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Execution rebound amid headwinds…

Bhel’s Q4FY21 revenues came in at | 7171 crore, up 42% YoY, 61.1% QoQ amid a low base with some execution revival amid headwinds. On the segmental front, power segment revenues grew 50.9% YoY to | 4789.3 crore whereas industrial segment revenue grew 38.4% YoY to | 1963.4 crore. EBITDA level loss came in at | 1264.3 crore (vs. EBITDA loss of | 561.7 crore in Q4FY20) YoY owing to lower-than-expected execution and higherthan-expected operating expenses and provisions. Net loss came in at | 1032.9 crore (vs. net loss of | 1534.1 crore in Q4FY20) partly impacted by lower other income, which declined 43.2% to | 84.2 crore.

Deferral of key projects impact order inflows…

During Q4FY21, order inflow came in at | 4375 crore, down 31.7% YoY, (| 2717 crore in power segment, | 1669 crore in industrial segment). For FY21, order inflows declined 42.8% YoY to | 13472 crore. Bhel's order backlog as on FY21 was at | 102090 crore (| 84179 crore in power, | 11344 crore in industrial, | 6567 crore in exports). It is L1 in NPCIL turbine tender for 6x700 MW package worth ~| 10800 crore. It is favourably placed in Talcher (2x660 MW) plant, steam generator for nuclear power plants (12x700 MW) and other orders for FGD, etc. However, few power projects including Lara, Singrauli and Pench power plants are getting deferred for awarding/tendering thereby impacting overall visibility.

Operational transformation, diversification, key to revival…

Bhel is focusing on a transformational strategy to improve its operational performance, working capital situation. The company floated a global expression of interest (EoI) to utilise its manufacturing facilities and industrial land under ‘Make in India’ under which it is seeking partnerships with global OEMS in new business areas like propulsion systems, EPC work in oil & gas, Industry 4.0, etc. Bhel expects to gain good traction in solar EPC, oil & gas, railway electrification, locomotives, aerospace and defence manufacturing with focus on in-house manufacturing of bought-out items.

Valuation & Outlook

Execution challenges and high level of receivables (~| 31292 crore) are key concerns impacting long term growth prospects. However, strategy to optimise operational cost and initiatives like utilisation of manufacturing facilities & industrial land are likely to support diversification and provide better revenue visibility. We introduce FY23E estimates and revise our target price to | 58 (earlier | 35), which is at 20x FY23EPS in case any diversification, operational cost control measures pan out favourably, going ahead. However, thermal power sector outlook and structural changes continue to remain key risk and concern. Consequently, we change our rating from HOLD to REDUCE.

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