Expect 10% decline in BHEL's FY14 topline: SBI Cap Sec

Bharat Heavy Electricals has declared its second quarter results. Its net profit fell by 9.77 percent year-on-year to Rs 1,274 during the quarter, while revenues grew marginally to Rs 10,399 crore from Rs 10,299 crore year-on-year.

In an interview to CNBC-TV18, Nirav Dhanraj Vasa of SBI Cap Securities says he is disappointed with BHEL's results in terms of net profit.  He expects 10% decline in BHEL's top-line in FY14. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: Would you say that BHEL numbers are a serious disappointment? Are you going to review your numbers and your price targets? A: Yes. My revenue expectation was around Rs 10,400 crore. My top-line expectation was around Rs 10,436 crore whereas my bottom-line expectation was Rs 1,331 crore. So, company has disappointed me in terms of net profit. But overall since the order backlog has also been lower. I feel that the pressure would continue on the stock price. Q: What is the exact implication of the order book declining so much on a quarter-on-quarter basis? How would you read that? What kind of implications would it have for the future trajectory of BHEL? A: BHEL, at this point of time, is facing a major concentration risk. The pace of order inflow, in my opinion, is not expected, until and unless the grave issues related to fuel supply are not sorted out satisfactorily by Government of India. As per out calculation, around 46,000 megawatt of power capacity right now is struggling for long-term supply of fuel. So, until and unless these major issues are not sorted out satisfactorily, we cannot expect any increase in pace of order inflow. Q: Would you say therefore that this result performance will create a minor hump for BHEL, but its bigger problems are already in the price so a fall of 3 percent and that would be it? A: I still maintain my ‘reduce’ rating on the company with a target price of Rs 211. In my opinion, there are major issues that are to be sorted out. Until and unless that is not done, we cannot expect any major increase in order inflow. Q: What kind of valuations would you attributed for FY13-14, your EPS and what PE should it be trading at? A: We are expecting around a minor decline, 1 percent, in top-line in FY13 and almost 10 percent decrease in FY14 because the pace of order finalisation is not picking up. So, effectively that has been factored in. Q: You are clearly not impressed by the new power minister and the new oil minister making a difference, right? A: A change in Cabinet does not hold any significance, until and unless any major action is taken. Q: What were the street expectations with respect to orders? How much of a negative surprise is this? A: I would not be really surprised, if the order inflow is decreasing because the fact is that people have already invested in the existing projects. They are still not making money. So, effectively we cannot rule out a possibility, wherein the ordering pace would remain lull. Q: The margins have come in at 18.3 percent, what's your comment? Isn’t that a mild positive? A: In project business, we cannot see project on QoQ basis, margins on QoQ basis because that being a lumpy business. So, overall, I still maintain that pressure on margins would continue. Q: What do you expect the year end EPS to be for BHEL? A: I don’t have a number.