Feb 12, 2013, 03.14 PM | Source: Moneycontrol.com
KRChoksey has recommended hold rating on Bharat Heavy Electricals (BHEL) with a target of Rs 230, in its February 05, 2013 research report.
, KRChoksey |
"BHEL net sales declined by 4.1% to Rs. 10,219.7 cr as both power and industry segment witness decline in sales. EBIDTA margins declined by 312 bps to 16%, on account of inflationary pressures and slower execution. The company registered higher other income of Rs. 332 cr on account of forex gain of Rs 179 cr. Consequently on account of slower execution and lower EBIDTAM% PAT declined by 17.5% to Rs 1,181.9 cr. Order backlog at the end of the Q3FY13 stands at Rs. 1,13,700 cr, 2.3x TTM sales. The company registered orders worth Rs. 1,950 cr during the quarter. YTD order inflow stands at Rs. 15,000 cr.
Fund constraints in the power sector continue to impact ongoing power projects, where the project developers are not in a position to release payments to the suppliers. A number of private developers have put on hold their projects which have already been ordered. In some cases the company has been forced to suspend work due to mounting dues from these project developers. Consequently, BHEL’s power and industry segment declined by 4.6% and 5.5% respectively, which lead to decline in net sales by 4.1%.
Adverse macro condition has resulted in deterioration of working capital cycle. On account of lull in order inflow advances from customer have decreased, while debtors stand at approx Rs 36,000 cr due to deferment of payments from clients. Consequently, cash balance has decreased to approx Rs. 3,500 cr and net working capital stands at Rs. 21,000 cr.
YTD the company has received total orders amounting to Rs.15,000 cr i.e 5,337 MW (9MFY13 Rs 10,000 cr and post 9MFY13 another Rs. 5,000 cr, which includes 3x660 megawatt Nabinagar boiler package). For FY13, the company expects order finalization to the tune of Rs 25,000cr to Rs 30,000 cr for the full year, as orders from Rajasthan and Orissa Power Generation project is expected to get finalized. The company is submitting tenders for orders to the tune of 6,000 MW by FY13 and it expects another 7000 MW of tenders to come up in FY14. Most of these projects are primarily from central and state utilities.
Our View & Valuation: Order inflows remain a concern as issues related to environmental clearance and coal linkages continues to plague investments in power sector. At CMP of Rs. 220 BHEL is trading at valuations of 8.8x its FY13E earnings and 9.6x its FY14E earnings. We now value the stock on FY14E EPS of Rs 23.0 and assign a multiple of 10X to arrive at a target price of Rs. 230 and recommend a HOLD on the stock," says KRChoksey research report.
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