Re: {LONGTERMINVESTORS} BHEL:Thread
RAJESH DESAI
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CA. Rajesh Desai
RAJESH DESAI
pfa
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CA. Rajesh Desai
RAJESH DESAI
BHEL suppliers in Tiruchi in trouble due to lack of power, finance
· The 600-odd small and medium fabricators that supply to BHEL face closure of business due to multiple factors—mainly lack of power, finance and “intermittent periods of dried up orders.”
· The power situation in the state is crippling the units’ productivity. Some units are on the verge of shutdown due to acute power shortages,” says BHEL Small and Medium Industries Association (BHELSIA). Power from diesel gensets, it says, is way too expensive.
· The other major problem the industries face is that of funding. The slowdown in the economy, coupled with the problems specific to the power industry (such as coal linkage, environment clearances) is taking its toll on these SMEs.State-run BHEL is facing an “alarming situation” in the absence of new orders from the much-delayed power projects, despite an existing order book of Rs 1.30 lakh crore, according to a government official.
The company conveyed its concerns recently to the Heavy Industry Ministry, the official said.
The order flow has been hurt in recent times in the wake of multiple power sector problems. From 2011-12 onwards, issues of coal linkages, finances and delays in environment clearances are impacting the power sector.
The official said no new orders are coming up while existing projects —— that have been finalised —— are going slow or put on hold in the wake of financial constraints. In the wake of these problems, BHEL is finding it difficult to proceed with many of the projects, he added.
According to the official, BHEL informed the Ministry that “It is an alarming situation not only for BHEL because the company has expanded the capacity, taken number of people, but also for downstream industries of BHEL“.
The company raked in a net profit of Rs 7,039 crore on a turnover of Rs 49,244 crore in the last financial year. During the same period, the entity’s net worth stood at Rs 25,373 crore.
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CA. Rajesh Desai
Rajesh Desai
Bharat Heavy Electricals (BHEL) has been bestowed with National Energy Conservation Award 2012 for its Central Foundry Forge Plant (CFFP), Haridwar. The company’s Haridwar Plant has won the same for excellence in energy conservation and management in ‘Foundries’ sub-sector in ‘Industries’ sector.
BHEL has been committed to the nation’s power development programme and has reaffirmed its commitment to the Indian Power Sector by equipping itself by way of contemporary technology, state-of-the-art manufacturing facilities and skilled technical manpower.
Reuters Market Eye - Shares in Bharat Heavy Electricals Ltd (BHEL.NS) gain 3.3 percent after CLSA adds the stock to its Asia ex-Japan long only portfolio with a 3 percent weighting.
The addition is noted in CLSA's strategist Christopher Woods' Greed & Fear report dated on Monday.
Dealers say BHEL seems like a contrarian bet by CLSA: As per I/B/E/S estimates BHEL has 18 'underperform' and 13 'sell' ratings versus 3 'buy' and 1 'outperform' rating.
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CA. Rajesh Desai
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CA. Rajesh Desai
Rajesh Desai
4QFY13 Results Review - ANTIQUE
Bharat Heavy Electricals Limited - Margins beats expectations
Revenue declined by 2% YoY in 4QFY13 to INR192bn as against our estimate of INR206.5bn. The revenue decline started from 3QFY13 despite strong order book on account of delay in project execution at customer end and liquidity issue remains concern for the company. However, control on direct material cost and employee cost surprised on margin with 24.2% vs estimates of 19.2%. Net profit was also boosted by lower tax of 30.8% in 4QFY13 as against 33.3% in 4QFY12. The order inflow growth of 43% to INR315bn in FY13 was driven by NTPC bulk tenders was encouraging and management expect to maintain inflows going ahead on back of Sate and PSU orders with higher EPC orders. 4QFY13 results were in line with already published flash results in April. We maintain HOLD.
Revenue impacted due to lower execution
4QFY13 net revenue was down 2% on YoY to INR192bn, 7% below expectations of INR206.5bn. For FY13 revenue reported marginal growth of 0.9% to INR484.2bn on back of customer delay and slower execution. Revenue from spares business increased by 8.9% to INR30.2bn. We expect company would find difficult to maintain growth due to significant fall in order inflow compared to FY09 - FY11 and estimate decline of 3.8% to INR469bn in FY14e and 16.4% to INR393bn in FY15e.
Margins remained healthy during the quarter, difficult to sustain
EBIDTA declined by 5.8% to INR46.5bn in 4QFY13 as margins declined by 100bps on YoY to 24.2%. However margins were significantly higher than estimates of 19.2% despite revenue decline as company managed to control employee cost and direct material cost. BHEL reported PAT of INR32.3bn as against estimates of INR25.8bn. PAT was also boosted by lower tax rates during the quarter (30.8% vs. 33%) due to higher R&D spend and provisioning. Going ahead we expect profits to decline by 24.4% to INR49.7bn in FY14e and by 40.9% to INR29.3bn in FY15e.
Order inflow growth driven by NTPC bulk tender
The order inflow growth of 43% to INR315bn in FY13 was driven by NTPC bulk tenders. Booked orders of 9,627 MW in FY13 as compared to 3,934MW in FY12 was boosted by 5,940MW NTPC bulk tenders. We believe that there are very few orders left to be booked in FY14-15. With all NTPC bulk tenders orders already placed, and BHEL having also booked most of expected SEB orders (like Rajasthan order), we expect 12% drop in order inflow to INR278.5bn in FY14 and expect orders of INR376.3bn in FY15e.
