Bharat Heavy Electricals reports 320% CAPEX growth in 2016 while 14.2% Revenue decline

27-05-2016 • About Bharat Heavy Electricals ($BHEL) • By InTwits

Bharat Heavy Electricals reported FY2016 financial results today. Here are the key drivers of the company's long term financial model:

Bharat Heavy Electricals is a company in decline: FY2016 revenue growth was -14.2%, 5 years revenue CAGR was -9.2%
EBITDA Margin is declining: -7.5% in FY2016 vs. 8.4% in FY2015 vs. 21.0% in FY2012
EBITDA Margin is quite volatile: -7.5% in FY2016, 8.4% in FY2015, 11.8% in FY2014, 19.7% in FY2013, 21.0% in FY2012
Bharat Heavy Electricals has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.5%. At the same time it's in pair with industry average of 3.8%
CAPEX is quite volatile: ₹13,675m in FY2016, ₹3,256m in FY2015, ₹16,041m in FY2014, ₹17,553m in FY2013, ₹15,855m in FY2012
The company has unprofitable business model: ROIC is -8.1%

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

Revenue and profitability

Bharat Heavy Electricals's Revenue dropped on 14.2%. During the last 5 years Revenue growth bottomed in FY2015 at -22.4%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 2.9 pp from 21.1% to 24.0% in FY2016. EBITDA Margin declined at -6.8 pp per annum in the last 5 years.

Net Income margin decreased on 8.3 pp from 4.8% to -3.5% in FY2016. Net Income margin stuck to a declining trend at -4.6 pp per annum in FY2012-FY2016.

Investments (CAPEX, working capital and M&A)

In FY2016 the company had CAPEX/Revenue of 5.3%. The company showed small growth in CAPEX/Revenue of 1.6 pp from 3.6% in FY2013 to 5.3% in FY2016. It's average level of CAPEX/Revenue for the last three years was 3.5%.

Return on investment

The company operates at negative ROIC (-8.1%) and ROE (-2.7%). ROIC dropped on 12.0 pp from 4.0% to -8.1% in FY2016. ROE decreased on 7.0 pp from 4.3% to -2.7% in FY2016. ROIC declined at -12.5 pp per annum in FY2012-FY2016. ROE declined at -8.7 pp per annum in FY2012-FY2016.

Leverage (Debt)

Company's Net Debt / EBITDA is -0.1x and Debt / EBITDA is . Net Debt / EBITDA jumped on 0.4x from -0.4x to in FY2016. Debt surged on 34.0% while cash dropped on 31.9%.

Bharat Heavy Electricals has no short term refinancing risk: cash is higher than short term debt (2,157.9%).

Financial and operational results

Bharat Heavy Electricals ($BHEL) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	475,990	481,063	388,483	301,475	258,577	-14.2%
EBITDA	99,732	94,838	45,855	25,297	-19,299	-176.3%
Net Income	70,874	66,934	35,029	14,524	-8,959	-161.7%
Balance Sheet
Cash	33,343	31,025	26,763	29,030	19,766	-31.9%
Short Term Debt	1,494	14,651	27,317	1,559	916	-41.2%
Long Term Debt	2,821	12,330	19,614	17,336	24,410	40.8%
Cash flow
Capex	15,855	17,553	16,041	3,256	13,675	319.9%
Ratios
Revenue growth	13.7%	1.1%	-19.2%	-22.4%	-14.2%
EBITDA growth	15.5%	-4.9%	-51.6%	-44.8%	-176.3%

EBITDA Margin	21.0%	19.7%	11.8%	8.4%	-7.5%	-15.9%
Net Income Margin	14.9%	13.9%	9.0%	4.8%	-3.5%	-8.3%
CAPEX, % of revenue	3.3%	3.6%	4.1%	1.1%	5.3%	4.2%

ROIC	41.5%	29.5%	10.3%	4.0%	-8.1%	-12.0%
ROE	31.1%	23.9%	11.0%	4.3%	-2.7%	-7.0%
Net Debt/EBITDA	-0.3x	-0.0x	0.4x	-0.4x

