Angel Broking remains 'Neutral' on BHEL
Brokerage house Angel Broking has recommended a 'Neutral' rating on Bharat Heavy Electricals (BHEL) in its May 24, 2013 research report. The company's profit, margin and ROE is expected to decline from the current levels, said the research report.
Angel Broking's research report on Bharat Heavy Electricals (BHEL)
"BHEL's top-line performance was largely in-line with our estimates, declining by 2.0 percent yoy to Rs 19,204cr. Order inflows surprised positively, coming in at Rs 20,800cr in 4QFY2013 (vs Rs 7,719cr in 4QFY2012 and Rs 10,739cr in 9MFY2013), primarily due to NTPC bulk orders being booked during the quarter. However, the total order book declined by 14.7 percent yoy to Rs 115,160cr by the end of the quarter, thus implying order book coverage of ~2.4x, which has been continuously deteriorating over last couple of years.""BHEL's order backlog consists of 81 percent orders from power sector (primarily the BTG space). Considering headwinds in the power sector, not many orders are expected to be finalized in next few quarters, limiting BHEL's order visibility. Key Highlights: Although the power segment, contributing 81 percent to the top-line remained flat yoy at Rs 15,539cr, its operating margin of 26.1 percent was better than our expectation, contracting by only 100bp yoy (due to softening in commodity prices). However, margins of industry segment disappointed, contracting by 878bp yoy to 21.6 percent. Consequently, blended margins contracted by 98bp yoy to 24.2 percent. On the bottom-line front, net profit declined by 4.2 percent yoy to Rs 3,238cr."Also read: Stay away from BHEL, says Macquarie Capital"Outlook and valuation: Given the strong competition (domestic as well as international), declining order book and a weak capex cycle, we expect BHEL's profit, margin and ROE to decline from the current levels. Hence, the cheaper valuations of 9.4x FY2014E EPS and 12.0x FY2015E EPS respectively, are largely overshadowed by structural issues plaguing the company. We continue to remain Neutral on the stock," says Angel Broking research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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