BHEL (SELL): Execution challenges - AMBIT

BHEL's order intake declined by 80% YoY in 1QFY14 and now the company is facing challenges on execution (1Q revenues were down 23% YoY). Its projects are facing issues on clearances and developers are facing a funding crunch and execution delays. Thus, 1Q EBITDA declined by 68% YoY, given the high fixed costs (24% of FY13 revenues). Due to the upcoming state elections in Delhi, Rajasthan and Chhattisgarh and the Union elections in May, we believe the Government will not award clearances. Also, with no signs of interest rate cuts, the funding constraints of developers may not abate. We downgrade our EPS for FY14 and FY15 by ~10% and our TP by 13% to Rs130/share (implying FY15 P/B of 0.9x). We expect earnings CAGR of -26% over FY13-15 and RoE of 10.5% in FY15. Reiterate SELL.

Source : Equity Bulls

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