| Summary of Contents
| STOCK UPDATE Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Hold
Price target: Rs328
Current market price: Rs264 Provisionally bottom line beats expectations Bharat Heavy Electricals Ltd (BHEL)'s FY2012 provisional results were a mixed bag where the revenue was marginally lower than our expectation but the net profit was significantly higher than our as well as the Streets' expectations. The order inflow remained subdued in view of the tough investment environment in the power sector. -
Q4 top line up 8% YoY: In Q4FY2012, the gross sales came at Rs20,032 crore (derived from the full year's numbers). The yearly growth in the revenue tapered down to 8% during the quarter (from the past average of 20-25%). This was lower than our expectation of a 16% growth. We feel that low execution of projects along with subdued order inflow in recent times could have led to this underperformance. For the full year, the company has reported a 13.8% year-on-year (Y-o-Y) growth in its turnover to Rs49,301 crore. BHEL is targeting gross sales of over Rs50,000 crore for FY2012. -
PAT boosted by 15%: Its profit before tax (PBT) increased by 11% year on year (YoY) to Rs4,762 crore in Q4FY2012. The PBT margin on the gross sales improved to 24% on a yearly basis while in M9FY2012 the same contracted by 110 basis points to 17.9%. The company attributed the margin expansion to cost control measures and price hikes. This margin expansion along with a lower tax rate led to a 15% growth in the profit after tax (PAT). The PAT for the year grew by 14.3% to Rs6,868 crore against our expectation of Rs6,222 crore. -
Subdued order inflow, concern on slowdown compounds: For FY2012 the company has reported a total order inflow of Rs22,096 crore, which is way below the FY2011 level of Rs60,507 crore. The order inflow for the fourth quarter stands at about Rs6,823 crore, down 72% on a yearly basis. The order book stands at Rs135,000 crore, down 18% on a yearly basis. The company has so far not factored in the orders from the NTPC bulk tender. The current book-to-bill ratio of 2.8x is the lowest in at least 20 quarters, aggravating the concerns on the future growth path. -
Maintain estimates and Hold call: We would revisit our estimates once the audited numbers are released and more clarity emerges on the company's future order booking situation. For now, we are maintaining our estimates. However, the low order booking in FY2012 has lowered the future revenue visibility of the company. The continued impasse on the issue of import duty on power equipment has also aggravated the concern with regard to competition. However, the flowing of the NTPC bulk tender orders where BHEL's share is estimated at over Rs13,000 crore is a near-term positive trigger for the stock. Also, the government's decision to hold its follow-on public offer plan has given some sentimental boost to the stock. At the current market price the stock trades at 9.4x FY2014E earnings per share. We maintain our price target of Rs328 and Hold recommendation for the stock.
SECTOR UPDATE Cement Cement-a mixed bag Key points
Click here to read report: Investor's Eye
-
Cumulative volume for pan-India players grew by 8.1%: The volume growth of the top three domestic cement players, ACC, Ambuja Cement and UltraTech, in March 2012 was impressive on a year-on-year (Y-o-Y) basis on account of a pick-up in the cement offtake in the northern, western and central regions due to a pick-up in the execution of infrastructure projects. Among the large players, Ambuja Cement has posted an impressive dispatch growth of 12.4% YoY. On the other hand, ACC and UltraTech have posted a growth of 7.3% and 6.3% respectively in their dispatches. Hence, cumulatively the pan-India players have registered an 8.1% volume growth. On a sequential basis (compared with February 2012) the cumulative dispatches of the pan-India players have increased by over 11%. -
Cement offtake picks up in northern, western and central regions; partially recovers in southern region: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has improved in the past couple of months due to the post-monsoon pick-up in the infrastructure activity. Further, the demand in the southern region has partially recovered starting from February 2012. Going ahead, dealers expect the momentum in the demand to continue in the coming couple of months. -
Cement price increased in most parts of the country: Cement prices during March increased by Rs15-17 per bag of 50kg in most parts of the country. The eastern region witnessed the highest price hike on a month-on-month (M-o-M) basis. Cement prices in the southern region witnessed an increase of around Rs10 per bag compared with the average hike of Rs15 per bag. The price hike was on the back of an increase in the railway freight cost and higher excise duty. However, the price hike undertaken by the players is higher than the cost push due to the higher freight cost and excise duty. Hence, we believe it will improve the EBITDA per tonne of cement in the coming quarters. Further, dealers are of the view that the cement prices may further increase in the near term as cement offtake is expected to be strong going ahead. -
Outlook: remain bullish on Grasim and Orient Paper: The cement sector has outperformed the broader market in recent times due to positive factors such as a recovery in the cement offtake and strong realisation. However, a failure to adhere to supply discipline could be the key risk to the cement prices. Another key concern remains the cost pressure in terms of (a) higher coal prices and (b) higher freight cost due to an increase in fuel price and lead distance. Hence, we maintain our neutral stand on the sector. However, we are selectively positive and prefer Grasim Industries in the large-cap space and Orient Paper and Industries (Orient Paper) in the mid-cap space. | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | |
| | |
