Please refer to important disclosures at the end of this report 1 Quarterly Data (Standalone) (` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) Revenue 6,458 8,439 (23.5) 19,204 (66.4) EBITDA 389 1,202 (67.7) 4,651 (91.6) EBITDA margin (%) 6.0 14.2 (823) 24.2 (1,820) PAT 465 921 (49.5) 3,238 (85.6) Source: Compan y, Angel ResearchFor 1QFY2014, BHEL reported a disappointing performance, with top-line and bottom-line coming in below our estimates as well as street expectations. Top-line declined sharply by 23.5% yoy to`6,458cr (vs our estimate of`8,186cr and street estimate of `8,005cr). Power segment declined by 20.6% yoy to `5,379cr while industry segment declined by 34.4% yoy to`1,293cr, due to slow moving orders. Slow moving orders include Bajaj Hindustan, Surana Power, Abhijeet Power, Monet Ispat and Kohinoor Power among others where delay in payments and project clearances at customer ends has led to delay in booking revenues. Consequently, OPM contracted by 823bp yoy to 6.0% and PAT declined by 49.5% yoy to`465cr (vs our estimate of `804cr and street estimate of `790cr). Declining order intake and backlog: For 1QFY2014, order intake declined sharply by 73.7% yoy to`1,469cr. Further, `1,200cr worth of order from Iraq awarded in FY2011 got cancelled during the quarter. Consequently, total order backlog declined by 18.3% yoy to`108,600cr by the end of the quarter, thus implying an order book coverage of ~2.3x, which has been continuously deteriorating over the last couple of years. The Management has indicated order visibility of 15GW in FY2014. However, considering the headwinds in the power sector, delays in finalization of orders and execution cannot be ruled out. Outlook and valuation: Given the strong competition (domestic as well as international), declining order book, and a weak capex cycle, we expect BHEL’s profit, margin and ROE to decline from the current levels. Hence, the cheaper valuations of 7.4x FY2014E EPS and 8.7x FY2015E EPS are largely overshadowed bystructural issues plaguing the company. We continue to remain Neutral on the stock. Key financials (Consolidated) Y/E March ( ` cr) FY2012 FY2013E FY2014E FY2015E Net sales 48,355 48,916 43,140 39,692 % chg 13.7 1.2 (11.8) (8.0) Adj. net profit 7,087 6,689 4,939 4,188 % chg 17.1 (5.6) (26.2) (15.2) EBITDA (%) 20.6 19.4 16.8 15.9 EPS ( ` ) 29.0 27.3 20.2 17.1 P/E (x) 5.2 5.5 7.4 8.7 P/BV (x) 2.3 1.9 1.6 1.4 RoE (%) 49.5 37.6 23.1 17.2 RoCE (%) 29.2 23.6 16.1 13.2 EV/Sales (x) 0.6 0.6 0.7 0.8 EV/EBITDA (x) 3.0 3.3 4.2 4.9 Source: Company, Ang el Research; Note: C MP as of August 2, 2013 NEUTRAL CMP `149 Target Price - Investment Period - Stock Info Sector Net Debt ( `cr) (5,227) Bloomberg Code BHEL@IN Shareholding Pattern (%) Promoters 67. 7 MF / Banks / Indian Fls 12.2 FII / NRIs / OCBs 15.2 Indian Public / Others 4. 8 Abs. (%) 3m 1yr 3yr Sensex ( 2.9) 11.0 6.0 BHEL ( 22.1)(32. 2) (69.5) Capital Goods Market Cap ( `cr) 36,567 Beta 1.2 52 Week High / L ow 272/120 Avg. Daily Volume 484,909 Face Value ( `) 2 BSE Sensex 19, 164 Nif ty 5,678 Reuters Code BHEL.BO Amit Patil 022-39357800 Ext: 6839 [email protected]BHEL Performance Highlights 1QFY2014 Result Update | Capital Goods August 5, 201 3
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For 1QFY2014, BHEL reported a disappointing performance, with top-line and
bottom-line coming in below our estimates as well as street expectations. Top-line
declined sharply by 23.5% yoy to ` 6,458cr (vs our estimate of ` 8,186cr and street
estimate of ` 8,005cr). Power segment declined by 20.6% yoy to ` 5,379cr while
industry segment declined by 34.4% yoy to ` 1,293cr, due to slow moving orders.
