BHEL - 3QFY2013 Result Review - Angel Broking

Bharat Heavy Electricals Ltd (BHEL) reported a disappointing performance on the top-line and bottom-line front in 3QFY2013. The top-line was below our expectations and street estimates, declining by 4.9% yoy to Rs.10,220cr. Order inflows continued to remain subdued at Rs.1,976cr for the quarter (and at Rs.15,000cr for the year till January 2013). Consequently, the total order book declined by 22.4% yoy to Rs.113,700cr by the end of the quarter, thus implying order book coverage of ~2.3x, which has been deteriorating sequentially over the quarters. The Management has guided visibility of 10-13GW power sector orders, mainly from sate and central utilities. However, the headwinds in the power sector such as domestic fuel availability and land acquisition issues may delay these projects.

Key Highlights: The power segment (contributing 79% to the top-line) declined 4.6% yoy to Rs.8,308cr due to declining order book and execution delays (on account of revenue deferrals by clients). BHEL reported 338bp yoy contraction in its OPM to 16% on account of 161bp yoy increase in both - employee cost and other expenses (due to higher provisioning) as a%age of sales. The company benefited to the tune of Rs.179cr at the PBT level mainly due to forex gain. However, the net profit declined by 17.5% yoy to Rs.1,182cr.

Outlook and valuation: Given the strong competition (domestic as well as international), declining order flows and a weak capex cycle, we expect BHEL's profit, margin and ROE to decline from the current levels. Hence, the cheaper valuations of 9.4x FY2013E EPS and 10.9x FY2014E EPS respectively, are largely overshadowed by structural issues plaguing the company. We continue to remain Neutral on the stock.

Source : Equity Bulls

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