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Raising Core Values

The company derives strength from the huge number of activities that it spans

Bharat Heavy Electricals Ltd (BHEL) produces over 180 products and provides systems and services to meet the needs of core sectors like power, transmission, industry, transportation, oil & gas, non-conventional energy sources and telecom. Its business can be divided into three — power generation & transmission, industries/transportation and renewable energy/oil & gas. The power generation segment comprises of thermal, gas, hydro and nuclear power plants business. Till the end of last fiscal BHEL supplied nearly 64 per cent of total installed power capacity in India. In the renewable energy segment, BHEL is involved in production of solar panels. In the oil & gas segment it produces equipment for on-shore oil drilling and extraction purposes. It is currently planning its venture into the nuclear power space.

Fundamental Performance
The company has got a spectacular dividend paying record dating back to 1971-72. Further in the last 5 years, BHEL has been able to grow its top-line at 26 per cent, while its bottom-line has increased at a much greater 36 per cent. Its internal strength is amplified by cash reserves that are in excess of Rs 12,000 crore. In the last fiscal, BHEL received a record order inflow of Rs 59,687 crore.

There is some concern over the ability of this giant PSU to garner market share in the private power utilities space, but with 95 per cent of the orders in FY10 being placed by private players, that fear has proven to be erroneous.

Stock Performance
Over the past 5 years, an investor in the stock wouldn’t have any doubt about its ability to mint money. It has gained more than 50 per cent annually over the period. It is currently trading at an earnings per share (EPS) of 63, with a PE of 35.47. Though this is higher than its historic trading PE level of 27.29, but it is still way off its peak of 44.

Moreover, as activity in the power sector is intensifying, and as the company is in a commanding position, it can reap benefits thereof.

BHEL was established more than 40 years ago to fulfill the national goal of making India self-reliant. It is now the largest engineering and manufacturing company in the energy-related infrastructure sector. It is controlled by the Ministry of Heavy Industries and Public Enterprises.

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Alse see: Bharat Heavy Electricals Ltd. (BHEL)

This article was previously published in October 2009 issue of  Wealth Insight