BHEL gets mauled in 1HFY01 - Views on News from Equitymaster

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BHEL gets mauled in 1HFY01

Oct 31, 2000

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.

(Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
Sales 13,465 12,666 -5.9% 25,740 21,977 -14.6%
Other Income 430 421 -2.1% 845 693 -18.0%
Expenditure 11,630 12,265 5.5% 23,624 21,176 -10.4%
Operating Profit (EBDIT) 1,835 401 -78.1% 2,116 801 -62.1%
Operating Profit Margin (%) 13.6% 3.2%   8.2% 3.6%  
Interest 40 28 -30.0% 64 53 -17.2%
Depreciation 394 389 -1.3% 784 775 -1.1%
Profit before Tax 1,831 405 -77.9% 2,113 666 -68.5%
Other Adjustments 0 259   0 495 -
Tax 551 27 -95.1% 671 32 -95.2%
Profit after Tax/(Loss) 1,280 119 -90.7% 1,442 139 -90.4%
Net profit margin (%) 9.5% 0.9%   5.6% 0.6%  
No. of Shares (eoy) (m) 244.8 244.8   244.8 244.8  
Earnings per share*       11.8 1.1  
Current P/e ratio         90.3  

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.

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