engineering shares information Bharat Heavy Electricals Ltd BHEL

Bharat Heavy Electricals Ltd (updated - 28 May 2010)
Things seem to be steadying operationally for power equipment major Bharat Heavy Electricals (BHEL), as it reported strong growth in revenue and profit in the March 2010 quarter. Earlier pangs of high wage costs and lowering of execution rates normalised during the period.

The power division, which contributes about 78 per cent to total revenues, recorded 30 per cent year-on-year growth to Rs 11,155 crore. The smart bounce back in the industry division, which recorded sales growth of 16 per cent after a subdued show in nine months of FY10, added to the cheer. Lower commodity prices and better inventory management kept material costs under control.

Moreover, huge provisions for wage-related expenses subsided. Consequently, operating profit jumped 43 per cent to Rs 2,872.50 crore and operating margins expanded by a little over 200 basis points to 20.6 per cent. Sales and operating profit also jumped 50 per cent and 47 per cent, respectively. Analysts reckon this as a strong performance, since this growth came on a higher base of the March 2009 quarter. In line with operating profits, net earnings also grew 42 per cent despite higher interest, depreciation and taxation partly.

With a strong order book position of Rs 1,44,000 crore -highest ever according to provisional results for FY10 -the future looks exciting for the company. The company has also been successful in gaining private sector’s confidence, with the latter forming about 85 per cent of the total order inflows. Capacity should not be a constraint, as the company has expanded it by 50 per cent to 15,000 Mw and will achieve 20,000 Mw by 2012.

However, with the power sector looking to expand at arapid clip, strong execution will be a key factor to ward off competition. Its book-to-bill ratio has improved from a dismal 4.1 times in the December quarter to 4.4 times in the March quarter. Analysts believe when execution rates increase, operating profits tend to depress. Moreover, margins are sequentially down 100 basis points from their peak of 22 per cent in the December quarter. If commodity prices rise again, operating margins may deteriorate further.
source - Business Standard

Bharat Heavy Electricals Ltd (updated - 06 April 2010)
According to the provisional figures for 200910 announced last week, Bharat Heavy Electricals Ltd’s (BHEL’s) net profit has risen 37 per cent yearon-year to Rs 4,287 crore. The top-line growth continued to be healthy due to strong execution of projects in the March 2010 quarter. The company’s turnover increased 21.2 per cent yearon-year to Rs 34,050 crore.

For the March 2010 quarter (derived from full-year numbers), gross sales rose 25.3 per cent year-on-year to Rs 13,948 crore while net profit was up 40 per cent to Rs 1,886 crore.

The company has beaten its own order flow guidance of Rs 55,000 crore for 2009-10 by reporting orders worth Rs 59,031 crore (down 1.1 per cent year-on-year), finishing the year with an order backlog of Rs 1,43,800 crore. Of the orders received this year, 90 per cent were from the private sector. “This is quite significant, as historically around 75-80 per cent of BHEL’s order backlog has come from the government.

This is positive as it could further diversify BHEL’s order backlog. Also, execution is likely to be faster for the private sector,” says an Edelweiss Research report. Margins, at the net level, rose about 170 basis points in 2009-10.

During the year, the company completed the first phase of its capacity expansion programme, taking its total capacity higher by 50 per cent to 15,000 Mw. Analysts suggest that capacity expansion to 20,000 Mw by 2011-12, use of indigenous supercritical technology, new products and strategic alliances will be key to achieving higher turnover.

Given the improving visibility and the government’s thrust on power sector reforms, BHEL is well-positioned to deliver impressive growth. At Rs 2,460, the stock trades at 21 times 2010-11 estimated earnings.
source - Business Standard

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The outcome highlights the emergence of competition from multinational giants and new local players besides Chinese suppliers. With more players entering the space, capacities are expected to rise to 19,500 Mw (boiler) and 15,000 Mw (turbine generator) by 2013-14, in addition to BHEL’s 15,000 Mw in each segment.

Since L&T was disqualified in the NTPC-DVC tender, it is likely to become more aggressive. Also, other new players are now pre-qualified to bid for super-critical turbine generators. Thus, prospects for a player like BFA winning more orders are bright. This will affect BHEL’s order inflows, revenue growth, margins and superior return profile in the long term.

As a result, analysts have become wary of the outcome of the boiler package contract (11,660 Mw), where apart from BHEL and L&T, companies like Gammon-Ansaldo and BGR-Hitachi have been qualified. Moreover, NTPC’s next round of bulk tender of 5,600 Mw by the end of 2010-11 is also likely to see intense competition.

But, over the medium term, BHEL remains well-placed with an order book to 2009-10 sales ratio of 4.5 times and is set to witness robust order inflows led by bulk tenders and another 6,500-7,000 Mw from joint ventures between the company and state utilities.
source - Business Standard

Bharat Heavy Electricals Ltd (updated - 04 Nov 2010)
Bharat Heavy Electricals Ltd (BHEL) reported better-than-expected sales growth of 26 per cent year-on-year (y-o-y) at `8,491 crore, aided by better execution, a 28.3 per cent surge in power revenues ( `6,965 crore or 79 per cent of total sales) and 16.5 per cent growth in the industry segment.

However, operating profit margin rose just 90 basis points to 19.2 per cent as more low-cost inventory was exhausted compared to the yearago quarter. The share of raw material to sales jumped 400 basis points (bps) to 63 per cent, but the company managed to control other costs. Consequently, net profit margins inched just 70 basis points higher to 13.5 per cent, followed by higher depreciation and lower other income.

The medium-term outlook for the company in terms of sales and profitability is sanguine, courtesy expanded capacity (15,000 Mw), high revenue visibility (4.6 times 200910 sales) on the back of robust order backlog of `1.54 lakh crore and strong order inflows (69 per cent up at `13,500 crore in the September quarter).

The company sticks to its earlier 2010-11 order inflow guidance of `60,000 crore and has achieved 50 per cent of the target. However, competition in the power equipment space is heating up, with many new players now qualified to bid for large orders. The Bharat Forge-Alstom joint venture emerging as the lowest bidder in NTPC-DVC’s 7,260 Mw super-critical turbine-generator bulk tender, instead of BHEL, has put a question mark on the sustainability of latter’s strong hold in the space.

Larsen & Toubro-Mitsubishi Heavy Industries joint venture is BHEL’s biggest competitor. It will vigorously contend for orders after losing out in NTPC’s turbine-generator bulk tender. Going ahead, all this can affect the company’s ability to win orders and may affect margins amid pricing pressure. Analysts expect 20 per cent upside from the current level of `2,484.95, as it trades at an attractive valuation of 18 times 2011-12 estimated earnings.
source - Business Standard

Bharat Heavy Electricals Ltd (updated - 14 Oct 2010)
BHEL has started feeling the heat of intense competition emerging in the super-critical turbine generator space. The Bharat ForgeAlstom, France (BFA) joint venture has emerged as the lowest bidder in the NTPCDamodar Valley Corporation’s 7,260-Mw (11 units of 660Mw each) supercritical turbine generator bulk tender. While NTPC is yet to award the final contract, BHEL will fulfil a part of the contract, according to the tender conditions, with the lowest bidder and the second-lowest bidder supplying five units and four units, respectively.