Bharat Bijlee operates in the ‘Electrical Equipment’ industry under the ‘Power Systems’ (transformers etc.) and ‘Industrial Systems’ (drives, elevator systems, electric motors, etc.) segments.
The company has a prominent customer base and is the leader in the 220kv transformer segment. Management expects demand for the company’s products to grow over the next few years.
The company reported good growth in revenues over the last five years although operating profit margins have eroded in that time period. It reported 70cr in operating profits on 700cr of revenues in the last financial year while employing no net debt to finance its operations. It also owned about 240cr worth of and mutual fund units as of date.
The business is subject to the capital and infrastructure investment cycle, which is impacted by the interest rate cycle – therefore, it suffers from demand slowdowns during periods (such as currently) when financing costs are high and such spending is deferred indefinitely resulting in sub-optimal capacity utilisation that dampen sales growth.
The industry suffers from periods of overcapacity that depresses selling prices and pressurises margins.
Further, continuous inflationary cost increases does not help matters – and the company only has partial pricing power in this regard, unable to pass the full extent of cost increases to the customer.