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Bharat Heavy Electricals Ltd (BHEL) (updated - 7 April 2009)
The BHEL management believes it can grow revenues at between 20 and 25 per cent in the current year. That may be atad slower than the nearly 30 per cent achieved in 2008-09 but the growth is nonetheless strong in a difficult environment. What’s probably giving the management the confidence to visualise these growth rates is the very strong order inflow, of close to Rs 60,000 crore, during 2008-09.

BHEL’s provisional numbers for the March 2009 quarter are more or less in line with expectations — if operating margins were somewhat disappointing at just 17 per cent, it was because the company needed to provide for more wages. While revenues for 2008-09 are expected to come in at just over Rs 25,000 crore, the top line this year could be in the region of Rs 31,000 crore

Last year’s net profits are expected to be around Rs 3,500 crore and analysts believe that it should not be difficult for BHEL to grow net profit by acompounded 20 per cent in the next three years given that expenses on wages would be lower and because prices of raw materials are easing.

The BHEL stock has rallied smartly in recent weeks as has Larsen and Toubro, which was beaten down, because of concerns about the order book — almost three-fourths of the orders are from private sector parties. BHEL, on the other hand gets a fair share of its orders from the government and chances of cancellations are lower. Of late, it has managed to bag orders from well-funded private IPPs and some state utilities and at Rs 1,532, the L&T stock trades at 17 times estimated 2009-10 earnings.

L&T, meanwhile trades at around 14 times estimated 2009-10 earnings partly because the Street has also been unhappy with L&T’s intention to pick up buy Satyam Computers. Although BHEL may be more expensive, it’s a better play on the revival in the economy. After all, it has an order backlog of over Rs one lakh crore, close to 5 times the firm’s 2007-08 revenues.
source - BS

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Bharat Heavy Electricals Ltd (updated - 29 May 2009)
Astrong 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 200910 earnings, reflecting rich valuations.
source - BS

Bharat Heavy Electricals Ltd (updated - 12 Aug 2009)
BHEL’s net profit for the June 2009 quarter, up just 22 per cent to Rs 471 crore, may have been below consensus estimates but the reasonably-strong order inflows of around Rs 13,000 crore were more than expectations and should put the engineering major on course for a good performance in the current year.

Besides, the company has already built enough capacity to execute orders quickly. What’s encouraging, apart from the huge order book of around Rs 1.24 lakh crore, is that a fairly large share of new business in the June quarter was from private sector clients. With clients such as Avantha and Hindalco, the company is hoping for orders worth Rs 55,000 crore by March 2010. Industry watchers say that many companies are preferring BHEL’s equipment over that of Chinese vendors. Meanwhile, BHEL reported a strong top line growth of 29 per cent (to Rs 5,600 crore) for the June 2009 quarter.

Although the rise in staff expenses had been pencilled in, a higher-thanexpected raw material bill —up nearly 500 basis points — tempered expansion of the operating profit margin, which was up 60 basis points to 9.2 per cent. Raw material costs were high because the company used some high-cost steel inventories.

But with most of the older stock having been consumed, it should now benefit from lower prices. Revenues in the current year are expected to cross Rs 32,000 crore, a growth of 22-23 per cent over 2008-09.

Since April this year, the stock has risen 46 per cent compared with a move of 52 per cent for the Sensex. The underperformance is probably due to the fact that the stock isn’t cheap; at Rs 2,148, it trades at nearly 25 times estimated 2009-10 earnings.
source - BS