Angel Broking neutral on BHEL

“BHEL’s 3QFY2012 numbers were broadly in-line with our estimates. The company reported decent top-line growth and witnessed margin pressure, leading to flat growth in the bottom line. However, the shocker came at the order inflow front, as BHEL witnessed order cancellations, which led to a decline in order inflow for 9MFY2012 (Rs15,273cr) vs. 1HFY2012 (Rs16,777cr). The challenges outlined in the power sector (which seem far from getting resolved) coupled with the competitive landscape in the BTG space put BHEL in troubled waters. Hence, we maintain our negative stance on BHEL and our Neutral rating on the stock.”

“Aided by strong execution, BHEL’s top line grew by 19.1% yoy to Rs10,743cr, which was 1.2% lower than our estimate of Rs10,873cr. The company’s EBITDAM contracted by 359bp yoy to 19.4%, in-line with our estimate. EBITDAM was mainly impacted by high raw-material cost and other expenses, which rose by 270-350bp as a percentage of sales. Led by margin dip, PAT growth was subdued at 2.0% yoy to Rs1,432cr, 2.2% lower than our (Rs1,465cr) and street (Rs1,485cr) estimate.”

“Problems on the business front, envisaged in many of our earlier notes, are coming to fore for BHEL – dismal order intake, no signs of let up in competition (domestic and international) and order book growth under threat (9MFY2012 revenue exceeds 9MFY2012 order inflow), all of which put serious concerns over the company’s long-term growth. Although we believe that on the valuation front the stock is undemanding at PE multiple of <11x of its FY2013E earnings, we believe earnings would face severe strain going ahead, given the structural issues. Hence, we maintain our negative stance on BHEL,” says Angel Broking research report. 

Public holding more than 90% in Indian cos

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