Top takeaways from Q1FY17 : BHEL’s 1QFY17 Rec PAT (Rs 778mn; 54% yoy) was 5% below our estimate but was materially above consensus estimates, which were estimating a loss. Higher than expected execution and lower than expected impact of IND?AS on debtor provisioning (Expected credit loss) led to strong results. BHEL is favourably placed in 12GW of projects, 7GW of which are expected in FY17.

Outlook and valuation: We revise up our FY17/18 estimates by 21%/14% to factor in higher revenues and lower impact of debtor provisioning. Our estimates now bake in benefits of pick up in execution and operating leverage in FY18. Our FY18 earnings estimates are 30% above consensus. Despite this we find it difficult to justify current valuations (20x FY18 PE) for single digit RoE’s and no material business diversification. We maintain Sell with a revised price target of Rs 120 (Rs 105 earlier). We would revisit our rating on increased visibility on sustainability of order inflows and pick up in ordering for value add equipment for new emission norms.