Bhel Jan-Mar net profit seen up 43% year-on-year

Bharat Heavy Electricals Ltd's (Bhel) net profit for the January-March quarter is likely to rise 43 per cent to 589 crore, compared with the corresponding period last year, according to an average of estimates of nine brokers polled by Crisil MarketWire.

Income is expected to grow 27 per cent to Rs 4,672 crore. The state-run power engineering major will detail its results Thursday.

The net profit estimates for the March quarter vary from a low of Rs 536 crore to a high of Rs 651 crore. Revenue forecasts were in the range of Rs 4,263 crore to Rs 5,338 crore.

Dealers and analysts were bullish on the engineering and infrastructure sectors in the medium-to-long-term because of the increase in government spending on infrastructure.

"Power sector reforms and the government's policy of electrifying the villages by 2012 is a major boost for the sector. Companies such as Bhel, which specialise in large power plants, would benefit," said an analyst with a domestic brokerage firm.

The government's plans to add 60,000 mw of power generation capacity during the current five-year plan. Bhel is increasing its annual capacity from 6,000 mw to 10,000 mw.

"The things to look out for (in Bhel's results) would be their margin movement and order book position," the analyst said.

Bhel's current order book stands at about Rs 31,800 crore. With a full order book, the only variable is cost. Hence, analysts said that cost management, in the wake of steep rise in input costs, will be watched out for in the March quarter results.

From the corresponding quarter last year, earnings before interest, depreciation, taxes, and amortisation margins are seen down, while on sequential basis, they are expected to show a rise.

According to a Motilal Oswal Securities report, EBITDA margin is seen rising to 17.5 per cent in the January-March quarter, against 15.4 per cent in October-December and 18.6 per cent in October-December 2003. EBITDA margin for 2004-05 is seen at 14.7 per cent, against 16.6 per cent in 2003-04.

Analysts see the bottoming out of EBITDA margin as pricing power appears to be returning for the sector.

However, with the reduction in import duties, the threat of overseas competition also looms large, they said.

According to analysts, the major concern, besides managing costs, is managing the robust order book.

"It may turn out to be a problem of plenty. To grow, they will have to expand, plan acquisitions, or outsource (sub-contract jobs), or a combination of all the three," said an analyst.

Meanwhile, the immediate trigger for the BHEL stock remains the government's plan of divesting a further 10 per cent stake in the company this financial year.

BHEL shares closed at Rs 824.60 on the National Stock Exchange today, up 1.43 per cent from Monday.