BHEL: Powerful position

BHEL: Powerful position

A strong order book and better execution helped Bharat Heavy Electricals Ltd (BHEL) report a robust 46.3 per cent y-o-y growth in revenues at Rs 10,540 crore for the March 2009 quarter. Since BHEL maintains a raw material inventory of six-nine months, it did not gain from the decline in metal prices seen in recent months; its raw material cost for the quarter was up nearly 80 per cent. As a result its opm dropped by over 300 basis points y-o-y to 18.5 per cent. However, BHEL could reduce other expenses and employee costs by 20 per cent each even as it made provisions for wage revisions. At the net level, profits grew 21 per cent to Rs 1,347 crore.

For 2009-10, margins could improve by 200-250 basis points on the back of lower commodity prices and the absence of provisioning for wage revisions. The benefits of increased capacity (up 60 per cent to 10,000 Mw in March 2009) will also help. Besides, BHEL is expanding its vendor and sub-contractor base to strengthen its supply chain, all of which put together should lead to better economies of scale.

Analysts expect revenues to grow as 22-25 per cent and net profit to go up 30 per cent in 2009-10. BHEL’s order backlog was strong at Rs 117,000 crore, over four times last year’s revenues. However, new order inflow will be an important number to watch this year: The BHEL management had provided a guidance of Rs 50,000 crore of new orders this year, which is nearly Rs 10,000 crore lower than last year.

At Rs 2,118, the stock is up 32 per cent in the last month as it will be a key beneficiary of any economic revival and increased capex in the power sector. At the current levels, it is trading at 24 times its estimated 2009-10 earnings, reflecting rich valuations.

ref:
http://www.business-standard.com/india/news/bhel-powerful-position/359465/