Bharat Heavy Electricals Limited (BHEL) today posted a net profit of Rs 888.4 crore in Q4FY15. Its net sales slipped 16 percent to Rs 12,368.4 crore compared to Rs 14,755 crore year-on-year basis (YoY).In an interview to CNBC-TV18, Kunal Sheth of Prabhdas Lilladhar shares his views on BHEL’s Q4 numbers. He says the company's execution continues to be a problem and hence, expects the margins to be subdued in the upcoming quarters. He has a negative outlook on the stock.Below is the verbatim transcript of Gaurand Shah and Kunal Sheth’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: What would your own view be on this Rs 888 crore profit number and the top-line which is down about 16 odd percent?
Shah: There is some amount of confusion, because if you actually go to see last, not one quarter but at least two or three quarters, nothing magical has happened for them to give this kind of numbers. I only hope and pray this does not really disappoint the market with some clarification coming through at a later stage. And of course at the same time, keeping in mind the last quarterly numbers, they have actually come out with a reduced recommendation on BHEL. If I compare L&T and BHEL, I do not think that much positivity has changed for BHEL like negativity which have over ground on L&T. And also if you recollect, yesterday the heavy industry minister made a statement that the order book looks quite shaky for BHEL and execution has also been a problem in the past. So I really doubt these numbers if there was some extra-ordinary either for something that I do not know of, then I cannot comment. But in the capital goods engineering space, if you are looking to invest from a long-term point of view then we still believe that L&T is a better space to be in.
Anuj: What is your first take on the numbers? Their net profit looks quite good, but on sales there has not been too much of a beat.
Sheth: The sales has definitely been lower. They have already reported their provisional numbers. Sales is more or less in line with the provisional numbers, but profit after tax (PAT) is definitely better than the provisional numbers. So, on the face of it, definitely the numbers are better than the provisional numbers. So, what we have to look at which number which we still do not have is the margins.
Anuj: It is 11 percent now.
Sheth: 11 percent is slightly better than what we initially thought in the provisional numbers at 9 percent. So, it is definitely better than the provisional number, but having said that, we think that the issues with BHEL still remains in terms of execution because the order book is still quite low and order finalisation is taking time. So, because of low order carry, we think that issues relating to margins will continue even in the next year. So, though this quarter the margin is slightly better than the provisional number, it is still lower than what we had originally estimated in the numbers.
Sonia: Based on these numbers that we have seen, what would your own view be on how to approach this stock price now which has been quite beaten down?
Sheth: Though the stock price has been beaten down, we think there are still lot of headwinds for BHEL in terms of as I mentioned both execution and margins. So, we still think that we continue to maintain negative view in the stock. We still think that there is more downside left given that the execution and margins both will be under pressure even going ahead also.
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