Increase in inventory costs has led to decline in EBIDTA margins- BHEL

Increase in inventory costs has led to decline in EBIDTA margins; decline in purchases will be felt in the coming quarters; wage costs were as high as 40% since provisions were made towards Pay commission: BHEL

BHEL has declared its third quarter results. The company’s Q3 standalone net sales were up 21.3% at Rs 6,022.25 crore versus Rs 4,964.14 crore, YoY.

Its standalone net profit was up 21.3% at Rs 790.56 crore versus Rs 771.90 crore, YoY. Its OPM was down 315bps at 16.95% versus 20.1%.

Ravikumar, CMD, Bhel says that the increase in inventory costs has led to decline in EBIDTA margins. The company is targeting 30% sales growth in the financial year. However, decline in purchases will be felt in the coming quarters. The wage costs were as high as 40% since provisions were made towards Pay commission. The production in fourth quarter will increase sharply. He further added that the execution is not an issue currently & profits to grow by 11-12% in FY09. The company will like to maintain the double digit growth on profits for the full year.Morgan Stanley maintain equal-weight rating on Bhel with a price target of Rs 1,315. The company may still be using high cost commodity. Inventory is likely to see an uptick in margins from Q4 onwards.

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