Stock Idea: BHEL

A Navratna PSU, this is one of the best jewels in the crown. The company has done well for itself in Q1FY10. The company, on a YoY showed a growth of 23% at Rs 5,800 crore. Net profit jumped by over 22% at Rs 471 crore. But when one looks at the company on a sequential basis, it is evident that the company has suffered. It net sales, on a QoQ was down 48% but it managed to stem down a steeper fall in the net profit , which was down by just 4%. This was possible only because the company cut its tax provision by 67% at Rs.248.08 crore as against Rs.747.06 crore in Q4FY09. The company did not make provisions for fringe benefit tax, which is consequent to the abolition of fringe benefit tax in the Budget for the fiscal 2009-10.

At the end of Q4FY09, the company was sitting on inventory worth Rs.172.19 crore and this has been reduced to Rs.30.05 crore in Q1FY10. Like most of the PSU's, employee cost is a huge outgo for BHEL. At the end of 30th June 2009, it stood at Rs.1113.68 crore, up from Rs.895.30 crore in Q1FY09. Wage revision has surely eaten up quite a chunk of the income but hopefully by the end of Q2, it would have finished with all the provisioning.
In current Q1, 100% of the orders to the company came only from the private sector. The elections and the code of conduct prevented any Govt orders. But now that the elections are over, BHEL expects major chunk of order to come in from the Govt and we could see huge orders coming in Q2. Infact the company is go gungho about the orders that its has raised its previously given guidance of Rs.50,000 crore worth of orders to Rs. 55,000 crore during the current financial year. The company has an outstanding order book position of about Rs 124000 crore at the end of Q1.
Order book was never a problem with BHEL. The problem was too much order which led to inability to execute them. Infact BHEL was one of the reasons why the power sector missed its targets last fiscal. To rectify the situation, BHEL is expanding its capacity which is expected to go stream by 2011. Also given the priority which the power sector today has in our country, BHEL will only stand to gain. The company is also expecting six new orders for power equipment with a capacity to generate 600 Mw any time now. Power sector will thus light up BHEL. Stay invested.
Source: www.premiuminvestments.in (S P Tulsian)