BHEL: Strong show

Capacity expansion, indigenous supercritical technology and new products will be key to achieving higher turnover.

According to the provisional figures for 2009-10 announced last week, Bharat Heavy Electricals Ltd’s (BHEL’s) net profit has risen 37 per cent year-on-year to Rs 4,287 crore. The top-line growth continued to be healthy due to strong execution of projects in the March 2010 quarter. The company’s turnover increased 21.2 per cent year-on-year to Rs 34,050 crore.

For the March 2010 quarter (derived from full-year numbers), gross sales rose 25.3 per cent year-on-year to Rs 13,948 crore while net profit was up 40 per cent to Rs 1,886 crore.

The company has beaten its own order flow guidance of Rs 55,000 crore for 2009-10 by reporting orders worth Rs 59,031 crore (down 1.1 per cent year-on-year), finishing the year with an order backlog of Rs 1,43,800 crore. Of the orders received this year, 90 per cent were from the private sector. “This is quite significant, as historically around 75-80 per cent of BHEL’s order backlog has come from the government. This is positive as it could further diversify BHEL’s order backlog. Also, execution is likely to be faster for the private sector,” says an Edelweiss Research report. Margins, at the net level, rose about 170 basis points in 2009-10.

During the year, the company completed the first phase of its capacity expansion programme, taking its total capacity higher by 50 per cent to 15,000 Mw. Analysts suggest that capacity expansion to 20,000 Mw by 2011-12, use of indigenous supercritical technology, new products and strategic alliances will be key to achieving higher turnover.

Given the improving visibility and the government’s thrust on power sector reforms, BHEL is well-positioned to deliver impressive growth. At Rs 2,460, the stock trades at 21 times 2010-11 estimated earnings.