Thursday, August 9, 2012

>BHEL: Q1FY2013


In Q1FY2013, the turnover of BHEL grew by 18% YoY, led by good execution in the industrial and power divisions, which grew by 19% and 17% YoY respectively. The company reported a higher OPM of 13.1%. The adjusted net profit rose to Rs920.9 crore for Q1FY2013.

During Q1FY2013, the company’s order book stood at Rs132,900 crore (down 17% YoY) while the order inflow was Rs5,590 crore (up 126% YoY on a low base). The book/bill ratio declined further to 2.6x, aggravating concerns about its growth. The management maintained its order inflow guidance of Rs60,000 crore for FY2013.
We had sharply downgraded our earnings estimate in FY2012. However, after the decent Q1 results, we maintain our estimates of a negative compounded annual growth rate (CAGR) of 1% in the top line and that of 2% in the adjusted earnings over FY2012-13.

Overall, the company’s performance was outstanding but it continued to disappoint with a sluggish order inflow. The long awaited import duty on power equipment has been recently approved by the government. However, the move is perceived to be too late as most of the ordering for the 12th Five-Year Plan has already taken place and is likely to benefit once the ordering for the plan starts. While the supercritical orders expected from NTPC could boost BHEL’s order book in the coming quarters, these orders are largely priced in now. Due to a lack of any near-term trigger we see limited upside from the current level and maintain our Hold rating on the stock. At the current market price, the stock trades at 7.6x FY2014E earnings. Our price target remains Rs250 (9x FY2014E)