Hold Bhel; target of Rs 75: ICICI Direct

ICICI Direct's research report on Bhel

Bhel’s Q4FY19 revenues came in at Rs 10297.2 crore, up 1.5% YoY (marginally below our estimate of Rs 10730.1 crore). On the segmental front, power segment revenues declined 2.5% to Rs 8103.4 crore on a YoY basis whereas industrial segment revenues grew 14% to Rs 1733.1 crore YoY. EBITDA came in at Rs 1395.2 crore (much above our estimate of Rs 884.5 crore) up 13.3% YoY, owing to reduced other operating expenses. PAT came in at Rs 682.7 crore (vs. our estimate of Rs 423.2 crore) registering robust growth of 49.4% YoY, owing mainly to a decline in depreciation. However, interest expense has increased 32.9% to Rs 96.4 crore. Bhel’s order inflow for Q4FY19 came in at Rs 6630 crore.

Outlook

Bhel’s robust executable orders (3.6x FY19 revenue) and strategy to diversify orders to non-coal business, technology collaborations for emission control systems and expected pick-up in execution rate gives reasonable revenue visibility, going forward. However, receivables management from major customers will be closely watched. The company is expected to maintain growth momentum with revenue CAGR of 6.0% and PAT CAGR of 14.1% in FY19-21E. We revise our fair value to Rs 75 (17x FY21EPS) and maintain HOLD rating. However, long term power sector outlook remains key concern.