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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)2QFY022QFY03Change1HFY021HFY03Change
Net Sales14,39912,891-10.5%23,27921,661-7.0%
Other Income48356416.7%815799-2.0%
Operating Profit (EBDIT)1,4841,257-15.3%5181,02597.8%
Operating Profit Margin (%)10.3%9.8% 2.2%4.7% 
Interest 185120-35.1%385238-38.2%
Profit before Tax1,3721,232-10.2%120684469.0%
Profit after Tax/(Loss)1,4641,085-25.9%213596180.3%
Net profit margin (%)10.2%8.4% 0.9%2.8% 
No. of Shares (eoy) (m)244.8244.8 244.8244.8 
Diluted Earnings per share*23.917.7 1.74.9 
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)2QFY022QFY03Change1HFY021HFY03Change
Raw material6,6895,467-18.3%11,0979,038-18.6%
Deffered revenue expenditure443387-12.6%800770-3.8%
Total expenditure12,91411,634-9.9%22,76120,635-9.3%

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)1QFY032QFY031HFY03
% of sales61.3%69.4%66.1%
% of sales38.7%30.6%33.9%
Total gross revenues10,05415,00325,057
EBIT break-up
(Rs m)1QFY032QFY031HFY03
EBIT as % of power sales20.8%24.8%23.3%
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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