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Bhel: The see-saw continues

Nov 9, 2001

Engineering behemoth, Bharat Heavy Electricals Limited (Bhel) has posted a net profit of Rs 1,464 m in its second quarter ended September 30, 2001 as against a net profit of Rs 119 m posted in the same period last fiscal.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Gross sales 12,666 15,938 25.8% 21,977 25,575 16.4%
Other Income 421 483 14.8% 693 815 17.7%
Expenditure 12,266 14,012 14.2% 21,176 24,256 14.5%
Operating Profit (EBDIT) 401 1,927 380.8% 802 1,319 64.5%
Operating Profit Margin (%) 3.2% 12.1%   3.6% 5.2%  
Interest 28 185 567.5% 53 385 630.4%
Depreciation 389 411 5.7% 775 829 6.8%
Profit before Tax 405 1,814 347.5% 666 920 38.2%
Deffered revenue exp. write off 259 443 70.9% 495 800 61.6%
Tax 27 -92 - 32 -92 -
Profit after Tax/(Loss) 119 1,464 1125.9% 139 213 53.0%
Net profit margin (%) 0.9% 9.2%   0.6% 0.8%  
No. of Shares (m) 244.8 244.8   244.8 244.8  
Diluted Earnings per share* 2.0 23.9   1.1 1.7  
Current P/E ratio (x)   6.2     85.9  

On the face of it, the performance seems a good comeback YoY. The company's gross sales (including excise) has shot up by 26%, whereas expenditure growth was slower at a little over 14%. This helped the company post an encouraging improvement in operating margins in 2QFY02. Higher interest outgo and increased deferred revenue expenditure write off (including VRS expenses) were the only blips on the sterling 2QFY02 performance.

On a consolidated half yearly basis, Bhel managed to wipe off Rs 1.3 bn loss it suffered in 1QFY02. But then Bhel's story of late, has been of misses and comebacks. It should be remembered that Bhel had reported a huge loss of Rs 1.8 bn till the first nine months of FY01. However, in the fourth quarter of FY01 (March 2001) it recovered smartly and reported net profits to the tune of Rs 4.8 bn, finishing the fiscal year 2001 with around Rs 3 bn profit.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Raw material 5,835 6,689 14.6% 9,284 11,097 19.5%
Staff 3,174 3,692 16.3% 6,207 7,066 13.8%
Others 2,010 2,090 4.0% 3,669 3,797 3.5%
Excise duty 1,246 1,540 23.6% 2,016 2,296 13.9%
Total expenditure 12,265 14,011 14.2% 21,176 24,256 14.5%

It is this streak of inconsistency that has taken the valuation game away from this engineering major. Bhel is no doubt, India's No. 1 engineering company and the foremost supplier of power plants, but the off and on periods of the company take a toll on investor confidence.

Bhel's order book position is healthy. Orders worth Rs 53,740 m have been secured during the first six months of the current year. Order book outstanding at the end of September 2001 was about Rs 125 bn. So orders is definitely not the problem. To be fair to Bhel, the cyclicality of the power projects makes it rather difficult to give a stable performance in each quarter. However, these arguements may not go down well with investors.

At the current price of Rs 149 the stock trades at a P/E of 6x annualised 2QFY02 earnings.

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