Bharat Heavy Electricals reports 58.5% Net Income decline and 22.4% Revenue decline

26-05-2015 • About Bharat Heavy Electricals ($BHEL) • By InTwits

Bharat Heavy Electricals reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Bharat Heavy Electricals is a company in decline: FY2015 revenue growth was -22.4%, 5 years revenue CAGR was -9.3%
EBITDA Margin is declining: 8.4% in FY2015 vs. 11.8% in FY2014 vs. 20.6% in FY2011
EBITDA Margin is quite volatile: 8.4% in FY2015, 11.8% in FY2014, 19.7% in FY2013, 21.0% in FY2012, 20.6% in FY2011
Bharat Heavy Electricals has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.5%. At the same time it's a lot of higher than industry average of 11.7%.
CAPEX is quite volatile: 3,256 in FY2015, 16,041 in FY2014, 17,553 in FY2013, 15,855 in FY2012, 21,861 in FY2011
The company has potentially unprofitable business model: ROIC is at 4.0%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Bharat Heavy Electricals ($BHEL) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	418,547	475,990	481,063	388,483	301,475	-22.4%
EBITDA	86,359	99,732	94,838	45,855	25,297	-44.8%
Net Income	60,534	70,874	66,934	35,029	14,524	-58.5%
Balance Sheet
Cash		33,343	31,025	26,763	29,030	8.5%
Short Term Debt	1,493	1,494	14,651	27,317	1,559	-94.3%
Long Term Debt	1,024	2,821	12,330	19,614	17,336	-11.6%
Cash flow
Capex	21,861	15,855	17,553	16,041	3,256	-79.7%
Ratios
Revenue growth	-15.0%	13.7%	1.1%	-19.2%	-22.4%
EBITDA growth	45.2%	15.5%	-4.9%	-51.6%	-44.8%
EBITDA Margin	20.6%	21.0%	19.7%	11.8%	8.4%	-3.4%
Net Income Margin	14.5%	14.9%	13.9%	9.0%	4.8%	-4.2%
CAPEX, % of revenue	5.2%	3.3%	3.6%	4.1%	1.1%	-3.0%
ROIC	46.1%	41.5%	29.5%	10.3%	4.0%	-6.3%
ROE	33.6%	31.1%	23.9%	11.0%	4.3%	-6.7%
Net Debt/EBITDA	0.0x	-0.3x	-0.0x	0.4x	-0.4x	-0.8x

Revenue and profitability

Bharat Heavy Electricals's Revenue dropped on 22.4% in FY2015. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 3.4 pp from 11.8% to 8.4% in FY2015.

Net Income marign decreased on 4.2 pp from 9.0% to 4.8% in FY2015.

Capital expenditures (CAPEX) and working capital investments

Bharat Heavy Electricals's CAPEX/Revenue was 1.1% in FY2015. Bharat Heavy Electricals showed decline in CAPEX/Revenue of 2.3 pp from 3.3% in FY2012 to 1.1% in FY2015. It's average level of CAPEX/Revenue for the last three years was 3.0%.

Return on investment

The company operates at low ROIC (3.98%) and ROE (4.31%). ROIC decreased on 6.3 pp from 10.3% to 4.0% in FY2015. ROE decreased on 6.7 pp from 11.0% to 4.3% in FY2015.

Leverage (Debt)

Debt level is -0.4x Net Debt / EBITDA and 0.7x Debt / EBITDA. Net Debt / EBITDA dropped on 0.8x from 0.4x to -0.4x in FY2015. Debt dropped on 59.7% in FY2015 while cash increased on 8.5% in FY2015.

Valuation

Bharat Heavy Electricals's trades at EV/EBITDA 23.0x and P/E 40.7x while industy averages are 10.5x and 26.1x. The company's EV/(EBITDA-CAPEX) is 26.3x with the industry average at 4.7x.

