Bharat Heavy Electricals’ Q4FY18 sales (including other operating income and adjusted for net excise duty) increased by mere 3% yoy to Rs10,147.9cr in Q4FY18. EBITDA grew by 116.6% yoy to Rs1,231.6cr from Rs568.7cr in Q4FY17. EBITDA margin improved by 637bps from ~5.8% in Q4FY17 to 12.1% in Q4FY18. Net profit grew by 112.1% yoy to Rs457.2cr during the quarter as compared to Rs215.6cr in Q4FY17.
The raw material cost as a proportion to sales declined substantially to 50.5% in Q4FY18 vs 53.9% in Q4FY17. Other expenses decreased by 32.2% yoy, while employee cost increased by 73.4% yoy due to Rs750cr wage revision provision relating to 9MFY18. Decline in raw material and other expenses resulted in strong EBITDA and margin expansion.
Finance cost has also declined by 77% yoy to Rs72.6cr. During the quarter, BHEL accounted for deferred tax of Rs300.5cr (likely to be related to Rs1,000cr wage revision provision in FY18), thereby containing net profit growth despite a heavy decline in interest cost.
Power segment sales (not adjusted for inter-segment revenue) were up by 2.5% yoy to Rs8,308cr, while the EBIT margin declined from 13.9% in Q4FY17 to 10.9% in Q4FY18.
Industry segment sales declined by 13.9% yoy to Rs1,520.5cr. However, the company reported a lower profit of Rs57.2cr at the EBIT level as compared to Rs268.3cr in Q4FY17. Hence, the margin declined from 15.2% in Q4FY17 to 3.8% in Q4FY18.
The order inflow for FY18 was Rs40,932cr (up 74% yoy) led by recovery in power orders after a muted FY17. Power orders grew 93% yoy to Rs33,300cr. Its order book currently stands at Rs1.18lakh cr.
BHEL has won orders of Rs1,800cr in Q1FY19 till date, and is L1 for orders of Rs16,000cr. Its new order pipeline is ~10,000-11,000MW, with expected finalisation of 8,000-9,000MW of orders in FY19.
Due to anticipation of lack of orders for the coal based power plants, BHEL is spreading its wings in defence, railways, water management and power T&D segments.
BHEL remains cautious on margin compression owing to rising commodity prices. However, some of the projects (particularly NTPC orders) have pass through clauses. The company has also placed orders for most of its raw material requirements for FY19.
In another development, BHEL is transferring its 51% stake in its subsidiary - BHEL Electrical Machines Limited (BHEL EML) to the Government of Kerala. EML is a subsidiary of BHEL and a JV between the government of Kerala (49% stake) and the former. The company was incorporated in 2011 with an equity investment of Rs5.36cr. In FY17, EML recorded a turnover of Rs32.07cr with a net loss of Rs4.24cr.
Bharat Heavy Electricals Ltd is currently trading at Rs85.25, up by 6.05 points or 7.64% from its previous closing of Rs79.20 on the BSE. The scrip opened at Rs79.95 and has touched a high and low of Rs86.45 and Rs.79.55 respectively. So far 3,85,61,084 (NSE+BSE) shares were traded on the counter. The stock is currently trading below its 200 DMA.
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