Hold BHEL; target of Rs 34: Prabhudas Lilladher

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Prabhudas Lilladher's research report on BHEL

BHEL reported weak performance for the quarter wherein both segments Power/Industry revenue de-grew by 68%15% YoY. During the quarter order inflows de-grew by 62% YoY led by delay in ordering activity, deferment due to Covid-19 pandemic and overall stress in power sector. Order backlog stands at Rs1.08trn, flat YoY (executable OB ~Rs880bn) providing revenue visibility going ahead. Despite weak 1Q performance, the company witnessed some improvement in terms of debtors (down by 7%), rise in cash collection to billing ratio and lower other expense. Going ahead, they would continue to focus on cash collection, execution and high margins projects (venturing into new segments such Aerospace, Defence, Railways,etc).

Outlook

Execution challenges and high level of receivables remain key concerns that could possibly hamper medium term growth prospects. BHEL’s transformation strategy to optimize operational cost and initiatives like utilization of manufacturing facilities & industrial land will likely help diversify in non-power business and aid long term revenue visibility. We maintain Hold on the stock with TP of Rs34.

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