Recommendation From Heavy Electrical Equipment Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

BUILD A FOUNDATION FOR STEADY RETURNS

Bharat Heavy Electricals Ltd.

HERE IS WHY
Rising market share
Healthy operating performance
Prudent management

Bharat Heavy Electricals Ltd. (BHEL) is engaged in the designing, engineering, construction, testing, commissioning and servicing of a range of products catering to the core sectors operating in the Indian economy.

On the standalone financial front, the company's total income from operations rose 1.48 per cent to Rs10,297.16 crore in Q4FY19 from Rs10,146.95 crore in Q4FY18. EBITDA climbed 13.29 per cent to Rs1,395.23 crore in Q4FY19 from Rs1,231.60 crore in Q4FY18. EBITDA margin rose to 13.55 per cent in Q4FY19 from 12.14 per cent in Q4FY18. Net profit increased 49.33 per cent to Rs682.70 crore in Q4FY19 from Rs457.17 crore in Q4FY18. Net profit margin reached 6.63 per cent in Q4FY19 from 4.51 per cent in Q4FY18. EPS soared 50.40 per cent to Rs1.88 in Q4FY19 from Rs1.25 in Q4FY18.

On the consolidated financial front, total income from operations increased 4.44 per cent YoY to Rs30,367.65 crore in FY19 from Rs29,075.46 crore in FY18. EBITDA increased 8.52 per cent to Rs2,137.93 crore in FY19 from Rs1,970.11 crore in FY18. EBITDA margin surged to 7.04 per cent in FY19 from 6.78 per cent in FY18. Net profit climbed 44.13 per cent to Rs1,194.76 crore in FY19 from Rs828.95 crore in FY18. Net profit margin increased to 3.93 per cent in FY19 from 2.85 per cent in FY18. EPS grew 133.61 per cent to Rs2.78 in FY19 from Rs1.19 in FY18.

Power revenue dropped 3 per cent YoY to Rs8,100 crore in Q4FY19. However, the company's industrial business revenue rose 14 per cent YoY to Rs1,700 crore.

Declining raw material costs and improving operating leverage helped improve EBITDA margins. Lower depreciation and taxes resulted in improved profitability. The company is also focusing on ramping up its execution to bolster margin growth. The cost-cutting measures implemented by the company helped the company gain market share.

BHEL and Container Corporation of India Ltd. (CCIL) have entered into an agreement to form a Joint Working Group (JWG) called BHELCON, for jointly setting up a rail-based logistics terminal at Haridwar. In doing so, BHEL will gain a strategic entry into the area of logistics.

The order inflows stood at Rs6,630 crore in Q4FY19 and Rs23,900 crore in FY19, down by 41 per cent YoY. Of these, Rs2,600 crore worth of orders are in the industrial business, while the remaining Rs3,900 crore worth of orders were in the power business. The general elections delayed the award of tenders for the company. Nonetheless, BHEL has won all the BTG/EPC order for thermal power plant over the past couple of years. It holds L1 position in orders worth Rs25,000 crore predominantly from the power sector. The company has signed MoU for revenues of Rs33,000 crore for FY20. Thus, there is good earnings growth visibility in the near term.

The company’s strategy is to diversify orders to the non-coal business, adopt superior technology to ensure emission control systems are in place and increase the rate of execution. By virtue of these factors, we urge our reader-investors to BUY this stock.