Motilal Oswal neutral on BHEL

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26 Aug, 2025 12:21

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Motilal Oswal has maintained neutral rating on BHEL with a target of Rs 236, in its July 27, 2012 research report.

“BHEL's 1QFY13 performance was better than our expectations. Revenue grew 17% YoY and PAT grew 13% YoY. EBITDA margin was flat (v/s our estimate of 100bp decline) at 14.4%. Other income increased to INR3.7b (v/s our estimate of INR2.9b) and includes translation gain of INR1.4b on foreign currency denominated receivables. Revenue growth was buoyant in both Power (+17% YoY) and Industrial (+19% YoY) segments. EBIT margin improved 70bp YoY to 18.5%, driven by operating leverage. While Power EBIT margin expanded 135bp YoY to 17.8%, Industrial EBIT margin declined 162bp YoY to 21%. Supercritical projects contributed ~20% to revenue. Staff cost was up just 7% YoY (contributing to better cost absorption) while RM cost as a percentage of revenue remained steady at 57.6%.”

“Net working capital increased from 24% of revenue in 4QFY12 to 29%. Cash declined to INR52b from INR67b as at the end of 4QFY12 and INR96b as at the end of FY11. The management stated that customer advances have been maintained, and that the deterioration is largely cyclical in nature (slowing intake, coupled with accelerated execution). Order intake during the quarter was INR56b - INR38b from Power, INR8b from Industry (largely Railways) and INR10b from International Markets. For NTPC bulk tender, BHEL is yet to recognize orders for INR110b (expected to be awarded by 3QFY13). The company has built capabilities for EPC power projects, and has identified segments like water, transportation (including metro rail coaches) and transmission as future growth drivers.”

“We believe that the current valuations largely factor in the de-rating catalysts, namely (1) possible worsening of the external environment in the power sector, and (2) execution constraints and deteriorating working capital. Maintain Neutral,” says Motilal Oswal research report.      

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