Sell BHEL; target of Rs 22: Motilal Oswal

Motilal Oswal 's research report on BHEL

BHEL’s 4QFY20 earnings were disappointing as revenue plunged 51% YoY while FY20 revenue declined 29% YoY. Operating performance was below expectations with EBITDA loss. BHEL’s management has refrained from providing any revenue guidance for FY21 due to the economic slowdown and as it is reviewing the COVID led impact. The company is yet to show any significant improvement on pending receivables, with net debtors slightly reducing from INR386b in FY19 to INR365b in FY20. Working capital as % of sales further declined from 63% of sales in FY19 to 99% of sales in FY20. We have cut our FY21E/FY22E earnings estimates by 46%/17% to account for the poor execution and weak ordering environment. While orders are few to come by, the pricing environment remains highly competitive, limiting scope for margin expansion. We expect the company’s recent expression of diversification to materialize with a certain time lag owing to the subdued economic environment.

Outlook

We downgrade our rating to Sell with a TP of INR22, as any visible sign of improvement is still some time away.

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