Buy Bhel; target of Rs 33: ICICI Direct

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ICICI Direct's research report on Bhel

Bhel’s Q4FY20 revenues were at Rs 5049.3 crore with a significant fall of 51% YoY impacted by execution headwinds and Covid-19. It registered a loss of revenue of ~ Rs 4000 crore owing to Covid-19. On the segmental front, power segment revenues declined 61% to Rs 3174.7 crore YoY whereas industrial segment revenue declined 18% to Rs 1419 crore YoY. The company registered EBITDA loss of Rs 561.7 crore (vs. EBITDA of Rs 1395 crore in Q4FY19) YoY owing to lesser revenue booking and higher-than-expected operating expenses. Net loss came in at Rs 1534 crore (vs. net profit of Rs 682.7 crore in Q4FY19) owing to significant increase in interest expense (up 46%, YoY) and higher effective tax rate (due to deferred tax adjustment).

Outlook

Execution challenges and high level of receivables (Rs 36471 crore, down 5.5% vs. FY19) are key concerns and could hamper medium term growth prospects. However, transformation strategy to optimise operational cost and initiatives like utilisation of manufacturing facilities & industrial land are likely to help diversify in non-power business and aid long term revenue visibility. We revise our target price to Rs 33 (15x FY22EPS) and maintain our HOLD rating. Key risk: Power sector outlook and structural changes remain key concerns.

For all recommendations report, click here

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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