Accumulate BHEL; target of Rs 281: Unicon Investment

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Accumulate BHEL; target of Rs 281: Unicon Investment

Unicon Investment is bullish on Bharat Heavy Electricals (BHEL) and has recommended accumulate rating on the stock with a target of Rs 281 in its February 1, 2012 research report.

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Unicon Investment is bullish on Bharat Heavy Electricals (BHEL) and has recommended accumulate rating on the stock with a target of Rs 281 in its February 1, 2012 research report.

"BHEL reported 19% YoY growth in revenues to INR 107bn, inline with street expectations. EBITDA grew marginally at 2.3% YoY while EBITDA margin shrunk 346bps YoY to 21.2%. Margin was impacted by high inland freight costs and high provision for contractual obligations. Net profit increased 2.1% YoY to ~INR 14.3bn due to financial charge and tax cut. Net profit margin fell 2.2% to 13.1% this quarter. Financial charge remained flat YoY at INR 145mn while tax provisions dropped 2.9% YoY to INR 6,432mn"

"At the end of Q3 FY12, BHEL's order book stood at INR 1,465bn i.e. 3.5x FY11 revenue. Based on sector division, order book for BHEL stood at INR 1,174bn (80%) from power sector, INR 197bn (13%) from Industry and remaining INR 94bn (7%) from exports. Total order inflow for 9M FY12 stood at INR 153bn, below estimates. Lack of order inflow in the quarter raised concerns over future earnings. We expect slow down in order inflow due to further delay in NTPC 9 X 660MW order. The quarter also observed order cancellation or curtailment worth INR 58.5bn. Cancellation of existing projects and delay in new order inflows has raised risk for capital goods companies in the coming quarters. Lack of clarity over 13th Five Year plan, delay in SEB funding, hiccups in coal linkages and delay in reversal of interest rate further dents the sector environment."

"BHEL is expected to register 13-14% CAGR growth in topline and bottomline till FY13. ROE is estimated to be ~25% till FY13. Margins are expected to remain under pressure for next two years due to growing competitive situation. Currently, stock is trading at 9.2x its FY13E earnings. We recommend ACCUMULATE rating on the stock with a price target of INR 281. (Stock looks attractive at current valuation with high risk)," says Unicon Investment research report.    

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To read the full report click on the attachment