BHEL - Order guidance far-fetched; but inflow still encouraging - IDBI Capital

Result Highlights

- Margin disappointment set off by higher other income

BHEL's Q1FY13 net profit at Rs9.2 bn was in line with our estimate (IDBIest. Rs9.2 bn), 11% ahead of street estimates. At Rs84.4 bn (+16% YoY/-57% QoQ), net sales was 14% below our estimate. EBITDA margin at 14.2% was 130bps below our estimate due to higher than expected raw material cost and other expenditure. The company reported 8% YoY growth in EBITDA at Rs12 bn during Q1FY13. Despite lower than estimated revenue and EBITDA margin, net profit was in line largely due to higher other income. Other income increased 47% YoY to Rs3.7 bn due to forex gain on dollar receivables (Rs1.4 bn) during Q1FY13.

- Q1 order inflow encouraging sans NTPC bulk orders

At the end of Q1FY13, order book declined to Rs1.33 tn (Rs1.35 tn during Q4FY12). Order inflow during the quarter stood at Rs56 bn (+124% YoY), of which Rs38 bn came from Power segment and Rs10 bn/Rs8 bn came from Export and Industry segment respectively. In power sector, the company received orders for ~3GW against 0.5GW during Q1FY12. Amongst the orders received, 2x660MW TG order from DVC, 1x500MW TG&SG order from NTPC and 160MW BTG order from RRVUNL were the major ones. Of the cumulative order book, Power sector contributes 80%, Industry/Export segments contribute 13%/7% respectively. During FY13, company is expected to receive orders for 3x660MW + 4x800MW boilers orders and 2x800MW TG orders from NTPC. Moreover, re-tendering of Rajasthan 4x660MW during FY12 could enable BHEL to improve inflow significantly.

- Outlook and Valuation

During Q1FY13, BHEL received orders worth Rs56 bn. We believe, BHEL's full year order inflow guidance of Rs600 bn is far fetched due to persisting fuel security and funding related issues in power sector. However, given NTPCs bulk and other orders, re-tendering of RRUVNLs 4x660MW orders (Suratgarh and Chhabra), certain private sector orders coupled with transmission and transportation (railways) orders, we expect BHEL to book orders in range of Rs350-400 bn during FY13. On the other hand, due to execution of relatively low margin super-critical orders, BHEL's margin is expected to shrink during FY13/FY14. Thus, we cut our OPM estimate by 90bps/130bps, leading to downward revision of 8%/11% in our FY13E/FY14E EPS. Consequently, our DCF based (Ke-14.5%, Terminal Growth-3%) TP stands revised down to Rs252 (earlier Rs285). Maintain BUY. At CMP, the stock trades at 8.7x/7.9x FY13E/FY14E earnings, 3.9x/2.8x FY13E/FY14E EBITDA respectively.

Source : Equity Bulls

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