Valuation
At CMP of INR196, BHEL is trading at 9.7xFY14e and 16.3xFY15e and 1.4xP/BV of FY14e. Historically, the stock tends to trade in 1-1.5 x P/B, during extremely adverse industrial environment and hence a downside to the stock cannot be ruled out if environment doesn't improve. We maintain HOLD with target price of INR180 (15xFY15e).
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CA. Rajesh Desai
CA. Rajesh Desai
Rajesh Desai
Management Meet Update - Antique
Bharat Heavy Electricals Limited - Meeting with CMD
We recently met BHEL's CMD, Mr.B.P.Rao, who sounded cautious on the near-term ordering scenario due to uncertain environment in the Indian power sector. However, he maintained that the company has created manufacturing base of global standards with significant progress in indigenisation of new technologies, which will put the company at a significant advantage over peers whenever cycle turns up. Following are key highlights of the meeting:
Competitive landscape turning better, but pricing remains under pressure due to fewer orders
Sharp fall in power equipment demand in past two years has made sure that a meaningful part of new capacity planned by new players will not see the light of day. This will make competitive landscape favourable to larger players like BHEL in years to come. However, the demand environment remains uncertain. While there are many projects under bidding process (8-10GW), how many of these will be finally be ordered out in FY14 is a big question. Due to few projects, there is pressure on pricing. Execution of a few private sector power projects is also an issue.
BHEL has created scale and technology base, which is difficult to replicate
Over past 3-4 years, BHEL has scaled up its capacity to 20GW per annum and fully absorbed super-critical technology. The company has also created a leadership, which is capable of taking on competition head on. A big concern in the past, that BHEL will lose its key people to competition who were setting up manufacturing in India, has also proved to be false as BHEL has been able to retain its top talent at various levels in past 4-5 years. This augurs well for the growth of the company in future.
EPC capabilities fully developed
While BHEL's manufacturing capabilities were always par excellence; its EPC (project management) capabilities were often questioned a few years ago. The company hasbeen able to develop EPC capabilities in recent years, and is targeting EPC contacts more than just BTG (boiler - Turbine Generator) orders. This has further put BHEL ahead of new competitors, many of whom have limited manufacturing capabilities only.
Power equipment demand will rebound in 1-2 years
Given slow progress in new project awards in recent years, India's power shortage will remain high. Also, India is expected to see sharp rise in residential demand in next 10-12 years, like USA and Europe, due to rising urbanisation and improving lifestyles. This will ensure that India will continue to have large latent demand for power. While fuel issues have derailed the power sector for the time being, it will rebound with several steps being taken by Governments.
Valuations and View
We believe that BHEL continues to be the best power equipment company in India with superior execution capabilities, impeccable track record and healthy profitability. The company stands to benefit the most as and when power equipment market revives. In the near term, performance will get impacted due to declining order-books and hence earnings. Stock has corrected meaningfully in past few months and currently trades at 1.2 x FY14 P/BV. We believe that valuations are at a discount to its intrinsic worth, but lack triggers for rerating. Maintain Hold.
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CA. Rajesh Desai
Rajesh Desai
Govt shelves BHEL divestment
The disinvestment department has shelved plans to sell a stake in power equipment maker Bharat Heavy Electricals Ltd (BHEL), citing valuation concerns & a depleting order book. The department had withdrawn the 5% disinvestment proposal in view of BHEL’s low share price, decreased capital expenditure & less demand for power-sector equipment. The plan to offload the government’s 5% stake in BHEL through a follow-on public offer (FPO) was approved by the Cabinet in August 2011. The government holds a 67.72% stake in the Navratna company.
In the 1st quarter of the current financial year, BHEL’s net sales declined 23.7% to Rs.6,352.55 crores from Rs.8,326.24 crores a year earlier. At the end of the June quarter, the company’s outstanding order book stood at over Rs 1.08 lakh crores, less than over Rs 1.15 lakh crores in the March quarter. Sluggish prospects in the domestic power sector as well as cheap overseas imports of power equipment have adversely affected BHEL’s business.
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CA. Rajesh Desai
Rajesh Desai
Recommendation: Hold
Price target: Rs180
Current market price: Rs161
Price target revised to Rs180; retain Hold
Key points
Q3FY2014 results were weak but marginally ahead of the Street's expectations. Importantly, we do not expect any downgrade in our earnings estimate for BHEL after the results, unlike the steep downgrades in the past few quarters, given the order inflow outlook of the company and the efforts to contain the cost and working capital. However, the macro economic situation and the scenario in the power sector are still not supportive for any material improvement in the immediate term.
The net sales declined by 16% YoY and 4% QoQ to Rs8,462 crore in Q3FY2014. The OPM was 9.6% (lower by 489BPS YoY but higher by 682BPS QoQ). The adjusted PAT was reported at Rs695 crore, 41% lower YoY and almost doubled sequentially.
We have fine tuned our FY2014 and FY2015 estimates and introduced our FY2016 estimate in this note; we see that after three years of decline, the earnings could improve in FY2016. We have rolled over our multiple to FY2016 and raised its price target to Rs180, but retain our Hold rating.
CA. Rajesh Desai