Bharat Heavy Electricals -Poor FY15 results and weak outlook :: Nomura Research

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Event: FY15 provisional earnings yet again sharply below

expectations; profit plunged ~62%y-y

BHEL released its FY15 provisional results which were sharply below our

expectations on profitability as well as on order inflow. For FY15, revenues

declined ~23.6% y-y while net profit plunged by ~62.1% y-y, missing our

estimates by a wide margin. Order inflow for FY15 at INR308bn was up 10%

y-y mostly led by two large orders booked late into the year but still below

our estimates of INR350bn. We retain our cautious stance on BHEL due to

continued disappointment in order inflows, slower execution, falling margins

and risk on receivables. We reiterate our Reduce rating, and our target price

of INR123 per share implies ~47% downside.

Key highlights

 BHEL’s provisional FY15 gross sales at INR308bn declined ~23.6%y-y.

On implied 4Q numbers, gross sales decreased by ~16.7% y-y.

 PBT for FY15 at INR19.06bn declined by -62% y-y. PBT margins (based

on gross sales) compressed to 6.2% in FY14 (declined by ~624bps y-y)

and 8.9% in 4QFY14 (declined by ~860bps y-y).

 PAT for FY15 at ~INR13.1bn plunged ~62.1% y-y, while implied 4Q PAT

declined by 57.5% y-y (vs Nomura estimate of INR15.6bn in 4Q).

 Order inflow of INR308bn was up 10% y-y thus replacing what the

company executed this year but still below our estimate of INR350bn.

 Implied EBITDA margins for 4Q was at 9% and for FY15 at 6.4%, which is

the lowest since 2002 down cycle for the company.

Impact

We expect negative stock reaction to this set of provisional numbers as we

do not see any visibility of a turnaround even over the medium term for the

company. Weak order inflow trend also does not infuse any confidence on

revenue growth or margins picking up anytime soon. Thus we retain our

Reduce call on the stock.