Reduce BHEL: Way2Wealth

“Bharat Heavy Electricals (BHEL), Q1FY13 results were better than street expectations registering order inflows worth Rs.56bn, with a strong execution which led to an incremental revenue growth of 18% both from the Power segment which grew by 17%yoy & the Industry segment which grew by 19%yoy on account of better execution. Order backlog stands @Rs.1329bn showing a degrowth of 17%yoy & 1%qoq. With higher execution of supercritical orders set to rise, the margins are expected to get impacted in the ensuing quarters.”

“Of the total order backlog of Rs.1329bn, the Power sector comprised 80%, the Industrial sector formed 13% whereas the International sector formed the remaining. Total order inflow for the qtr stands at Rs.56bn of which the power sector forms Rs.37bn, the Industry sector constitutes Rs.84bn, whereas the International sector booked Rs.96bn. Major orders booked in the power sector are: 2x660 MW DC package for the DVC Raghunathpur, 1x500 MW NTPC Vindhyachal for BTG set DC and AC package, 160 MW DVC package from RRVUNL at Ramgarh Combined Cycle Plant Stage IV. In the international operations, it has received a package for 6x6, 165 MW hydroelectric project in Bhutan. Led by strong execution, net sales have grown by 17%yoy with growth across the segments from the power by 17% & the Industry segment by 19%. Its raw material cost @64.68% of sales has increased by 18%yoy, staff cost has increased by 7% which is expected to stay at the same levels for FY13, but its overall expenditure has increased sharply by 32% accounting for a major impact on account of high freight & transportation charges which has increased by Rs.390mn yoy. With lower interest cost & higher depreciation its resultant PAT has increased by 13% with reduced margins @11.06% compared to 11.45%yoy.”

“Although the Management has reiterated its guidance of 10-15GW for FY13, we remain sceptical with regards to the orders inflows for the power sector with not more than 1 or 2 major orders from the PSUs without any participation from the private power sector players. This would be further susceptible to increased competition, reduced margins, coal linkages, land tie-ups & other environmental clearances. We maintain our Reduce rating on BHEL, at its CMP of Rs.209, it trades at a PE of 8x FY13E EPS of Rs.26,” says Way2Wealth research report.

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