Company Report | Q1FY12 Result Update

LONG TERM INVESTMENT CALL

26 July 2011 Industry CMP (INR) Target (INR) Upside / (Downside) (%) 52 week High/Low (INR) Market Cap (INR BN) 3M Avg. Daily Vol (000) P/E (FY13e) Shareholding Pattern (%)
Non Institutions Institutions 26% 6% Promoters 68%

Buy

Capital Goods 1,908 2,350 23 2694 / 1872 934 698 12x

Q1FY12 Result Highlights Bharat Heavy Electricals Ltd (BHEL) revenue came below Unicons 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. Segment Result 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%. Order-book 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. Outlook and Valuations 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).

Stock Performance
2950 2850 2750 2650 2550 2450 2350 2250 2150 2050 1950 1850 1750 Jul Aug BHEL NSE Nifty

May

Sep

Oct

Nov

Performance (%) 1M Month -3.0% 0.9% 3 Months -8.0% -5.1% Actual 72,715 11,132 8,155 1 Year -22.1% 2.7%
in Mn)

Company Nifty Particulars Total Income EBIDTA Reported PAT

Mar

Dec

Estimates 78,151 9,925 7,581

* Source: ACEEquity, Unicon Research Analyst Falgesh Sanghvi | fsanghvi@unicon.in

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Apr

Feb

Jun

Jan

Financials Particulars Income from Operation Operating Expenditure EBITDA EBITDA (%) Depreciation EBIT EBIT (%) Interest Other income PBT Tax Provision Tax Provision (%) Provision for Taxation (incl deferred tax) Prior period tax PAT PAT (%) EPS Segment Performance Power PBIT % RoCE % Industry PBIT % RoCE %
Source: Company, Unicon Research

(INR in mn)

Q1FY12 72,715 61,582 11,132 15.3 1,709 9,423 13.0 88 2,487 11,822 3,667 31 3,667 8,155 11.2 16.7 Q1FY12 57,803 16.5 14.4 16,529 22.6 10.5

Q1FY11 66,010 56,360 9,650 14.6 1,269 8,381 12.7 38 1,635 9,978 3,301 33 3,301 6,677 10.1 13.6 Q1FY11 53,734 19.9 58.9 13,879 13.9 9.8

FY11 424,945 335,328 89,617 21.1 5,441 84,176 19.8 547 6,418 90,047 29,945 33 30,759 (815) 60,102 14.1

YoY% 10.2 9.3 15.4 69 bps 34.7 26 bps 129.8 52.1

22.1 110 bps

FY11 331,655 24.0 102,144

YoY% 7.6 -346 bps -4454 bps 19.1 867 bps 67 bps

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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