For FY10, Bharat Heavy Electricals Ltd (Bhel) announced revenue of Rs34,100 crore (up 22%), profit before tax (PBT) of Rs6,350 crore (up 31.3%) and net profit of Rs4,290 crore (up 36.6%). While revenue is in line with our estimates, PBT is 6% below our expectation.
Tax rate declined to 32.5% in FY10 against our estimate of 35%; net profit is just 2.4% below our estimate. For the fourth quarter of FY10, revenue was Rs13,950 crore (up 25.3% year-on-year, or y-o-y), PBT was Rs2,660 crore (up 27% y-o-y) and net profit was Rs1,890 crore (up 40% y-o-y).
FY09’s fourth quarter results included gratuity provisions of Rs330 crore and Sixth Pay Commission arrears of Rs44.3 crore; adjusted net profit is up 18.8% y-o-y. While the revenue is in line with our estimate, PBT is 13.1% lower than our estimate and net profit is 5.2% below estimates. The tax rate for the fourth quarter of FY10 was 29.1% against our estimate of 35%. We await further details on the adjustments and also the composition of cost, earnings before interest, tax, depreciation and amortization (Ebitda) margin, other income, etc.
Bhel reported order intake of Rs59,000 crore in FY10, down 3.7% y-o-y. This is higher than our estimate of Rs52,300 crore and the management’s guidance of Rs55,000 crore. Power segment intake stands at Rs41,900 crore, down 5.5%. In terms of MW, intake stands at 16,489MW, down 3.1%. the share of private sector in order intake in FY10 stood at 14,689MW and contributed 89% to the intake.
Graphic: Ahmed Raza Khan/Mint
Bhel’s capacity stands at 15,000MW (as on March), after 5,000MW of brownfield expansion. Thermal capacity stands at 11,500MW, up from 6,500MW. The management also stated that a large part of the ordering for the capacity expansion to 20 gigawatts has been completed and the expansion will be completed by the end of FY12.
Capital expenditure in FY10 was Rs1,780 crore, up 63%. For Bhel, capital expenditure has increased from approximately Rs200 crore in FY06 to around Rs700 crore in FY08 and around Rs1,800 crore in FY10. Research and development spending was Rs790 crore in FY10, up from Rs150 crore in FY06 and Rs460 crore in FY08. Revenue for in-house developed projects was Rs6,300 crore in FY10, contributing 18.5% to the overall revenue.
Bhel plans to diversify into segments such as high voltage transmission, transport, renewable power (wind and solar), nuclear power and forging. It is forming joint ventures to source technology. We believe this will be a long-term positive as these businesses could contribute increasingly to the revenue and profit mix.
During FY10-12, we expect Bhel to report earnings compounded annual growth rate (CAGR) of 30% in line with a revenue CAGR of 30%. We expect adjusted Ebitda margin to expand 60 basis points (bps) during FY10-12, despite a reduction of 380 bps in staff costs (as a percentage of revenue). We maintain buy, with a price target of Rs2,752. Bhel is our top pick in the engineering space.