Provisional results for fiscal 2011 announced by Bharat Heavy Electricals Ltd (Bhel) charged up its shares, which ended 3% higher on Monday over their previous close. Concerns on a 5-10% shortfall in order inflows for the year were negated as the company recorded orders worth Rs60,507 crore during the year, meeting its guidance. Order inflows for the March (fourth) quarter, at about Rs23,300 crore, were marginally higher than a year ago.
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The numbers also give a broad-brush picture of the fourth quarter performance. Revenue was up 38% year-on-year (y-o-y). Coming on the heels of a high base and 30% y-o-y growth registered in the March 2010 quarter, this reflects improved execution of projects. This could imply improved operating profit margin, although these figures would be announced with the audited results. However, the net profit during the quarter jumped by a huge 47% over the year-ago period.
Bhel’s full-year performance, if adjusted for a change in accounting norms on warranty provisioning, was in line with expectations. Adjusted revenue grew by 20% when compared with fiscal 2010 and the pre-tax profit was higher by 31%. Net profit for the year grew by 33% to about Rs5,900 crore. This translates into an earnings per share of about Rs120, substantially higher than the year-ago earnings of Rs88 per share.
No doubt, robust order inflows and a mind-boggling order book of Rs1.58 trillion (as of December) provide revenue visibility. Still, analysts reckon that Chinese competition and new entrants in the mega and super critical space could impact profitability two years hence. But at the moment, costs seem to be contained and operating leverage could yield stable profitability. A Motilal Oswal Financial Securities Ltd report indicates a compounded annual growth rate of 20% between fiscal 2011 and 2013.
Bhel’s current market price discounts one-year forward estimated earnings about 14 times. Despite its market leadership, the stock has traded at an average historic price-earnings multiple of around 20-23 times since 2009. The rather sedate discounting and underperformance relative to the Sensex reflected concerns on order inflows and net profit.
Analysts say that the management expects a 10% growth in order inflows during fiscal 2012. Further bulk orders that are in abeyance and are likely to materialize in the next two quarters could provide upside to the stock.
Graphic by Yogesh Kumar/Mint
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