>BHEL (JAYPEE CAPITAL)

STILL GROUND FOR FURTHER GROWTH

■ FY 08‐09 ‐ Key Highlights – Performance beats expectation
The FY09 results were better than our expectations, as net sales grew by 37% and PAT grew by 9%. Raw material cost increased to 65% on net sales due to usage of ferrous and non ferrous metals at higher costs. Employee cost has increased by 32% yoy, due to implementation of the Sixth Pay Commission Wage Act, where we can see some respite in the years ahead on account of lower wage cost. As a result total expenditure as a percentage of net sales has increased from 83% to 86%. Operating profits have reduced from 27% to 17% as a result. As a result PAT margins have reduced from 15 to 12%.

■ Q4 FY 08‐09 ‐ Key Highlights – Future more promising
For the Q4 FY09, net sales grew by 46% and PAT grew by 21%. Raw material cost increased to 66% from 58%. Employee cost as a percentage of net sales has reduced from 16 to 13%. As a result total expenditure as a percentage of net sales has increased from 81% to 84%. Operating profits have reduced from 25% to 19% as a result. Due to higher raw material cost, PAT margins have reduced from 15 to 13%.

■ Order Book
FY09 has ended the year with an order backlog of Rs. 1170 bln, indicating a book to bill ratio of 4.1x. The order inflow for FY09 has been 596 blns out of which power comprises 74%, industry 17% and rest is international. The order inflow for the next two years seem to be muted according to the management at Rs. 500 billion. Order booking for the 12th five year plan for 100000 MW will soon be taking place in the near future.

■ Recent Orders
BHEL has won a Rs.7,030 Million Contract for for the main plant package at the upcoming Bela Thermal Power Project (TPP) in Maharashtra, involving one new‐rating unit of 270 MW. The order has been placed by Ideal Energy Projects Limited (IEPL) reflecting the customer’s confidence in the company’s technological excellence and project execution capabilities. An order for a 600 MW thermal power plant has been placed by Korba West Power Company Limited in Chhattisgarh, an Independent Power Producer. It reinforces BHEL’s leadership status in the execution of thermal power projects involving supply of state‐of‐threatt equipment, suited to Indian coal and Indian conditions.

■ Wage provision
Sharp erosion in margins can be attributed to higher provisioning towards pending wage settlement liabilities and higher material cost. Pay revision of employees of the company is due with effect from Jan 1, 2007. Pending finalization of wage settlement the company is providing for the expected liability and for the period from Jan 1, 2007 to March 31, 2009 it has provided a sum of Rs 2547 crore. Out of the Rs 2547 crore the company has provided about Rs 1729 crore in fiscal ended March 2009 with balance being done in FY08. With the company having provided about Rs 839 crore upto Dec 2008 out of the total Rs 1729 crore for the fiscal ended March 2009, it has provided about Rs 890 crore in the fourth quarter ended March 2009 there by affecting the operating margin of the company. In fact the company's total provision for the fiscal at Rs 1729 crore is higher than the earlier expected Rs 1313 crore and this is largely on account of increased liability on account of change in gratuity plan and higher dearness allowance.

■ Power Industry
India’s power generation capacity has gone up by about 3,500 MW in fiscal 2009, but the capacity addition was dismal as it was over 68% below the target of 11,061 MW set for the period. Power generation is, however, expected to grow by 4.6% this fiscal as projects with a capacity of 7,730 MW are likely to commence generation in FY10, Centre for Monitoring Indian Economy (CMIE) said. The total installed power generation capacity in India rose by 3,453.7 MW during April‐March 2008‐09. This is 68.8% below the capacity addition target for 11,061 MW set for the period.

■ Going Ahead ….
The backlog at end‐Mar ’09 (of Rs 1170 blns) was 37% higher yoy. Orders worth Rs 500 bln are expected in FY10, acc to the management. Bulk orders from National Thermal Power Corporation (NTPC) and Damodar Valley Corporation (DVC) are expected to be placed in Q2FY10 according to management. BHEL can get upto 6 orders if L1 and if not upto atleast 5 orders are expected.

Benefit of lower steel prices will come into effect from Q2FY10 onwards. Positive impact due to reduction in raw material cost by 2% will accrue to the bottomline. As the manufacturing capacity will double from 10000 MW to 20000 MW by 2011‐2012, the execution percentage will increase from 29% in FY10 to 30% in FY11.

To see full report: BHEL

To see full report: BHEL