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BHEL: Another stellar quarter of growth - Views on News from Equitymaster

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BHEL: Another stellar quarter of growth
Oct 29, 2010

BHEL declared its 2QFY11 results. The company has reported 26% YoY growth in sales while its net profits have grown by 33% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow by about 26% YoY in 2QFY11. Growth aided by a 28% YoY increase in the company’s ‘Power’ segment.
  • Operating margins expand by 0.7% YoY during the quarter owing to a fall in both staff costs as well as other expenditure (as percentage of sales).
  • Net profits increase by a healthy 33% YoY during the quarter. This is mainly due to the expansion in operating margins as also a lower effective tax rate.


Financial performance snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 66,252 83,284 25.7% 122,209 148,081 21.2%
Expenditure 54,957 68,582 24.8% 105,752 124,943 18.1%
Operating profit (EBDITA) 11,295 14,702 30.2% 16,457 23,138 40.6%
Operating profit margin (%) 17.0% 17.7%   13.5% 15.6%  
Other income 2,978 3,242 8.9% 6,007 6,091 1.4%
Interest 45 59 31.1% 88 98 11.4%
Depreciation 934 1,341 43.6% 1,895 2,610 37.7%
Profit before tax 13,294 16,544 24.4% 20,481 26,521 29.5%
Tax 4,715 5,121 8.6% 7,196 8,422 17.0%
Profit after tax/(loss) 8,579 11,423 33.2% 13,285 18,099 36.2%
Net profit margin (%) 12.9% 13.7%   10.9% 12.2%  
No. of shares       489.5 489.5  
Diluted earnings per share (Rs)*         97.9  
P/E ratio (x)*         25.3  
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • The 26% YoY growth in BHEL’s topline during 2QFY11 was largely a result of a robust performance from its ‘power’ segment, which grew sales by 28% YoY. The ‘industry’ segment grew at a slower pace of 16% YoY during the quarter. The company's order book at the end of the quarter stood at Rs 1,540 bn (a growth of 22% YoY). This is 4.7 times its FY10 sales.
    Segment-wise performance
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Power            
    Revenue 54,283 69,650 28.3% 99,971 123,649 23.7%
    % share 77% 79%   77% 79%  
    PBIT margin 20.7% 21.2%   19.5% 20.6%  
    Industry            
    Revenue 15,954 18,577 16.4% 29,279 33,340 13.9%
    % share 23% 21%   23% 21%  
    PBIT margin 17.0% 16.4%   14.8% 14.3%  
    Gross Total*            
    Revenue 70,237 88,227 25.6% 129,250 156,989 21.5%
    PBIT margin 19.8% 20.2%   18.4% 19.2%  
    * Excluding inter-segment adjustments

  • BHEL’s operating margins expanded by 0.7% YoY during 2QFY11. This was largely due to a fall in staff costs as well as a fall in other expenditure (as a percentage of sales).

  • The expansion in operating margins along with a lower effective tax rate led BHEL to post a growth in net profits of about 33% YoY during to quarter, much higher than its topline growth of 26% YoY. However, other income grew by just 9% YoY, and depreciation charges saw a surge of 44% YoY. These two factors took away from the bottomline performance which would have otherwise been even better.

What to expect?
At the current price of Rs 2,481, the stock is trading at a multiple of 18.9 times our estimated FY13 earnings. Considering the stock’s expensive valuations, we reiterate our negative view on the stock. (ResearchPro may click here)

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Jul 18, 2018 03:37 PM

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