The Hindu Business Line : BHEL staging a comeback

IT'S indeed a spectacular performance from the largest power equipment company in the country. Be it in terms of order booking, order backlog or operating profit margins, year 2003-04 has been the best for the company in the past five years.

After a flat growth in the top and bottomline in 2002-03, 2003-04 was a good comeback aided by strong investment activity in both its segments — power and industry. Revenue from the power segment rose 10 per cent and that from the industry segment rose 22 per cent.

The highlight of the performance is the improvement in the operating profit margin (OPM), which rose 1.45 percentage points to 13.43 per cent, aided by various factors such as lower execution time and more turnkey contracts. The reduction in staff also bolstered profitability. Operating profit rose sharply by 28.5 per cent. The company decided to charge the VRS costs for 2003-04 fully in the same year. As only a small portion of the VRS expense is outstanding, BHEL's profitability may improve in the current year.

Outlook: BHEL has projected a lower order booking and profitability growth for the year 2004-05. However, given the sizable orders on hand, BHEL may be able to maintain a double-digit growth for the next couple of years even if the order booking is lower as projected. The current stock price reflects this growth potential. The stock would get further fillip only if the current momentum in order booking too, continues for the next couple of years, giving revenue clarity over a four to five-year period.

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