In an interview to CNBC-TV18, Sanjeev Zarbade of Kotak Securities reviewed BHEL’s numbers.
Below is the verbatim transcript of an interview aired on CNBC-TV18.
Q: Your take with regards to Bharat Heavy Electricals’ numbers. It seems like it has disappointed consensus estimate as well.
A: The numbers are disappointing both on the topline as well as the bottomline and even the EBITDA margins are substantially lower. So, while we were expecting a possible disappointment at least on the execution side but the way the EBITDA margins have come at sub 17 percent, definitely, there is significant disappoint in the company.
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Q: Even the order book looks quite disappointing at this level. Where do you see the stock head from here? It has already got down to that Rs 220 level. How much more of a pressure do you expect to see?
A: The stock price is the function of the order intake that the company tends to announce. During this quarter i.e. third quarter as well, there has been very low order intake. In the coming months there are couples of orders in which the company is favourably positioned and that may probably provide some kind of support to the stock price. However, in general, we believe that the trend for the stock price at least in the medium-term is on the downward side.
Q: What would you make with regards to the margins because pricing pressure has started showing in terms of margins at this point in time for BHEL. Give us some specifics in terms of how exactly do you expect the margins to progress considering that the order book is declining quite considerably as well?
A: For BHEL, as of now, they would continue to have a negative impact of having much more fixed cost structure. Since the revenue growth is slowing down, it will continue to have a negative impact on the margins. So, that is one concern that we have.
Q: After looking at the order inflow number that we have seen this quarter, will you have to revise your order inflow target for the full year downwards? What is your earnings per share (EPS) estimate? Post looking at these numbers - will you have to scale them down?
A: On the earnings, we will have to scale down because this is the second quarter of a significant mess on the topline as well as the bottomline side. Probably we will also have to correct order intake target for the year.
Q: Where does your order intake target stand at currently? How many more quarters of pain are you expecting BHEL to see with respect to order inflow before there seems to be any kind of recovery?
A: Generally, industry consensus is that the issues in power sector will take some time, at least 12 months to completely rectify. Until then, I believe the order intake could remain weak for the company.
Q: What is your view with regards to order inflow this quarter? Give us some sort of parameters that we should expect in terms of order inflow, which they received this quarter and also going forward, what is the pipeline looking like?
A: Overall, the pipeline is around 11,000 megawatt in the next six months out of which around 5,000 megawatt have been tendered in which BHEL is favourably positioned in couple of order. The remaining 6,000 megawatt would be tendered in the coming months. That is the overall kind of pipeline that we have.
Q: There are some other brokerages or peers that are expecting a decline of seven-eight percent in terms of FY14-15. Would you be standing by with regards to that sort of estimate in terms of revenues as well? Do you expect this to progress in FY14-15?
A: As per our estimates, we are projecting a decline in earnings next year to Rs 23. Depending upon the order intake, most probably it looks like that even FY15 would continue to remain subdued as of now.
Q: The management has been quite hopeful of booking the NTPC bulk tender order as well. In terms of specifics on order inflow, what are you hoping to hear from the management now?
A: We would continue to look at the kind of investment pipeline the company has depending upon the current circumstances. Some of the orders on which it is already one of the lowest bidders, timeline we can expect in terms of the company receiving those orders.
Q: Where do you see the base for this stock now? What is your target price?
A: We had a target price of Rs 228 when we came out with the update. We would come out with the revised target once we finalise our numbers.
Q: What is your pecking order within this space?