Sell BHEL; target of Rs 22: Motilal Oswal

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Motilal Oswal 's research report on BHEL

Bharat Heavy Electricals (BHEL)’s 1QFY21 earnings were disappointing as revenue was 26% below our estimates. Higher fixed cost dented operating performance, with almost ~70% loss posted at the PBT level, attributable to under-absorption of costs. The company is yet to show any significant improvement in pending receivables, with total debtors at INR360b. In spite of the company’s ongoing efforts, we expect the receivables position to remain elevated in the near future. Order inflows, which declined 62% YoY, were impacted significantly by COVID-led lockdown. We now expect BHEL to report loss in FY21E and have also reduced our FY22E earnings estimate by 21% to factor poor execution and a weak ordering environment. While orders are few and far between, the pricing environment remains highly competitive, limiting scope for margin expansion. While the company has received Expression of Interest (EoI) from three major OEMs regarding its ongoing diversification drive, we believe any material financial impact is still some time away.

Outlook

We maintain our Sell rating, with TP of INR22 (15x FY22E EPS).

For all recommendations report, click here

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