Heavily Anchored - BHEL

We had recommended BHEL twice to our investors, first in Issue No 6 dated March 2, 2009 at Rs 1,379 and then in Issue 9 dated April 13, 2009 at Rs 1,517. Our recommendation was backed by factors such as its PSU status, strong financial performance despite all odds and most importantly, its impressive order book indicating good earning visibility. After our recommendation the scrip has moved up and is currently trading at Rs 2148.40, thus displaying good appreciation over both the recommended prices.

As regards the financial performance of the company, for Q1FY10 it posted a topline of Rs 5,595.70 crore and a bottomline of Rs 470.60 crore as against the topline of Rs 4,329.30 crore and bottomline of Rs 384.40 crore in Q1FY09. Both the segments viz. power and industry have managed to post good topline growth. But due to higher raw material cost (since there was some high cost inventory) the margins in this segment were impacted. However, the management is confident about an improvement in the margins in the next quarter as all high value inventories have now been used.

With this we expect BHEL to achieve a targeted topline of Rs 32,000 crore and a bottomline of Rs 4,200 crore for FY10. Therefore, considering that the company has posted good results for Q1FY10, our recommendation is that investors should book partial profit of around 50 per cent. With an order book of more than Rs 1,24,000 crore, there still remains good earning visibility for the company. But as the counter has moved up significantly, it’s best to strike when the iron is hot.