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	FY2012	FY2013	FY2014	FY2015	FY2016
Swelect Energy Systems ($SWELECTES)	17.5%	-70.6%	-0.0%	25.7%	-
T D Power Systems ($TDPOWERSYS)	-	-43.1%	-18.2%	24.4%	-15.9%
Sterlite Technologies ($STRTECH)	-	17.9%	-17.1%	20.8%	-30.2%
Voltamp Transformers ($VOLTAMP)	4.3%	-7.7%	-13.7%	16.2%	-
Techno Electric And Engineering Co. ($TECHNO)	13.6%	-15.7%	1.7%	12.6%	-
Median (16 companies)	13.6%	-8.7%	1.7%	4.5%	-9.7%
Bharat Heavy Electricals ($BHEL)	-	1.1%	-19.2%	-22.4%	-14.2%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Suzlon Energy ($SUZLON)	33.2%	27.2%	28.6%	31.3%	40.6%
Median (1 company)	33.2%	27.2%	28.6%	31.3%	40.6%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ujaas Energy ($UJAAS)	1.2%	18.7%	17.4%	38.1%	22.6%
Techno Electric And Engineering Co. ($TECHNO)	27.0%	34.5%	28.5%	26.5%	-
Techno Electric & Engineering Company ($TECHELE)	27.0%	34.5%	28.5%	26.5%	-
Sterlite Technologies ($STRTECH)	7.5%	7.5%	10.8%	15.0%	20.9%
Emco ($EMCO)	7.4%	9.5%	11.3%	9.3%	-
Median (16 companies)	8.9%	8.1%	6.4%	5.5%	6.8%
Bharat Heavy Electricals ($BHEL)	21.0%	19.7%	11.8%	8.4%	-7.5%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Sterlite Technologies ($STRTECH)	24.9%	47.2%	64.9%	37.4%	10.3%
Swelect Energy Systems ($SWELECTES)	5.1%	42.5%	50.8%	21.8%	-
Transformers And Rectifiers (India) ($TRIL)	5.7%	8.4%	2.8%	5.8%	1.4%
T D Power Systems ($TDPOWERSYS)	3.7%	14.5%	15.1%	3.8%	3.4%
Suzlon Energy ($SUZLON)	4.2%	3.7%	3.4%	3.7%	4.3%
Median (15 companies)	5.4%	3.0%	2.4%	2.5%	2.6%
Bharat Heavy Electricals ($BHEL)	3.3%	3.6%	4.1%	1.1%	5.3%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Alstom India ($AIL)	27.2%	25.6%	13.2%	10.7%	-27.7%
Ujaas Energy ($UJAAS)	0.0%	28.5%	33.7%	10.2%	16.2%
Techno Electric & Engineering Company ($TECHELE)	15.5%	12.6%	9.3%	10.2%	-
Techno Electric And Engineering Co. ($TECHNO)	15.5%	12.6%	9.3%	10.2%	-
Emco ($EMCO)	4.3%	6.1%	7.4%	6.1%	-
Median (18 companies)	14.1%	6.1%	7.4%	4.1%	4.0%
Bharat Heavy Electricals ($BHEL)	41.5%	29.5%	10.3%	4.0%	-8.1%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Jyoti Structures ($JYOTISTRUC)	2.4x	3.6x	5.7x	88.2x	-
Suzlon Energy ($SUZLON)	6.1x	-	87.6x	19.1x	9.5x
Bgr Energy Systems ($BGRENERGY)	2.6x	3.5x	4.1x	13.0x	-
Sterlite Technologies ($STRTECH)	4.6x	10.2x	15.4x	11.1x	2.2x
Emco ($EMCO)	8.1x	7.3x	5.7x	7.3x	-
Median (14 companies)	2.4x	3.5x	2.5x	2.7x	2.2x
Bharat Heavy Electricals ($BHEL)	-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.