BHEL – The Best is Behind us

On Feb-21st, our chief research analyst wrote that the Zenith is behind us which was hard to digest then, a reality now.

Over the last 3-4 years BHEL’s PAT growth was largely aided by operating leverage and slower than expected sales growth could be made up by EBIT margin improvements. We had expected EBIT margins to peak in FY08 – EBIT margins might have peaked in FY07.

BHEL’s FY08P reported PAT at Rs28.1bn up 17% YoY was 14% below CIR estimates on the back of slower order backlog execution in 4QFY08P. 4QFY08P derived Gross Sales was up a measly 6.5% YoY and PAT was down 7% YoY. At this point of time we do not know if 4QFY08P had any exceptional items.

BHEL booked orders to the tune of Rs503bn up 41% YoY ending FY08 with a stupendous order backlog of Rs855bn up 56% YoY. However, it is pertinent to note that only 9,800MW of orders are remaining to be ordered in the XIth plan and as consequence inflows should slow down in FY09E/FY10E.