Unicon Investment is bullish on Bharat Heavy Electricals (BHEL) and has recommended buy rating on the stock with a target price of Rs 2350 in its July 26, 2011 research report.
“Bharat Heavy Electricals Ltd (BHEL) revenue came below Unicon’s estimate led by lower growth in its power segment. Profit after tax, however, was more than our estimate backed by higher operating profit margin and 52% increase in its other income. Revenue at INR 72.7bn grew by 10% on YoY, below our estimates of INR 78.1bn. The raw-material cost grew by 8.9% YoY in absolute terms. However, raw material cost as a percentage of sales, registered improvement of 64bps to 57.1% compared to 57.7% during same quarter last year. Besides, staff cost as a % of sales also reduced 237bps to 17.9%. This led to improvement in EBITDA margin by 69 bps to 15.3% compared to 14.6% during same quarter last year. Depreciation during the quarter increased by 34.7% YoY to INR 1,709Mn. Interest charge at INR 88Mn during the quarter grew by 130% YoY. The impact of higher depreciation and interest charge however was partly off set by higher other income which increased by 52% to INR 2.5bn. The profit after tax grew by 22% to INR 8.2bn.”
“Power: The Power segment which contributed 78% to total revenue during Q1FY12 was marginally increased by 7.6% YoY to INR 54bn. The profit before interest and tax (PBIT) at INR 9.5bn however reduced by 11% due to higher depreciation charge. The PBIT margin fell by 346bps to 16.5%. Industry: The Industry segment which contributed 22% to the revenue during the quarter grew by 19% to INR 16.5bn, higher than Power segment. The PBIT grew by 93.2% on yearly basis to INR 3.7bn and PBIT margins improved by 867bps to 22.6%. The current order-book of the company is ~INR 1.59tn. This is ~3.76x its FY11 revenue. While Company saw weak order inflows during the quarter under review, we believe, orders from NTPC would be the key catalyst to the stock, going forward.”
“At the current market price, stock trades at lower PE multiple of ~12x. With order-book of ~INR 1.6tn, revenue visibility is not a concern but risk largely looms around a) contraction in operating profit margin due to high commodity prices, b) incremental growth in order-book and c) rising competition and we therefore lower our price target to INR 2,350/share, maintain Buy (~15x its FY13e),” says Unicon Investment research report.
“Bharat Heavy Electricals Ltd (BHEL) revenue came below Unicon’s estimate led by lower growth in its power segment. Profit after tax, however, was more than our estimate backed by higher operating profit margin and 52% increase in its other income. Revenue at INR 72.7bn grew by 10% on YoY, below our estimates of INR 78.1bn. The raw-material cost grew by 8.9% YoY in absolute terms. However, raw material cost as a percentage of sales, registered improvement of 64bps to 57.1% compared to 57.7% during same quarter last year. Besides, staff cost as a % of sales also reduced 237bps to 17.9%. This led to improvement in EBITDA margin by 69 bps to 15.3% compared to 14.6% during same quarter last year. Depreciation during the quarter increased by 34.7% YoY to INR 1,709Mn. Interest charge at INR 88Mn during the quarter grew by 130% YoY. The impact of higher depreciation and interest charge however was partly off set by higher other income which increased by 52% to INR 2.5bn. The profit after tax grew by 22% to INR 8.2bn.”
“Power: The Power segment which contributed 78% to total revenue during Q1FY12 was marginally increased by 7.6% YoY to INR 54bn. The profit before interest and tax (PBIT) at INR 9.5bn however reduced by 11% due to higher depreciation charge. The PBIT margin fell by 346bps to 16.5%. Industry: The Industry segment which contributed 22% to the revenue during the quarter grew by 19% to INR 16.5bn, higher than Power segment. The PBIT grew by 93.2% on yearly basis to INR 3.7bn and PBIT margins improved by 867bps to 22.6%. The current order-book of the company is ~INR 1.59tn. This is ~3.76x its FY11 revenue. While Company saw weak order inflows during the quarter under review, we believe, orders from NTPC would be the key catalyst to the stock, going forward.”
“At the current market price, stock trades at lower PE multiple of ~12x. With order-book of ~INR 1.6tn, revenue visibility is not a concern but risk largely looms around a) contraction in operating profit margin due to high commodity prices, b) incremental growth in order-book and c) rising competition and we therefore lower our price target to INR 2,350/share, maintain Buy (~15x its FY13e),” says Unicon Investment research report.
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