rs 2 bn. But what sounds most positive about this company is that, it had a huge orderbook of Rs 158 bn by the end of FY03, which is 2.3x FY03 net sales.

    The segmental break-up of the revenue shows that power contributes around 66% of Bhel’s revenues and the remaining comes from industrial sector. The trend is expected to continue in the future as well. Moreover, with the reforms introduced by the recent electricity bill, investments are expected to come both in generation and distribution areas, and Bhel being the biggest player in this area is expected to benefit the most.

    Let’s see how this company has been doing in the first quarter in past years.

    (Rs m) 1QFY01 % of FY01 1QFY02 % of FY02 1QFY03 % of FY03
    Net Sales 8,542 14.2% 8,881 12.9% 8,770 12.6%
    Other Income 271 11.2% 332 17.8% 235 10.3%
    Expenditure 8,377 15.0% 9,846 16.6% 9,001 14.9%
    Operating Profit (EBDIT) 165 4.0% -966   -232  
    Operating Profit Margin (%) 1.9%   -10.9%   -2.6%  
    Interest 25   200   118  
    Depreciation 387   418   434  
    Profit before Tax 25   -1,252   -548  
    Profit after Tax/(Loss) 20   -1,252   -489  
    Net profit margin (%) 0.2%   -14.1%   -5.6%  
    No. of Shares (eoy) (m) 244.8   244.8   244.8  
    Diluted Earnings per share* 0.3   -20.5   -8.0  

    Historically, Bhel's performance has been volatile quarter to quarter due to the inherent nature of its business. The percentage contribution of 1Q to the topline has remained low (between 12% to 14%). The reason for that can be that Bhel executes large projects and earnings are recorded as and when these projects actually get finished. The trend may get carried on to this quarter also, but this should not affect the overall buoyant expectations for FY04.

    The management is confident of attaining about 10% growth in topline in FY04. It also expects its outstanding orderbook to reach the Rs 200 bn mark by the year-end. The company is also confident of achieving its export target of 15% of revenues in FY04. All these are therefore good signs for the company going forward.

    At the current level of Rs 275 the stock is trading at the P/E multiple of 13x FY03 earnings. As per our FY04 projections, the topline is expected to grow by around 7% and the stock trades at a forward P/E of 11.1x.



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