Financial Analysis of BHEL

Secti on B
Gro up 18

Abhra Majumdar
2010063
Anjali Motwani
2010067
Bhakti Khanwalkar
2010071
Financial Analysis Essential?
• Financial analysis is the process of evaluating
financial and other information for decision-
making
• Accurate financial analysis is a fundamental
element of growth, strategy, and overall
success
• Allows you to allocate resources and evaluate
potential projects for maximum return-on-
investment
• Keep tabs on how your business is performing
• Involves careful selection of data from financial
statements for the primary purpose of
forecasting the financial health of the
company.
• Can be accomplished by examining trends in
key financial data, comparing financial data
 Navratnas
• Navratna title was given to the most successful
nine Public Sector Enterprises (PSEs) of India
• 16 Navratna Companies
• Are profit making and globally competent
companies of India


Navratnas Under Consideration



• BHEL
• BPCL
• MTNL
• GAIL
• HPCL
 BHEL
• Bharat Heavy Electrical Ltd is the largest
engineering and manufacturing enterprise
in India in the energy related and the
infrastructure sector
• Established more than 40 years ago
• The company has been earning profits
continuously since 1971-72 and paying
dividends since 1976.
• BHEL's operations are organised around
three business sectors, namely Power,
Industry - including Transmission,
Transportation and Renewable Energy -
and Overseas Business
 Objectives
• To evaluate the performance of BHEL
by analyzing the Key Financial
Ratios
• To compare the performance of BHEL
with Four other Navratnas
(BPCL,GAIL,MTNL & HPCL)
• To compare the performance of BHEL
with its competitor L&T
– By analyzing the Key Financial Ratios
– By analyzing the stocks (Return and
Risk)
 Ratio Analysis
RATIOS COMPANIES
COMPETITOR
BHEL BPCL GAIL HPCL MTNL L&T

LIQUIDITY MEASUREMENT RATIOS

a ) Current 1.37 0.6 1.23 0.86 0.88 1.22
Ratio
b ) Quick 1.08 0.2 1 0.18 0.32 0.66
Ratio
PROFITABLITY INDICATOR RATIOS
a ) Net Profit 0.12 0.014 0.12 0.011 -0.714 0.11
Margin
Analysis
b ) Return on 0.11 0.12 0.27 0.085 -0.15 0.21
assets
c ) Return on 8.8055 4.7574 2.4753 3.8387 -4.1444 6.7
equity
d ) Return on 45.47 9.84 24.31 9.13 0 23.85
capital
employed
Data Source – Capitaline database
 Ratio Analysis Contd.
RATIOS COMPANIES
COMPETITOR
BHEL BPCL GAIL HPCL MTNL L&T

OPERATING PERFORMANCE RATIOS

a ) Fixed 5.65 13.95 1.31 5.13 0.16 5.82
Asset
Turnover
b ) Debtor 1.89 64.33 18.14 49.59 4.87 3.54
Ratio
Turnover
Ratio
c ) Inventory 4.03 13.95 41.16 10.85 17.78 5.52
Turnover
Ratio
CASH FLOW INDICATOR RATIOS
a ) Operating 0.144 0.031 0.16 0.03 -0.232 0.14
cash flow
/bsales
) FCF / Operati -0.63 3.14 -3.38 -279.13 -0.937 -3.57
ratio
ng Cash
Flows

Data Source – Capitaline database

 Ratio Analysis Contd.
RATIOS COMPANIES
COMPETITOR

  BHEL BPCL GAIL HPCL MTNL L&T

INVESTMENT VALUATION RATIOS

a ) Book 325.16 361.97 132.43 340.93 149.97 203.28
value per
share
b ) Market 7.34 1.43 3.09 0.89 0.49 5.36
price / Book
value
ratio
84.15 40.52 23.5 36.4 0 70.83
c ) Earnings
Per Share 28.35 12.75 17.44 7.7 0 22.96
d ) Price
/ earnings
ratio 0.26 0.29 0.3 0.31 0 0.17
e ) Dividend
Payout
ratio

