India's No.1 engineering and T&D equipment supplier, Bharat Heavy Electricals Limited (BHEL), has been hit hard in the first half of FY01. The company's net profit has shrunk by over 90% to Rs 139 m in 1HFY01. The company got squeezed as a result of a 15% decline in turnover on the one hand, and and 18% decline in its other income.
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Though the company's turnover picked up in second quarter (as compared to the first quarter), it was still not able to make up as its expenditure saw a 6% rise during the 2QFY01.
The management of BHEL maintains that the decline in turnover is mainly due to delayed receipt of anticipated orders. Also, some of the projects planned have not received financial closure.
Despite this absymal performance, BHEL's order book position is healthy. The company has received orders worth Rs 31.2 bn in the first half of FY01 (up 7.4% over 1HFY00). The outstanding order book position at the end of September 2000 stands at Rs 115 bn. But most of this comprises long cycle products.
The lack of clarity in power sector reforms and the difficulties in getting the financial closure for power projects has hit the company's fortunes. Moreover, BHEL, as you can see from its order book position, operates in longer gestation period projects. The slowdown in the economy, has hit BHEL's user industry as a whole.
In addition, BHEL has not been able to improve on its operating efficiencies consistently. Though it has reduced its workforce by 8,000 employees over the last year, higher provisioning for staff costs this quarter, has deflated its operating margins.
The stock trades at Rs 104, at a P/e multiple of 90 times its annualised FY01 earnings. We had projected a 2% growth in turnover and a 6% decline in net profits for FY01. Though BHEL is likely to report a much better second half in FY01, the results declared are much below our expectations and hence, we will have to downgrade our estimates.
BHEL has announced third quarter results for the financial year 2016-2017. The company has reported an 18% YoY growth in sales, and a Rs 875 million net profit during the period. Here is our analysis of the results.
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