For Q1FY2010, Bharat Heavy Electricals Ltd (BHEL) has reported a sales growth of 29.3% to Rs5,595.7 crore, which is marginally ahead of our estimate of Rs5,444 crore.
The execution in power division was better than our expectation, as the division reported a 30.2% increase in revenues. The industry division reported a 3.2% increase in revenues.
The operating profit margin (OPM) improved by 60 basis points yoy. The raw material cost as percentage of sales increased to 63.4% in Q1FY2010 as against 58.5% in Q1FY2009. The positive impact on the OPM from the decline in raw material cost is expected to flow in only from the next quarter.
The employee cost continues to remain high on the back of provisions for wage revision and performance-related payments.
The other expenses declined sharply (down 20% yoy) mainly due to due to lower creation of contractual provisions.
The interest cost was up 67.2% to Rs4.3 crore while the other income increased by 3.8% yoy to Rs302.9 crore. Consequently, the net profit grew by 22.4% to Rs470.6 crore, which is lower than our estimate.
The company’s order book stands at Rs1,24,000 crore as against Rs1,17,000 crore as at the end of FY2009. The company is likely to announce 6x600MW order in the coming few weeks.
We would release our detailed note on Q1FY2010 results post conference with the company’s management.
We maintain our HOLD recommendation on the stock with a price target of Rs2,225. At the current market price the stock is trading at 19.3x FY2011E earnings per share.