Moneycontrol Bureau
Macquarie has maintained an underperform rating on BHEL but increased target price to Rs 179 per share. It has also cut order inflow by 8 percent and earnings estimates on growing concerns that given disappointing order inflows, execution should continue to remain lacklustre while fixed cost pressures especially staff costs beginning Q4FY16 may curtail any significant margin recovery.
“We believe street expectations of a 200 basis points margin recovery in FY17 will not come through as operating leverage on account of higher revenue would get negated by the sharp increase in employee cost (15 percent) due the 7th pay commission,” it says in a report.
The brokerage has slashed earnings by 17-35 percent for FY15-16 mainly due to lower revenue growth and EBITDA margin.
BHEL has been looking to diversify into non-power related areas like solar, defence, railways, transmission & distribution. However, according to Macquarie Return on Capital Employed (RoCE) in new businesses would be suppressed as it invests to create capacity and size of the opportunity is still not large enough to make a meaningful difference to the company.
At 09:38 hrs Bharat Heavy Electricals was quoting at Rs 254.30, down Rs 0.85, or 0.33 percent on the BSE.
(Posted by Nasrin Sultana)
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