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BHEL (Buy CMP 2107 TGT 2707)

FY2011 provisional results exceed all expectations 
  • Q4 top line up 30.4% YoY: The top line growth continued to be robust as the company maintained strong execution of projects in Q4FY2011, which saw a 30.4% year-on-year (Y-o-Y) growth in revenue to Rs18,384 crore (derived from the full-year numbers). The company has reported a 27.2% Y-o-Y growth in its turnover to Rs43,451 crore for the full year. This exceeds the original memorandum of understanding (MoU) target of Rs38,000 crore by over 14%. 
  • Better operating leverage boosted PAT: Its profit before tax (PBT) increased by 36.8% year on year (YoY) to Rs9,016 crore mainly on account of better operating leverage and lower wage provision. This led to a 39.7% growth in its profit after tax (PAT), which grew to Rs6,021 crore as against our expectation of Rs5,722.9 crore for FY2011. The net profit for the quarter (Q4) was up 47% to Rs2,808 crore. 
Robust order inflow, allay concerns of slowdown: BHEL has beaten its own guidance of Rs60,000-crore order inflow for the year, as it has reported a total order inflow of Rs60,507 crore (up 2.5% YoY), finishing the year with a total order backlog of Rs164,130 crore (up 14.1% YoY). During the year BHEL bagged orders to the tune of Rs46,393 crore (up 10.5% YoY ) for the power division (for an aggregate capacity of 15,071MW). The industry segment recorded orders worth Rs11,405 crore, indicating a fall of 20.6% YoY. The export markets contributed Rs3,738 crore of orders for the year.

Maintain estimates and Buy call: For now, we are maintaining our estimates for FY2012 and FY2013. We would revisit our estimates once the audited numbers are released and more clarity emerges on the company’s future order booking situation. BHEL remains our preferred pick in the capital goods space with its strong business model, given its robust balance sheet. At the current market price the stock trades at 16.1x FY2011E earnings per share (EPS). We feel that in spite of the recent run-up in the stock, its valuation is still very attractive. We maintain our price target at Rs2,707 and Buy recommendation on the stock.