BHEL FY11 provisional net up 40%, but order flows slow

Bharat Heavy Electricals Monday reported a provisional 40% year-on-year growth in its net profit for 2010-11 (April-March) at Rs 6,021 crore, setting a strong benchmark for other capital goods companies, which have been under pressure due to slowdown in orders.The state-owned power equipment maker reported a provisional turnover of Rs 43,451 crore, up 27.2% from a year ago.

BHEL shares rose following the announcement and closed at Rs 2,173.75 on National Stock Exchange, up 2.3%.

Since the beginning of 2011, BHEL shares have fallen 8.4% as of Friday's close. The BSE's capital goods index, of which BHEL is a major component, has lost 13% during the same period, compared to a 5% drop in the 50-share Nifty index, reflecting investor apathy towards the sector.

The company’s order inflows were at Rs 60,507 crore in 2010-11, just above its target of Rs 60,000 crore. But year-on-year growth in orders was just 2.5%

“There have been a lot of concerns over delays in environment clearances for power projects, and that is leading to slow orders for companies like BHEL,” Atul Karwa of KR Choksey told moneycontrol.com.

Several public and private sector companies have announced new power projects in the last couple of years. The government has said it plans to add 1,00,000 mega watt of power generation capacity in the 12th five year plan (2012-17).

However, delays in acquiring land for the projects, getting environmental clearances and securing coal supplies have hindered growth in the power sector, which is in turn is slowing orders for capital goods companies.

Karwa expects order inflows will be slow in the next two quarters.

"BHEL has fared better compared to its rivals. But the orders are only likely to pickup in the second half of 2011-12 (April-March), if issues related to securing necessary clearances and coal linkages are sorted out, he says.

BHEL said lack of coal supplies was causing project delays, which was in turn delaying orders the company gets.

It expects at least 10% growth in orders in 2011-12 and a big pipeline of delayed orders to be cleared in the current fiscal year.

KR Choksey has maintained its “buy” rating on BHEL with a target price of Rs 2,600/share.

Source: www.moneycontrol.com

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