BHEL jumps on NTPC order hopes, analysts not convinced

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BHEL jumps on NTPC order hopes, analysts not convinced

Shares of power equipment maker BHEL (Bharat Heavy Electricals) jumped over 10% on Friday on hopes that the public sector firm's order flows will get a big boost after Supreme Court cleared NTPC to place orders for supercritical equipment.

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Moneycontrol Bureau

Shares of power equipment maker BHEL (Bharat Heavy Electricals) jumped over 10% on Friday on hopes that the public sector firm's order flows will get a big boost after Supreme Court cleared NTPC to place orders for supercritical equipment.

The Supreme Court on Thursday overturned the Delhi High Court verdict that allowed Italian boiler manufacturer Ansaldo Caldaie Boilers to bid for providing equipment to state-run power generator. The court upheld NTPC's decision to disqualify the Italian firm from participating in the around Rs 16,000 crore power equipment tender.

This means, companies like BHEL will now be able to bid for supplying the power equipment. BHEL, like other power equipment companies, has seen a slump in orders due to delays in power projects. BHEL's orders are down 65% from a year ago for the first nine months of the fiscal. So it will get a big boost if it does win the NTPC order.

The recent steps by the Prime Minister's Office to tackle the coal availability issue are also favourable for the power sector and thus make power projects more bankable, say analysts.

However, analysts are not convinced just yet. Several projects could still face project delays due to lack of fuel supplies and that will inturn delay orders for BHEL.

"Around 15% of BHEL's order book could be slow moving. Projects which do not have secured fuel supplies are likely to get delayed; banks are also not lending to such projects. With equity market not being conducive, projects of some smaller players could also get delayed. Some projects are also stuck due to land acquisition and environment clearance issues," noted Rajesh Panjwani and Aditya Bhartia of CLSA Asia Pacific Markets.

The two analysts expect BHEL's orders will pick up in the fourth quarter (Jan-March), but key issue would be margins on future projects.

Nomura Financial Advisory and Securities India expects BHEL's margins will compress 300-350 bps over fiscal 2012-17 due to rising competition and supercritical projects.

It also feels that despite steps taken by the PMO, there will still be projects, which will not get coal supplies and so will in turn face pressure from lenders to cancel or defer projects.

"As such we see rising risk of equipment order cancellation," said Nomura analysts Amar Kedia and Indrajit Yadav.

Further, the slowdown in order flows will also put pressure on BHEL's working capital, the analysts said.

"While historically BHEL has been able to fund its working capital requirement with a sharp rise in customer advances, the situation is likely to reverse as order book growth slows and execution picks up," Kedia and Yadav said.

Nomura cut BHEL to "neutral" from "buy" and CLSA maintained a "sell" rating.  Kim Eng Research too has a "sell" on the stock, citing delay in new orders from power producers, apart from NTPC.

At 13:10 hrs, BHEL shares were up 8.6% at Rs 308.95 on NSE.