Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BHEL
UW: Poor showing, weak outlook
Lower execution and poor order inflow in 1Q FY12
Outlook should weaken on market compression and tougher
competition; stock can fall further, we believe
We maintain our estimates and target price of INR1,850 and
reiterate our Underweight rating
Disappointing results: Execution in 1Q FY12 was weak, with revenue up 10% yoy
versus our and the consensus expectations of 20% growth. Order inflow reported at
cINR25bn, -78% yoy, was the lowest in the past 4-5 years. In an important development,
BHEL did not garner any major order in its main power segment, and 90% of order intake
was in the Industry segment. The company indicated c2GW of orders – we estimate the
value of these at INR50-60bn – in hand and not booked for lack of advances. Net profit
grew 22% yoy to INR8.1bn, aided by higher other income of INR3.9bn, up 38% yoy, or
2-3% above our and the consensus estimates.
Company maintains guidance of 10% yoy growth in order intake for FY12. This would
represent an order inflow of INR641bn for 9MFY12, higher than the full-year FY11 order
intake of INR605bn, and this is challenging, in our view. Also, BHEL has indicated a
revenue target of INR500bn, up c19% yoy, for FY12.
Weak outlook: We maintain that BHEL is likely to underperform further, given that 1)
order growth should remain flat, compared to a 26% CAGR over the past five years, with
a downward bias if the market declines due to fuel pressure; 2) margins should start
falling from FY13 – we expect a 300bp decline between now and FY17 – as the order
book mix is shifting towards cleaner, more-efficient, imported supercritical power: c3% in
FY11e to 50% by FY17e; and 3) EPS growth should be flat in FY13-14 versus a c30%
CAGR over the past five years. We are not factoring in possible restrictions on coal-based
power projects due to fuel shortages and greenhouse-gas emission concerns; this could put
further pressure on earnings. See our 10 June report, BHEL: UW: Still unattractive despite
correction, for a complete analysis of our view.
Maintain estimates and target price, and reiterate Underweight rating: We use an
economic value added methodology to value BHEL, assuming a WACC of 11%. We
assume target sales growth of 8% and an operating return of 17% to reflect the weak
outlook. We maintain our target price of INR1,850, implying a potential return, including
dividend yield, of -4.9%, which is below the Neutral band; thus, we reiterate our
Underweight rating.
Upside risks that we see include higher-than-expected order inflow
growth and margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BHEL
UW: Poor showing, weak outlook
Lower execution and poor order inflow in 1Q FY12
Outlook should weaken on market compression and tougher
competition; stock can fall further, we believe
We maintain our estimates and target price of INR1,850 and
reiterate our Underweight rating
Disappointing results: Execution in 1Q FY12 was weak, with revenue up 10% yoy
versus our and the consensus expectations of 20% growth. Order inflow reported at
cINR25bn, -78% yoy, was the lowest in the past 4-5 years. In an important development,
BHEL did not garner any major order in its main power segment, and 90% of order intake
was in the Industry segment. The company indicated c2GW of orders – we estimate the
value of these at INR50-60bn – in hand and not booked for lack of advances. Net profit
grew 22% yoy to INR8.1bn, aided by higher other income of INR3.9bn, up 38% yoy, or
2-3% above our and the consensus estimates.
Company maintains guidance of 10% yoy growth in order intake for FY12. This would
represent an order inflow of INR641bn for 9MFY12, higher than the full-year FY11 order
intake of INR605bn, and this is challenging, in our view. Also, BHEL has indicated a
revenue target of INR500bn, up c19% yoy, for FY12.
Weak outlook: We maintain that BHEL is likely to underperform further, given that 1)
order growth should remain flat, compared to a 26% CAGR over the past five years, with
a downward bias if the market declines due to fuel pressure; 2) margins should start
falling from FY13 – we expect a 300bp decline between now and FY17 – as the order
book mix is shifting towards cleaner, more-efficient, imported supercritical power: c3% in
FY11e to 50% by FY17e; and 3) EPS growth should be flat in FY13-14 versus a c30%
CAGR over the past five years. We are not factoring in possible restrictions on coal-based
power projects due to fuel shortages and greenhouse-gas emission concerns; this could put
further pressure on earnings. See our 10 June report, BHEL: UW: Still unattractive despite
correction, for a complete analysis of our view.
Maintain estimates and target price, and reiterate Underweight rating: We use an
economic value added methodology to value BHEL, assuming a WACC of 11%. We
assume target sales growth of 8% and an operating return of 17% to reflect the weak
outlook. We maintain our target price of INR1,850, implying a potential return, including
dividend yield, of -4.9%, which is below the Neutral band; thus, we reiterate our
Underweight rating.
Upside risks that we see include higher-than-expected order inflow
growth and margins.
No comments:
Post a Comment