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Bhel: Strong topline trend

Jul 29, 2003

Engineering major, BHEL, has posted a 21% growth in the June quarter topline, as compared to the corresponding quarter last year. Though company recorded a net loss of Rs 111 m during the quarter, the performance seems much better as compared to Rs 489 m loss that it reported for the same quarter last year.

(Rs m)1QFY031QFY04Change
Net Sales 8,770 10,610 21.0%
Other Income235 387 64.7%
Expenditure9,002 10,565 17.4%
Operating Profit (EBDIT) -232 45  
Operating Profit Margin (%)-2.6%0.4% 
Interest118 111 -5.8%
Depreciation433 490 13.2%
Profit before Tax-548 -169 
Tax59 58 -1.7%
Profit after Tax/(Loss)-489 -111 
Net profit margin (%)-5.6%-1.0% 
No. of Shares (eoy) (m)244.8244.8 
Diluted Earnings per share*-8 -1.82 

Though the operating profit margins were very low for the quarter, it still managed to show a positive figure, which has never happened in last three years. This happened mainly due to reduction in deferred revenue expenditure, as well as a reduction in staff cost as a percentage of sales. It should be noted that Bhel has consistently pruned its personnel strength in the last 5 years (from over 62,000 in FY99 to around 47,000 currently).

(Rs m)1QFY031QFY04Change
Raw material3,571 4,771 33.6%
Staff3,390 3,652 7.7%
Others1,658 1,945 17.3%
Deffered revenue expenditure383 197 -48.6%
Total expenditure9,00210,56517.4%

Power remained the major contributor to the topline thereby accounting for over 69% of the revenues. The revenues from this sector grew by 35% YoY, indicating the opportunity arising from this sector. However, the EBIT margin from this segment shrunk to 15.3% (20.8% in 1QFY03), indicating competitive pressure. The figures of industrial sector failed to impress as the revenues from this sector have come down by around 5% YoY. The segment posted a higher loss of Rs 141 m during the quarter.

(Rs m)1QFY031QFY04Change
% of sales61.3%69.2% 
% of sales38.7%30.8% 
Total gross revenues10,05311,98419.2%

The company has received orders worth Rs 16.9 bn during the quarter. Consequently, the outstanding orderbook at the end of June 2003 stands at Rs 164 bn, which is 2.4x the company’s FY03 net sales. The orderbook is well supported by the industrial segment.

As we have said in our earlier articles, the first quarter numbers are not the true reflectors of an engineering company’s expected annual performance. Historically first quarter has been contributing around 12% to 14% of Bhel’s annual net sales. So going by the same trends, a 10% increase in the topline for FY04 seems realistic. At current levels of Rs 275, the stock is trading at forward P/E of 11.1x expected FY04 earnings.

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