Last week, Larsen and Toubro Ltd reported a surge in order inflows, but disappointed in terms of revenues. Bharat Heavy Electricals Ltd’s (Bhel) results for the September quarter are just the opposite.
Although revenues and operating profit of the state-owned company rose smartly during the quarter, order inflows fell.
Bhel’s net sales grew by around 24% to Rs6,623 crore from the year earlier, riding on the robust growth in infrastructure in the power sector. Over four-fifths of the revenues were from the power segment.
Further, thanks to a drop in material costs, the company reported its highest-ever operating margin of 18.3% in the September quarter. Operating profit rose by over 50% as a result.
But order inflows fell by 39% to Rs8,700 crore. For the first six months of the year, order inflows have fallen 25% to Rs2,1520 crore.
Still, the company has maintained its guidance of booking orders worth Rs55,000 crore in the entire year, implying that it expects large order inflows of Rs33,480 crore in the second half of the year.
Despite the drop in order inflows in the first half of the year, the company has an order backlog of Rs12,580 crore, which is 21% higher compared with the year-ago period.
While Bhel has a large order book, the field is getting increasingly competitive with Chinese manufacturers making inroads into the country. Besides, one concern among analysts is the quality of orders from the private sector, where there is no price variation clause.
With commodity prices starting to firm up, earnings are not expected to match the impressive growth of the past four years.
Keeping all this in mind, the company’s valuation of 24 times estimated earnings for the current year is rather high.
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