Hold BHEL; target of Rs 236: KRChoksey

KRChoksey has recommended hold rating on Bharat Heavy Electricals (BHEL) with a target of Rs 236 in its October 31, 2012 research report.

“BHEL registered flat growth in sales as industry segment revenues declined by 31% to Rs. 2,055 cr on account of slowdown in industrial capex. However, power segment registered healthy growth of 15% YoY as sales increased to Rs. 8,958 cr. Management commented growth in power segment could have been more robust. However, the company has slowed execution in the power segment as customers are deferring payment due to financial stress.
Adverse macro condition has resulted in deterioration of working capital cycle. On account of deferment in payments in Q2FY13 debtors stands above Rs 36,000 cr vs Rs. 30,500 cr in Q2FY12 and cash balance has decreased to Rs. 5,307 cr vs Rs7,950 cr in Q2FY12.”

“During the quarter BHEL registered order inflows worth Rs 3,150 cr vs Rs 14,300 cr in Q2FY12. For H1 FY13 order inflows stand at Rs 8,700 cr vs Rs. 16,770 cr in H1FY12. For H2FY13 BHEL expects bulk tender orders from Darlipali and Nabinagar in which the company is L1 to materialize. Gajamara order is less likely to materialize in this fiscal. Apart from Bulk order, tenders in pipeline include re-tendering of Rajasthan EPC order (2*660 MW), Maharashtra (660 MW), NTPC (3 projects of 2*660MW) and AP (3*500 MW).”

“Order inflows remain a concern as issues related to environmental clearance and coal linkages continues to plague investments in power sector. At CMP of Rs. 226 BHEL is trading at valuations of 8.9x its FY13E earnings and 9.6x its FY14E earnings. We now value the stock on FY14E EPS of Rs 23.9 and assign a multiple of 10X to arrive at a target price of Rs. 236 and recommend a hold on the stock,” says KRChoksey research report.

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