Data Source – Capitaline database

 Stock Analysis of BHEL and
L&T
• Historical Data of BHEL and L&T from
23rd Nov 2006 to 1st Nov 2010 is
taken from NSE and analysed
• Calculated Systematic Risk and
Return of L&T and BHEL
•
COMPANY BETA VALUE ANNUALIZED
 AVERAGE RETURN
(%)
BHEL 1.001728849 32.56
L&T 1.128258845 25.5
 Sharpe And Treynor Ratios
Sharpe Ratio Treynor Ratio


L&T L&T
BHEL sharpe ratio = B H EL   Treynor ratio =
sharpe ratio = ( expected stock treynor ratio ( expected stock
(expected stock return return - risk free rate) =(expected stock return - risk free
- risk free rate) / / standard deviation return - risk free rate) / beta
standard deviation of of stock rate)/beta
stock

2 . 0928
15 . 51239
3.08642 24.5160

Since the Sharpe ratio of BHEL is Since the treynor ratio of BHEL is
higher than L&T, so the risk- higher than L&T, so BHEL investors
adjusted performance of L&T is will get better yields per unit of
better than that of BHEL risk or BHEL performed better than L&T
Stock Data
Trend Line Analysis
Stock Data
Trend Line Analysis
Conclusion from Ratio Analysis
of BHEL and other Navratnas
• BHEL has the most favourable liquidity ratio
values which indicates a firms commitment
to meet its financial obligations.
• BHEL and GAIL are the most efficient
companies as indicated by their net profit
margin analysis.
• However BPCL follows BHEL in terms of rate
of growth.
• BHEL again is the leader in the percentage
return on capital employed in business and
hence more profit can be invested back into
the company.
• BHEL comes across as a safe company for
investment as well as indicated by its very
Conclusion from Ratio Analysis
of BHEL and L&T
• Liquidity Measurement Ratios, BHEL is better than L&T
• In case of Net profit margin analysis, both the companies
are tied
• When we look as the ROA, L&T is better as it can grow
faster, but ROE and ROCE, BHEL leads the race
• Debt Ratios : BHEL can be considered a safe company to
invest into
• The operating performance ratios portray L&T is better than
BHEL
• The cash flow indicator ratio depict that BHEL is better
performing than L&T
• According to the Investment Valuation Ratios, BHEL
outweighs L&T in the race
• We can interpret that BHEL is better in some aspects than
L&T and needs to work upon some of its financial
management.
Conclusion From Stock
Analysis
– Analysis of historical data shows that
L&T stock is 12% riskier and gives
7% less Return than BHEL
– Also the Sharpe and Treynor ratios of
BHEL is higher than those of L&T
– So Risk adjusted performance of BHEL
is better
 Limitations
• The performance comparison has been done with only one
competitor.
• Ratio Analysis of 5 out of 16 Navratnas is done.
• The very basis of technical analysis is questionable. The past data
or price patterns may not be repeated.
• The technical analysis requires great deal of subjective judgement
and decision making. Same graph or pattern can be read
differently by different analysts.
• A variation of the Sharpe ratio is the Sortino ratio, which removes
the effects of upward price movements on standard deviation
to measure only return against downward price volatility.
• Through creative accounting some accounts of the company are
adjusted. Therefore, ratio analysis can give false explanations
to users.
• Comparison of performance over time – cost because of price
changes, technology changes, change in accounting policy &
impact of trading size.
• When ratios are used for intercompany comparison, we must bear
in mind differences between product mixes of companies &
accounting methods used.
 References
• http://www.nseindia.com/
• http://www.investopedia.com/
• http://www.andreassteiner.net/
• http://www.bhel.com/
• http://www.larsentoubro.com/
• http://www.bharatpetroleum.com/
• http://www.gailonline.com/
• http://www.hindustanpetroleum.com/
• http://www.mtnl.net.in/
• Annual Financial Report of BHEL
• Verbeek, W. M. (2000). The economic value of predicting Stock
Index returns & volatility
• Westerfield, R. &. (n.d.). Corporate Finance. Tata Mcgraw Hill


DATABASES

Thank You