• OUTLOOK ARENA
  • VIEWS ON NEWS
  • OCTOBER 27, 2003

BHEL: What is expected?

BHELís stock price has witnessed an appreciation of 150% in last 10 months mainly due to increased orderbook and good growth prospects for the company. BHEL is about to announce its 3QFY04 results on 29th October 2003. In this context, consider what is expected in 2QFY04.

Being an engineering company, BHEL derives a larger share of revenues in the last quarter of a fiscal year in line with a completion of a contract (40% of revenues). As a result, first half results do not fully represent the fundamental improvement in order book position. In this context, first half has contributed to just around 30% to 35% of the total revenues for BHEL in the last three years.

Consider the 1HFY03 performance first. The topline performance of the company declined due to delayed shipments and order cancellation. However, both operating as well as net profit margins improved constantly, as company has reduced its employee strength by around 15% over last three years. as a prelude to 1HFY04 results, what happened in 1QFY04 is also of significance. In 1QFY04, BHEL managed to post impressive results as the topline grew by around 21% YoY and it managed to reduce its net losses for the quarter by around 76%.

The company has witnessed strong order inflows over last three years (CAGR of 15%). The order backlog of the company stood at Rs 164 bn by the end of 1QFY04. According to companyís press releases, it has received orders worth Rs 42 bn in last three months. In FY03, the company's export order inflow stood at Rs 14.6 bn, up by 82% YoY The company is targeting to increase its export contribution from current 13.5% to 17% over next five years. In order to strengthen its financial muscle, BHEL has entered into joint venture with Export-Import Bank of India to float a financial services company, which will take up the funding aspect of BHELís overseas projects. This step will help BHEL to bid for higher value international contracts.

Apart from its traditional business, BHEL has joined hands with NTPC for running and maintenance jobs of power plants, besides EPC and other jobs in upcoming power projects. It will further add another stable source of revenues for the company. However, this aspect is of long-term in nature.

At the current price level of Rs 423, the stock trades at P/E multiple of 16.2x FY04E earnings. BHEL derives 66% of the revenue from power sector. With power companies (both private and public) expected to add capacities, BHEL is likely to benefit. RBI has already issued bonds to public sector power generation units towards outstanding dues of SEB (State Electricity Board). NTPC is also planning to add another 20,000 MW by 2012. Looking at the BHELís track record or bagging 85% of the contracts floated by NTPC, BHEL could benefit. However, we expect a lower share of NTPC orders in the future owing to competition. Looking at the good 1QFY04 performance and the growing orderbook size, we expect that company to show better results for FY04.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407