BHEL: Top line in trouble

The power equipment supplier's turnover growth is way below the market's expectations.

Capital goods maker BHEL crashed 8 per cent in intra-day trades before recovering somewhat to close at Rs 1,755, a 5 per cent fall over the previous close.

The public sector firm's announcement of provisional numbers for FY08 didn't go down well with the street.Gross revenues grew by just about 15 per cent to Rs 21,608 crore while analysts were expecting a growth number closer to 20-22 per cent.

The rise in the net profit of just 17 per cent to Rs 2,815 crore has been the slowest in five years and compares poorly with the growth of 44 per cent in FY07.

Since Bhel posted a 20 per cent rise in gross sales in the nine months to December, the fourth quarter growth will be a rather weak at just 6.5 per cent. Moreover, profits will be lower than in Q4FY07. That could be due to delays in implementation and higher input costs.

However, BHEL, which posted a 29 per cent rise in gross revenues to Rs 18,838 crore in FY07 had a strong order inflow of about Rs 50,000 crore during FY08 and should end the year with an orderbook of Rs 85,000 crore.

Much will depend on how quickly the company executes these orders though it is building sufficient capacity of 15000mw by 2009.

Analysts are also concerned that operating margins could be under pressure thanks to a higher wage bill"" while a 30 per cent wage revision has been budgeted for, the hike could be as much as 40 per cent.

That should have off about 100 basis points from the operating margins, which for the nine-months till December has been flat at 16.5 per cent.

The stock price has corrected 40 per cent from its 52-week high and at the current price of Rs 1755, trades at a seven month low and a price-earnings multiple of about 23 times estimated FY09 earnings compared with 28 times for Larsen & Toubro which trades at Rs 2,850.

Amtek Auto: Derivatives blues

Auto ancillary player Amtek Auto has disclosed that it will need to make mark-to-market provisions of about Rs 72 crore over the next two years to cover potential losses arising out of forex derivatives transactions.

The promoters of the Rs 3720 crore firm have said that they will bring in the money either by way of a zero interest loan or preference shares, which is essentially a debt instrument.

In the meanwhile, analysts have pencilled in a hit of Rs 72 crore in the current year and a further potential loss of Rs 50 crore for FY09. That together with a dilution in the equity base, will result in a fall in the earnings per share in FY08 of about 22 per cent.

Amtek is expected to end FY08 with revenues in the region of Rs 5,300 crore and a net profit of Rs 430 crore. The firm, which has production facilities across Europe, Asia and the US, posted a net profit of Rs 409 crore in FY07.

On the business front, the slowdown in overseas automobile markets could impact the company; more than 90 per cent of its exports are to Europe and its subsidiaries abroad. To some extent that has protected the company from the appreciation of the rupee against the dollar.

However, an appreciation of the rupee against the euro could in the future hurt revenues. At home too the automobile sector has been in a bit of a slump and with the economy slowing down, could take time to recover.

Amtek is de-risking its business model by making components for sectors such as the railways. At the current price of Rs 302, the stock trades at a price-earnings multiple of just under 13 times estimated FY09 earnings and appears to be expensive given the challenging environment.