Apr 20, 2012, 08.38 PM | Source: CNBC-TV18
Kotak expects a drop in BHEL profits in the current fiscal year, leading to a earnings per share of Rs 28-25.
Sanjeev Zarbade (more)
Analyst, Kotak Securities | Capital Expertise: Equity - Fundamental
In the last two years, BHEL has been plagued with order backlog issues. However, the capital goods major was able to execute well and the revenues kept growing.
Sanjeev Zarbade, analyst at Kotak Securities believes the revenue outlook remains grim unless the order intake accelerates more than the revenue growth.
BHEL reported Q3FY12 net negative order inflow of Rs 1500 crore. Many say that the order book is expected to decline this year and result in revenue and earnings decline for FY13E and FY14E.
"I concur with what the reports are indicating that over the next two-three years, the profit growth for the company will be more or less on the lower side," he told CNBC-TV18 in an interview.
The company reported a lower-than-expected 2.1% rise in quarterly profit in Q3FY12. In the December quarter, the company's net profit rose to Rs 1,432.6 crore. The same stood at Rs 1,412 crore in the year-ago period.
Sales in the December quarter stood at Rs 11,078.3 crore as against Rs 10,757.6 crore in the comparable period.
Zarbade says greater competition is leading to poor pricing for the PSU. Also, it had lost a few bulk orders to Chinese and private Indian competitors.
According to brokerages, rising competition in the boiler, turbine, and generator (BTG) segments is also expected to put pressure on the company's margins. Its peers L&T and Thermax operate at 17% and 11% margins, respectively. At 22%, BHEL's margins are superior.
Increasing competition may reduce BHEL's margin.
Kotak has a 'Reduce' rating on BHEL. "We have reduced rating with a price target of Rs 269," he told the channel adding, "we prefer L&T over BHEL at this point of time and on that we have a price target of Rs 1469."
Next page: Transcript of Sanjeev Zarbade's exclusive interview on CNBC-TV18