Recommendation: Buy
Current price: Rs 1,100 (at the time of publishing this tip)
Price target: Rs 1,546
Key points:
- The Q2-FY2009 results of Bharat Heavy Electricals Ltd (BHEL) were a mixed bag. The revenues of the company grew by 34.7% to Rs 5,342.6 crore during the quarter led by a strong 33.4% growth in the power segment revenues. The industry business has reported a 20.4% growth in its revenues to Rs 1,496.1 crore. A favorable exchange rate movement also contributed positively (about 7-8%) to the sales.
- The operating profit of the company increased by 2.2% to Rs 710.7 crore. The operating profit margin stood at 13.3%, down by 423 basis points on a yoy basis mainly due to a sharp 498-basis-point yoy increase in the raw material cost as a percentage of sales to 59.5%. The company would be providing Rs 1,313 crore during FY2009 for the wage revision. Of this, Rs 547 crore has already been provided for in H1-FY2009 and the remaining amount would be provided in H2-FY2009.
- The company has booked Rs 14,798 crore worth of orders in the quarter under review taking the total outstanding order book of the company to Rs 104,000 crore, which translates to a book to bill ratio of 4.8x based on FY2008 revenues.
- At the current market price, this stock is trading at 16.4x and 11.4x FY2009E and FY2010E earnings respectively.
- I recommend a strong Buy call on this stock with a price target of Rs 1,546 over next 9-10 months.
