Hold BHEL; target of Rs 60: Prabhudas Lilladher

Prabhudas Lilladher's research report on BHEL

BHEL's 2QFY20 results were lower than our and consensus estimates. Execution continues to be muted with ~9% YoY decline in revenue, mainly in the Power business which declined for third consecutive quarter. However, industry segment recovered on QoQ basis with strong double digit growth, partially cushioned to decline in Power segment. Order inflow revived with 44% YoY growth mainly led by 61% YoY growth in Power segment orders (FGD/Nuclear Projects). Current order backlog stands at Rs1.1 trn and favorably placed in bids worth Rs210 bn. While collectable debtors have gone down by ~12% at Rs140 bn, total debtors (including deferred debtors) continues to be at elevated level of Rs376 bn at the end of 2QFY20. The company emphasized on strong focus on cash collection and execution going ahead. We have cut FY20/FY21E earnings factoring weak 1HFY20 numbers and adverse macro environment (unfavorable payment terms, uncertain account receivables and lower upfront advances).

Outlook

The stock is currently trading at 16/12x FY20/21E. We maintain Hold on the stock with revised TP of Rs60 (13x FY21E).