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Bhel: Orderbook at Rs 135 bn

Oct 29, 2002

Engineering behemoth, Bharat Heavy Electricals Limited (Bhel) has posted an 11% YoY dip in 2QFY03 net sales. A dip in the operating margins and higher tax provisions for the quarter resulted in a 26% dip in bottomline. This performance is however better than its 1QFY03 performance where it declared a net loss of Rs 489 m. Also, on a half yearly basis, the picture looks very positive.

(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Net Sales 14,399 12,891 -10.5% 23,279 21,661 -7.0%
Other Income 483 564 16.7% 815 799 -2.0%
Expenditure 12,914 11,634 -9.9% 22,761 20,635 -9.3%
Operating Profit (EBDIT) 1,484 1,257 -15.3% 518 1,025 97.8%
Operating Profit Margin (%) 10.3% 9.8%   2.2% 4.7%  
Interest 185 120 -35.1% 385 238 -38.2%
Depreciation 411 469 14.2% 829 903 8.9%
Profit before Tax 1,372 1,232 -10.2% 120 684 469.0%
Tax -92 147 - -92 88 -
Profit after Tax/(Loss) 1,464 1,085 -25.9% 213 596 180.3%
Net profit margin (%) 10.2% 8.4%   0.9% 2.8%  
No. of Shares (eoy) (m) 244.8 244.8   244.8 244.8  
Diluted Earnings per share* 23.9 17.7   1.7 4.9  
P/E Ratio   9.0     32.9  

On a half yearly basis, Bhel has reported a 7% dip in topline, but has finished 1HFY03 with over 180% growth in bottomline. This improvement shows because in June quarter last year Bhel recorded a net loss of Rs 1.3 bn. Historically, Bhel's performance has been volatile quarter to quarter due to the inherent nature of its business. At the end of the September quarter the company's orderbook stood at Rs 135 bn. So in all likelihood, Bhel is set for a good FY03 and FY04 going forward.

(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Raw material 6,689 5,467 -18.3% 11,097 9,038 -18.6%
Staff 3,692 3,628 -1.7% 7,066 7,018 -0.7%
Others 2,090 2,152 3.0% 3,797 3,810 0.3%
Deffered revenue expenditure 443 387 -12.6% 800 770 -3.8%
Total expenditure 12,914 11,634 -9.9% 22,761 20,635 -9.3%

As per Bhel's release, 'the topline performance in September quarter was affected to a large extent by non-receipt, delayed receipt, cancellation of orders, delay in customer clearances for dispatches, export dispatches not reaching the port in time etc. Two export shipments (of sale value of Rs 840 m) which had been dispatched from the manufacturing centers to the ports, could not be shipped before 30th September '02 (they have since been shipped). These have been shown as finished goods in the quarterly results and do not form part of sales. This has affected the bottomline of the quarter, which otherwise has shown marked improvement in other operational parameters'.

The power industry contributed 66% to Bhel's topline in 1HFY03. The EBIT from the sector was a healthy 23%. However, the EBIT from other industries only 3% in 1HFY03 reflecting the difficult economic environment.

Revenue break-up
(Rs m) 1QFY03 2QFY03 1HFY03
Power 6,160 10,415 16,575
% of sales 61.3% 69.4% 66.1%
Industry 3,894 4,588 8,482
% of sales 38.7% 30.6% 33.9%
Total gross revenues 10,054 15,003 25,057
EBIT break-up
(Rs m) 1QFY03 2QFY03 1HFY03
Power 1,282 2,588 3,870
EBIT as % of power sales 20.8% 24.8% 23.3%
Industry -47 316 269
EBIT as % of industry sales -1.2% 6.9% 3.2%

The stock trades at Rs 160, a P/E of 6.9x our FY03 expected earnings. While earnings volatility is a concern, we expect Bhel to record better growth in the coming quarters.

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