Street expects BHEL's Q1 PAT to rise 4% at Rs 850 cr

State-owned power equipment manufacturer BHEL will announce its results today for the quarter ended June 2012. Analysts on an average expect the profit after tax to grow by 4.2% year-on-year to Rs 850 crore in the quarter, but they see a drop of 75% quarter-on-quarter in profit.

Total income is likely to rise by 7% to Rs 7,783 crore and earnings before interest, tax, depreciation and amortisation (EBITDA) is seen going up by 3% to Rs 1,149 crore during the same period. However, analysts see total income and EBITDA to fall 60% and 77% quarter-on-quarter.

They see moderation in revenue growth due to sluggish inflows, delays in execution and lower order intake in FY12. First quarter is seasonally a weak quarter for the company.

Numbers will look weak if we compare quarter-on-quarter as fourth quarter (previous quarter) was the strongest quarter for the company.

Margins

Operating profit margin is expected to be at 14.8% in the first quarter of FY13 as against 15.3% in a year ago period and 25.2% in the previous quarter.

Increasing pricing pressure is likely to keep any expansion in EBITDA margins in check.

Lower quantum of orders has adversely impacted the pricing environment. Aggressive pricing by bidders in the recent NTPC bids is an indicative of the emerging pricing regime in the power equipment space in India.

Order Inflows

Analysts expect tepid order inflow numbers to continue given the weak market for power equipment currently.

Company has announced orders worth Rs 2,500 crore in the quarter ended June 2012 in Q1FY13 as against order intake of Rs 2,500 crore in a year ago period.

Guidance

BHEL is targeting order inflow of 14 GW in FY13 as against 2.8 GW reported in FY12, but brokerages are only building in 7-8 GW in their estimates for the year.

BHEL’s problems

Analysts are worried about company's industrial business given limited business pipeline and sustained pricing pressure.

Street also does not expect any material contribution from the non-thermal revenue base (power T&D, locomotives, oil & gas products, etc) over the next 2-3 years.

Investors should watch out for company's outlook on order inflows, stable operating margins, profitable execution of order backlog and sector outlook or commentary.