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Bharat Heavy Electricals (BHEL) reported strong revenue for the quarter,
driven by healthy execution and 1QFY12 spillage. Adjusting for the
change in accounting policy (with regards to leave encashment), EBIDTA
is higher by only 10% YoY while PAT is higher by 13% YoY. The company
also provided for higher LDs on two large projects which led to a sharp
rise in other expenditure. The management hinted at continued deferral
in power sector ordering, which is denting its overall order inflow
impetus.
Execution improves, but higher cost, provisioning impact OPMs
Led by a healthy execution during the quarter and the impact of slippages from
1QFY12, BHEL reported a better than expected sales growth at 24% YoY. It changed the
accounting policy regarding leave encashment from 26 days to 30 days a month due to
which the EBIDTA was higher by INR1.66bn. Adjusted for this, EBIDTA margins fell
sharply by 220bps YoY to 17%, largely due to higher LD provisioning (in Mejia and
Barsinghpur projects), power, fuel, freight and repairs and maintenance.
Flattish order intake, working capital deteriorates
BHEL currently has an order book of INR1610bn (flattish QoQ, up 5% YoY) with the
order intake at INR143bn (up 6% YoY). It reported two utility orders worth INR79bn
(INR40.7bn from Singrauni for 2x600MW and INR37.8bn from Dainik Bhaskar for
2x660MW). However, the company has reported a sharp jump in net working capital
from INR32bn to INR108bn due to a spike in inventory and debtors. Lower order intake
also affected customer advances which further dented the overall working capital for
BHEL.
Outlook and valuations: Structural concerns; maintain ‘HOLD’
We continue to remain concerned over BHEL’s overall business profitability in the long
term given the high base coupled with increasing domestic competition and pricing
pressures in the BTG space. We continue to bear in mind that BHEL will find it difficult
to build its non‐BTG revenue base and thus will not be able to effectively utilize its
unlevered Balance Sheet. We continue to maintain our HOLD/SP rating on BHEL with
TP of INR323 at which the stock trades at 12x and 11x for FY12E & FY13E respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Heavy Electricals (BHEL) reported strong revenue for the quarter,
driven by healthy execution and 1QFY12 spillage. Adjusting for the
change in accounting policy (with regards to leave encashment), EBIDTA
is higher by only 10% YoY while PAT is higher by 13% YoY. The company
also provided for higher LDs on two large projects which led to a sharp
rise in other expenditure. The management hinted at continued deferral
in power sector ordering, which is denting its overall order inflow
impetus.
Execution improves, but higher cost, provisioning impact OPMs
Led by a healthy execution during the quarter and the impact of slippages from
1QFY12, BHEL reported a better than expected sales growth at 24% YoY. It changed the
accounting policy regarding leave encashment from 26 days to 30 days a month due to
which the EBIDTA was higher by INR1.66bn. Adjusted for this, EBIDTA margins fell
sharply by 220bps YoY to 17%, largely due to higher LD provisioning (in Mejia and
Barsinghpur projects), power, fuel, freight and repairs and maintenance.
Flattish order intake, working capital deteriorates
BHEL currently has an order book of INR1610bn (flattish QoQ, up 5% YoY) with the
order intake at INR143bn (up 6% YoY). It reported two utility orders worth INR79bn
(INR40.7bn from Singrauni for 2x600MW and INR37.8bn from Dainik Bhaskar for
2x660MW). However, the company has reported a sharp jump in net working capital
from INR32bn to INR108bn due to a spike in inventory and debtors. Lower order intake
also affected customer advances which further dented the overall working capital for
BHEL.
Outlook and valuations: Structural concerns; maintain ‘HOLD’
We continue to remain concerned over BHEL’s overall business profitability in the long
term given the high base coupled with increasing domestic competition and pricing
pressures in the BTG space. We continue to bear in mind that BHEL will find it difficult
to build its non‐BTG revenue base and thus will not be able to effectively utilize its
unlevered Balance Sheet. We continue to maintain our HOLD/SP rating on BHEL with
TP of INR323 at which the stock trades at 12x and 11x for FY12E & FY13E respectively.
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