This pressure on margins was owing to the company's other expenditure jumping 122.2 per cent y-o-y to Rs 146.77 crore in the last quarter. Also, its outsourcing costs jumped a whopping 692 per cent y-o-y to Rs 198.96 crore in the last quarter. The stock has however, managed to outperform the broader market given the growth potential in the industry "" it has gained 39.5 per cent over the past three months compared with 19.3 per cent gain in the BSE midcap index. Other players such as PSL also saw their operating profit margins dip by 310 basis points y-o-y to 11.3 per cent in the last quarter, owing to rising operational costs. |
| Meanwhile, for the year ended September 2006, Jindal Saw's consolidated operating profit margin also declined 100 basis points y-o-y to 10.5 per cent. |
| Prominent orders won by Jindal Saw in the previous financial year include an export order of $180 million (approximately Rs 810 crore) from Gulf South to supply more than 250 miles of jointed and coated pipes. |
| The outlook for the industry remains robust as the hydrocarbon sector investments will continue to grow. Going forward, the company's growth is expected to be powered by its orders in hand that exceed $1.2 billion (about Rs 5,400 crore) at the end of September 2006. |
| However, its ability to manage operational costs would also play a key role. At 13 times trailing earnings, the stock is reasonably priced. |
| Bharat Electronics: Static current |
| Bharat Electronics' September 2006 quarter results have been adversely affected by rising operational costs, coupled with its sales remaining virtually stagnant. |
| The company has seen its operating profit decline by 9.1 per cent y-o-y to Rs 186.5 crore in the last quarter compared with 0.7 per cent growth in net sales to Rs 834.28 crore. Operating profit margin also declined by 250 basis points y-o-y to 22.3 per cent in the last quarter. |
| This pressure on margins in the last quarter was owing to other expenditure rising 37.8 per cent y-o-y in the last quarter, coupled with its staff cost rising 17.2 per cent. |
| The company's lacklustre performance in the September quarter, resulted in the stock under-performing over the past three months "" the stock has gained barely 5.6 per cent during this period compared with 16.7 per cent rise in the Sensex. |
| In the June 2006 quarter too, Bharat Electronics' operating margins had fallen by 80 basis points y-o-y to 14.9 per cent. BEL has traditionally supplied equipment such as radars and related defence equipment. |
| However, given the lengthy procedures in such government contracts, it has enhanced its focus on non-defence and civilian applications such as telecom, broadcasting, civil aviation, medical diagnostics, and information technology. |
| Towards this end, it has developed products for CDMA applications, ADSL modem and electronic voting machines. In November, it bagged an order of 2 lakh set-top boxes from cable company Wire and Wireless India, a Zee group company. |
| Nevertheless, in Q2 FY07, the company's sales were stagnant and analysts point out that this could be largely due to the stage of completion of an individual project and the resulting revenue inflows. |
| The company is expected to benefit from the government's focus on enhancing the proportion of indigenous production in the country's total defence budget. |
| As the proportion of civilian sales in total revenues increase, the lumping of orders or milestone completion will have less impact on the earnings. |
| This is also the reason why the stock trades above the Rs 1100-mark, and enjoys a discounting of 16 times estimated FY07 earnings. |
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