State-owned enterprise Bharat Heavy Electricals Ltd (Bhel), in its flash results for fiscal 2010, registered revenues and a net profit in line with analysts’ expected consensus. Gross revenue for the year at Rs34,050 crore was up 22% over the previous year; net profit was 37% higher at Rs4,278 crore.
Its future growth is indicated in its order book profile. Amid concerns of a year-on-year contraction in order inflows in the December quarter, the order book on 31 March stood at around Rs1.43 trillion, around 22% higher than 12 months ago. Persons familiar with the company say around 90% of its order inflows during fiscal 2010 were from the private sector.
While this may be due to increased participation of the private sector in power projects, it is positive for Bhel.
Graphic: Yogesh Kumar/Mint
According to Misal Singh, assistant vice-president, research, Edelweiss Securities Ltd: “Higher composition of private sector in the order inflows in FY10 is likely to result in increased diversification in the order backlog.” Traditionally, the company has had around 70% of its orders accruing from the government.
Besides, the sector had in the past seen competition, particularly in the private sector, from cheaper Chinese imports. Analysts say this threat, too, is now lower.
However, there are concerns on profit margins because of rising raw material costs. The private sector orders may not necessarily come with the price escalation clause. Bhel also works with a nine-month inventory of raw material. This worked in its favour during the third quarter ended December, when metal and commodity prices were rising.
While details of the fourth quarter are not known, the third quarter raw material price to sales ratio was around 2.5 percentage points lower than the year-before period.
Higher cost inventory and rising raw material prices could step up gross revenues for fiscal 2011, and Bhel’s operating margins, like others in capital goods, could be affected.
Its earnings per share of Rs87.70 is discounted around 27 times. However, its higher capacity of 15,000MW a year, following expansion that has just been completed, will help hasten product delivery and project execution. Though Bhel’s shares closed marginally higher at Rs2,431 apiece, there is little room for appreciation.
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