Powered To Perform - Bharat Bijlee

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After two fiscals of pain when the company witnessed declining profits, Bharat Bijlee seems to be looking in a much better shape in the current fiscal. An improving financial performance, the company’s focus on enhancing and upgrading capacities to drive growth, huge liquid investments to the tune of Rs 615 per share, a high dividend yield of 2.59 per cent and last but not the least at 9MFY11 annualised PE of 11.6x, the scrip certainly looks worth the value and hence is being recommended as our choice scrip at a CMP of Rs 973.
Bharat Bijlee (BBL) is one of the leaders in the electrical engineering industry in India and is a manufacturer and supplier of products such as transformers, electric motors, elevator systems and drives, and also provides project services to its clients. Its growth is driven by the transformer segment, which generates over 72 per cent of its revenues followed by electric motors (23 per cent) and other segments (5 per cent). BBL’s products find application not only in the power sector but also in agriculture and manufacturing. This helps the company to de-risk its business from a downturn in any one industry. That apart, what gives BBL the edge is not only its envious list of clients but also the fact that it is a company which gets one of the highest rates of repeat orders in the industry.
This, we believe, is a good sign as it provides noteworthy visibility of revenues for BBL. In fact, over the last two fiscals, despite the adversities, BBL has been able to maintain a good order book position in excess of Rs 600 crore annually and considering that the overall demand is back on track there is no doubt that BBL’s order book could be higher in the current fiscal. BBL’s clients include power companies such as Power Grid, NTPC, Tata Power, etc. and industry clients such as ABB, Ambuja Cement and others. In FY10 it increased its transformer capacities to 13,380 MVA from 11,000 MVA in FY09, while it also introduced a compact 1,000 KW motor, which is a specialised product.  This augurs well as all these efforts will help its revenue growth in the coming period. But the icing on the cake comes with the huge cash and liquid investments BBL has in its books.
The value of liquid investments comes to around Rs 615 per share or Rs 348 crore, which makes up almost 64 per cent of the total market cap of the company. These funds are easily available to the company for funding any future expansions when needed. For 9MFY11 BBL’s topline grew by 11 per cent to Rs 496.39 crore, while its bottomline increased by 46 per cent to Rs 35.12 crore. On 9MFY11 annualised numbers BBL could post revenues and profits of Rs 660 crore and Rs 47 crore for the full year. At these estimates BBL is available at PE and EV/EBDITA of 11.6x and 6.8x. Though this might look a bit steep when compared to its peers, taking into consideration the huge liquid investments, consistent dividend history, high dividend yield of 2.6 per cent and debt to equity of just 0.12x, the scrip looks a safe bet with a one year target price of Rs 1,200.