Appendix 1: Peers in Heavy Electrical Equipment

Below you can find Bharat Heavy Electricals benchmarking vs. other companies in Heavy Electrical Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ujaas Energy ($UJAAS)		1.1%	614.7%	116.7%	-78.9%
Transformers And Rectifiers (India) ($TRIL)	-20.6%	-4.4%	-1.3%	42.8%
Jyoti Structures ($JYOTISTRUC)	-35.2%	15.3%	8.9%	20.7%
Emco ($EMCO)	-4.5%	-19.1%	-13.0%	20.2%
Crompton Greaves ($CROMPGREAV)	9.5%	12.4%	7.5%	12.7%
Median (15 companies)	2.5%	13.6%	-9.8%	1.7%	12.6%
Bharat Heavy Electricals ($BHEL)		13.7%	1.1%	-19.2%	-22.4%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Suzlon Energy ($SUZLON)	30.3%	33.2%	27.2%	28.6%
Median (1 company)	30.3%	33.2%	27.2%	28.6%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Techno Electric And Engineering Co. ($TECHNO)	23.3%	27.0%	34.5%	28.5%	26.5%
Techno Electric & Engineering Company ($TECHELE)	23.3%	27.0%	34.5%	28.5%	26.5%
Ujaas Energy ($UJAAS)	9.3%	1.2%	18.7%	17.4%	38.1%
Bgr Energy Systems ($BGRENERGY)	12.4%	14.1%	14.6%	12.2%
Emco ($EMCO)	-1.0%	7.4%	9.5%	11.3%
Median (15 companies)	12.4%	8.9%	8.8%	6.6%	15.0%
Bharat Heavy Electricals ($BHEL)	20.6%	21.0%	19.7%	11.8%	8.4%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Sterlite Technologies ($STRTECH)	19.8%	24.9%	47.2%	64.9%	37.4%
Swelect Energy Systems ($SWELECTES)	2.9%	5.1%	42.5%	50.8%
Ujaas Energy ($UJAAS)	6.8%	87.8%	1.4%	20.2%	0.4%
T D Power Systems ($TDPOWERSYS)	1.5%	3.7%	14.5%	15.1%	3.8%
Suzlon Energy ($SUZLON)	4.6%	4.2%	3.7%	3.4%
Median (14 companies)	5.4%	5.7%	3.0%	2.3%	0.5%
Bharat Heavy Electricals ($BHEL)	5.2%	3.3%	3.6%	4.1%	1.1%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ujaas Energy ($UJAAS)	10.6%	0.0%	28.5%	33.7%	10.2%
Alstom India ($AIL)	44.3%	27.2%	25.6%	13.2%	10.7%
Crompton Greaves ($CROMPGREAV)	32.5%	12.9%	3.5%	10.1%
Bgr Energy Systems ($BGRENERGY)	25.9%	15.5%	11.9%	9.7%
Jyoti Structures ($JYOTISTRUC)	26.3%	25.2%	16.3%	9.5%
Median (17 companies)	17.4%	14.1%	6.3%	8.3%	10.2%
Bharat Heavy Electricals ($BHEL)	46.1%	41.5%	29.5%	10.3%	4.0%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Suzlon Energy ($SUZLON)	9.7x	6.1x		87.6x
Sterlite Technologies ($STRTECH)	2.8x	4.6x	10.2x	15.4x	11.1x
Jyoti Structures ($JYOTISTRUC)	1.3x	2.4x	3.6x	5.7x
Emco ($EMCO)		8.1x	7.3x	5.7x
Swelect Energy Systems ($SWELECTES)	0.5x	0.5x	1.3x	5.0x
Median (15 companies)	1.3x	2.5x	3.0x	2.5x	2.2x
Bharat Heavy Electricals ($BHEL)	0.0x	-0.3x	-0.0x	0.4x	-0.4x

Bharat Heavy Electricals stock price chart

Bharat Heavy Electricals financials

mln.	FY2010	FY2011	FY2012

Revenue	492,307	418,547	475,990
EBITDA	59,461	86,359	99,732
Net income	43,269	60,534	70,874
CAPEX	17,279	21,861	15,855
Debt	1,483	2,517	4,315
Cash	0.000	0.000	33,343

About Bharat Heavy Electricals

Bharat Heavy Electricals Limited operates as an engineering and manufacturing company worldwide. The company operates through Power and Industry segments. It provides power generation equipment, such as air preheaters, boilers, control relay panels, electrostatic precipitators, fabric filters, fans, gas turbines, hydro power plant, piping systems, pulverizes, pumps, seamless steel tubes, soot blowers, steam generators, steam turbines, turbo generators, and valves. The company also offers industrial systems and products comprising capacitors, ceralin, compressors, desalination plants, diesel generating sets, industrial motors and alternators, gas turbines, oil field equipment, solar photovoltaics, power semiconductor devices, steel castings and forgings; and transmission products, such as power transformers/reactors, instrument transformers, switchgears control and protection equipment, thyristor equipment, insulators, and bushing products. In addition, it provides products for transportation sector that include electric rolling stocks, electrics for rolling stocks, and electrics for urban transportation systems; and non-conventional energy source products consisting of mini/micro hydro sets, solar lanterns, solar photovoltaics, solar water heating systems, and wind electric generators. Further, the company offers fuel cells, surface coatings, automated storage and retrivals, load sensors, and transparent conducting oxide products for research and development purpose. Bharat Heavy Electricals Limited was founded in 1964 and is based in New Delhi, India.