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Research
Bharat Heavy Electricals Limited - Margins beats expectations - Antique
Posted On : 2013-05-26 20:13:20( TIMEZONE : IST )
Revenue declined by 2% YoY in 4QFY13 to INR192bn as against our estimate of INR206.5bn. The revenue decline started from 3QFY13 despite strong order book on account of delay in project execution at customer end and liquidity issue remains concern for the company. However, control on direct material cost and employee cost surprised on margin with 24.2% vs estimates of 19.2%. Net profit was also boosted by lower tax of 30.8% in 4QFY13 as against 33.3% in 4QFY12. The order inflow growth of 43% to INR315bn in FY13 was driven by NTPC bulk tenders was encouraging and management expect to maintain inflows going ahead on back of Sate and PSU orders with higher EPC orders. 4QFY13 results were in line with already published flash results in April. We maintain HOLD.
Revenue impacted due to lower execution
4QFY13 net revenue was down 2% on YoY to INR192bn, 7% below expectations of INR206.5bn. For FY13 revenue reported marginal growth of 0.9% to INR484.2bn on back of customer delay and slower execution. Revenue from spares business increased by 8.9% to INR30.2bn. We expect company would find difficult to maintain growth due to significant fall in order inflow compared to FY09 - FY11 and estimate decline of 3.8% to INR469bn in FY14e and 16.4% to INR393bn in FY15e.
Margins remained healthy during the quarter, difficult to sustain
EBIDTA declined by 5.8% to INR46.5bn in 4QFY13 as margins declined by 100bps on YoY to 24.2%. However margins were significantly higher than estimates of 19.2% despite revenue decline as company managed to control employee cost and direct material cost. BHEL reported PAT of INR32.3bn as against estimates of INR25.8bn. PAT was also boosted by lower tax rates during the quarter (30.8% vs. 33%) due to higher R&D spend and provisioning. Going ahead we expect profits to decline by 24.4% to INR49.7bn in FY14e and by 40.9% to INR29.3bn in FY15e.
Order inflow growth driven by NTPC bulk tender
The order inflow growth of 43% to INR315bn in FY13 was driven by NTPC bulk tenders. Booked orders of 9,627 MW in FY13 as compared to 3,934MW in FY12 was boosted by 5,940MW NTPC bulk tenders. We believe that there are very few orders left to be booked in FY14-15. With all NTPC bulk tenders orders already placed, and BHEL having also booked most of expected SEB orders (like Rajasthan order), we expect 12% drop in order inflow to INR278.5bn in FY14 and expect orders of INR376.3bn in FY15e.
Valuation
At CMP of INR196, BHEL is trading at 9.7xFY14e and 16.3xFY15e and 1.4xP/BV of FY14e. Historically, the stock tends to trade in 1-1.5 x P/B, during extremely adverse industrial environment and hence a downside to the stock cannot be ruled out if environment doesn't improve. We maintain HOLD with target price of INR180 (15xFY15e).
