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BHEL: Powering growth

Strong FY06 numbers have helped BHEL log its fastest growth in the past three decades.

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Niraj Bhatt Mumbai
Last Updated : Feb 14 2013 | 10:52 PM IST
BHEL's results for FY06 indicate the strength of the ongoing upsurge in the power sector. The company's operating profit for FY06 grew an impressive 65.4 per cent y-o-y to Rs 2,338.2 crore, with a 40 per cent rise in net sales to Rs 13,289.2 crore.
 
With these strong numbers, it is no surprise that the management claimed that the company's growth in the last year was the fastest in the past three decades.
 
Operating profit growth in FY06 was aided by raw material costs as a percentage of net sales declining 290 basis points y-o-y to 61.27 per cent.
 
Lower raw material costs reflect the weakening in steel prices in FY06. BHEL's operating profit margin rose 270 basis points to 17.59 per cent in FY06.
 
In its key power division, segment revenue grew 45.2 per cent y-o-y to Rs 10,893.9 crore in FY 06. The company had signed a technology transfer agreement with Alstom SA for advanced boiler technology in Q2 FY06, which enabled BHEL to widen its products range.
 
As a result, BHEL was also able to build 800-1,000 mw generating units. The company pointed out that it had been able to maintain its market share of 65 per cent of the country's total installed capacity of 1,18,561 mw.
 
Meanwhile, its industry division revenue increased 21.5 per cent to Rs 4,068 crore in FY06. As a result, the company's outstanding order book reached Rs 37,500 crore at the end of FY06 compared with Rs 32,000 crore a year earlier.
 
In the March 2006 quarter too, the company had been able to grow its operating profit margin by 312 basis points y-o-y to 21.66 per cent.
 
The company is ramping up its manufacturing capacity from 6,000 mw to 10,000 mw, which will be completed by 2007. With a strong order book and the expected investments in the power sector, the Street gives BHEL a discounting of about 22 times estimated FY07 earnings, which is a reasonable valuation.
 
Britannia Industries: Margin pressures
 
It has been a tough year for FMCG player Britannia with operating profit margins plummeting by nearly 500 basis point to 11.5 per cent and revenues growing by just 13.5 per cent to Rs 1713.3 crore.
 
The company's net profit for FY06 fell to Rs 1,46.4 crore. In fact, the biscuit-maker's operating margins crumbled to less than 5 per cent in the March quarter despite its top line growing a smart 24.5 per cent. Higher raw material costs took their toll: raw materials-to-sales were up 650 basis points at 57 per cent.
 
Competition from players such as ITC and Surya Foods dented company's market share over the last year or so. In the process of protecting volumes, the company is losing out on margins since it is unable to pass on the higher input costs. Besides, it will have to maintain advertising spending to promote its brands.
 
Also, the company is currently benefiting from the fiscal sops available from its Uttaranchal unit. Without this, the financials would have been further strained.
 
At the current price of Rs 1,451, the stock trades between 20 times and 21 times estimated FY07 earnings and is expensively valued, given the margin pressures.
 
With contributions from Amriteshwar Mathur and Shobhana Subramanian

 
 

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First Published: Jun 02 2006 | 12:00 AM IST

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