BHEL - 4QFY2012 Result Update - Angel Broking

BHEL reported a mixed set of 4QFY2012 results with earnings exceeding our expectations. The company's top line grew by 7.5% yoy to Rs.19,589cr (Rs.18,222cr), 6.5% lower than our estimate of Rs.20,954cr. The company's EBITDA margin came in at 25.2% (expansion of 276bp yoy basis), which was better than our expectation. Led by margin expansion, PAT growth was strong at 20.8% yoy to Rs.3,380cr (Rs.2,798cr), 10.7% higher than our estimate. Order inflow during the year stood at Rs.22,096cr, down 64% yoy. Weak order inflow expectations and strong competition remain the main headwinds for the company. We continue to maintain our Neutral view on the stock.

Margin expansion offsets weak revenue growth: BHEL's revenue grew by 7.5% yoy to Rs.19,589cr in 4QFY2012. Growth was largely driven by the industry segment, which posted robust growth of 26.1% yoy to Rs.4,679cr (Rs.3,709cr). The power segment, on the other hand, posted slow growth of 2.8% yoy to Rs.15,574cr (Rs.15,144cr). The company's EBITDAM expanded by 276bp yoy to 25.2%, higher than our estimate. EBITDAM improvement was mainly supported by employee and other expenses. Led by margin expansion, PAT growth during the quarter was strong at 20.8% yoy to Rs.3,380cr (Rs.2,798cr), 10.7% higher than our estimate of Rs.3,054cr.

Outlook and valuation: The challenges outlined in the power sector (which seem far from getting resolved) coupled with the strong competition in the BTG space puts BHEL in troubled waters. Thus, a reducing order backlog weighs heavily on BHEL's long-term growth trajectory. BHEL is trading at historically low valuations of 8.1x and 8.7x on our FY2013E and FY2014E EPS estimates, respectively, which we believe is reasonable as we expect BHEL's revenue and earnings to decline going forward. We continue to remain Neutral on the stock.

Source : Equity Bulls

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