Published on 19/09/2019 9:52:07 AM | Source: Prabhudas Lilladher Ltd

Option Strategy Bharat Heavy Electricals Ltd by Prabhudas Lilladher

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Marred by weak execution and order inflow

BHEL reported net loss for 1QFY20 due to weak operating performance with 24% YoY revenue decline and EBITDA loss. Delay in dispatches due to lack of customer clearances, slow execution due to agitation at few of sites, were the key reasons behind such weak performance. Management expects things to normalize in the subsequent quarter. While order inflow during the quarter was lower at Rs39 bn, down 11% YoY, the company continues to maintain its leadership position in the FGD ordering (received 23GW out of 40 GW awarded and L1 in 19 GW). While collectable debtors have gone down by 5% at Rs152 bn, total debtors (including deferred debtors) have gone up from Rs346 bn at the end of FY19 to Rs378bn at the end of 1QFY20. We have cut FY20/FY21E earnings factoring weak 1QFY20 numbers, adverse macro environment (unfavorable payment terms, uncertain account receivables and lower upfront advances). We maintain Hold on the stock with revised TP of Rs56 (13x FY21E).

* Weak quarter due to lower revenue growth: BHEL’s 1QFY20 revenue was at Rs45.3bn, down 24%YoY due to decline in Power/Industry segment revenue by 25%/20% YoY respectively. Reasons beings delay in dispatches due to lack of customer clearances, land constraints and local unrest. EBITDA margin was negative 5.9% compared to positive 4.8% in 1QFY19 on account of lower revenue growth. Other expenses were lower due to withdrawal in provisions which stood at Rs1.6 bn (Rs3.1 bn). Depreciation was up by 35% at Rs1.5 bn. Interest cost was up by 69% at Rs1.1 bn due to higher borrowing of Rs4 bn on rise in working capital requirement due to liquidity crunch. Other income was down 19% at Rs1.5 bn. Tax rate for the quarter came higher at 37% compared to 31% in 1QFY19. Hence, BHEL reported net loss of Rs2.2 bn against PAT of Rs1.6 bn in 1QFY19.

* Industry segment supports 1QFY20 order inflow: BHEL’s order inflow for the quarter was down 11% at Rs39 bn where Power segment was down 11% YoY at Rs19 bn. However, industry segment reported sharp growth in order inflow which was up 24% YoY at Rs19.8 bn. This was mainly on account of pick up in orders from railways and FGD. Order backlog at the end of 1QFY20 stood at Rs1078 bn down 8%.

* Other con-call highlights:

1) Management sees near term power sector opportunity of 80-100GW

2) Forex gain iin 1QFY20 was Rs480 mn, lower compared to Rs850 mn in 1QFY19.

3) Of the total debtors, 49% is from states, 33% from central, 12% from private and 6% from exports.

4) In railways electrification 5 tenders are in pipeline.

5) BHEL got an order of regenerative locomotive in the quarter and another order to manufacture 75 locomotives will be finalized in next 1 month.


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