Slow moving orders include Bajaj Hindustan, Surana Power, Abhijeet Power, Monet
Ispat and Kohinoor Power among others where delay in payments and project
clearances at customer ends has led to delay in booking revenues. Consequently, OPM
contracted by 823bp yoy to 6.0% and PAT declined by 49.5% yoy to ` 465cr (vs our
estimate of ` 804cr and street estimate of ` 790cr).
Declining order intake and backlog:
For 1QFY2014, order intake declined sharply by 73.7% yoy to ` 1,469cr. Further,
` 1,200cr worth of order from Iraq awarded in FY2011 got cancelled during the
quarter. Consequently, total order backlog declined by 18.3% yoy to ` 108,600cr
by the end of the quarter, thus implying an order book coverage of ~2.3x, which
has been continuously deteriorating over the last couple of years. The
Management has indicated order visibility of 15GW in FY2014. However,
considering the headwinds in the power sector, delays in finalization of orders and
execution cannot be ruled out.
Outlook and valuation: Given the strong competition (domestic as well as
international), declining order book, and a weak capex cycle, we expect BHEL’s
profit, margin and ROE to decline from the current levels. Hence, the cheaper
valuations of 7.4x FY2014E EPS and 8.7x FY2015E EPS are largely overshadowed by structural issues plaguing the company. We continue to remain Neutral on the stock.
Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015E
Net sales 48,355 48,916 43,140 39,692
% chg 13.7 1.2 (11.8) (8.0)
Adj. net profit 7,087 6,689 4,939 4,188
% chg 17.1 (5.6) (26.2) (15.2)
EBITDA (%) 20.6 19.4 16.8 15.9
EPS (`) 29.0 27.3 20.2 17.1
P/E (x) 5.2 5.5 7.4 8.7
P/BV (x) 2.3 1.9 1.6 1.4
RoE (%) 49.5 37.6 23.1 17.2
RoCE (%) 29.2 23.6 16.1 13.2
EV/Sales (x) 0.6 0.6 0.7 0.8
EV/EBITDA (x) 3.0 3.3 4.2 4.9
Source: Company, Angel Research; Note: CMP as of August 2, 2013
Order inflow declines sharply due to order cancellation
For 1QFY2014, order intake declined sharply by 73.7% yoy to ` 1,469cr. Further,
` 1,200cr worth of order from Iraq awarded in FY2011 got cancelled during the
quarter. Consequently, total order backlog declined by 18.3% yoy to ` 108,600crby the end of the quarter, thus implying an order book coverage of ~2.3x, which
has been continuously deteriorating over the last couple of years. The
Management has indicated order visibility of 15GW in FY2014. However,
considering the headwinds in the power sector, delays in finalization of orders and
execution cannot be ruled out.
Exhibit 8: Declining Order Book
Source: Company, Angel Research
Exhibit 9: Order book to sales (x)
Source: Company, Angel Research
Exhibit 10: Orders Backlog
Order details Value (` Cr)
Power 89,417
Industrial Segment 10,883
Exports 8,392
Total order baklog* 108,600
Source: Company, Angel Research * Note: Total order backlog adjusted for Inter-segmental orders
Outlook
Deteriorating dynamics in the BTG space: The recent trend in biddings and project
wins indicates that BHEL’s leadership position is under threat, thus hinting at a loss
in its market share going ahead. Further, given the structural issues faced by thepower sector, times look tough for the BTG players.
Stock to remain under pressure: BHEL is trading at historically low valuations of
7.4x and 8.7x on FY2014E and FY2015E EPS estimates respectively, owing to 1)
weak order inflow; 2) weak investment capex due to a high interest rate regime,
which could take more time to gather momentum than earlier anticipated; and 3)
changing competitive dynamics in the BTG space with strong capacity additions.
We believe these concerns are far from over and hence, expect the stock to remain
under pressure.
Valuation: Given the strong competition (domestic as well as international),
declining order flows and a weak capex cycle, we expect BHEL’s profit margin andROE to decline from the current levels. Hence, the cheaper valuations of 7.4x and
8.7x on FY2014E and FY2015E EPS respectively, are largely overshadowed by
structural issues plaguing the company. We continue to remain Neutral on the stock.
Research Team Tel: 022 – 3935 7600 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement BHEL
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)