Bharat Heavy Electricals Ltd. share price target

Net cash position as on date stands at Rs12bn. BHEL's 3QFY20 results were lower than our and consensus estimates. Execution continues to be subdued with ~23% YoY decline in revenues, led by de-growth in both Power and Industry segment. Order inflow de-grew by...

BHEL, a government owned entity, is India's largest engineering company and dominates the supply of equipment for power plants in India. Key products include gas turbines, generators, thermal sets, diesel shunters,...

PAT level Power sales (70% of sales) declined 18% YoY to INR42b, while Industrial sales (30% to sales) grew strongly by 24% YoY to INR18b. PBIT margin expanded 200bp YoY to 10.3% in Power but shrank 180bp YoY to 3.0% in Industrial segment. BHEL continues struggling on account of (a) the weak ordering environment in the power sector, (b) high receivables of INR380b and (c) high employee cost at ~21% of sales. We maintain rating on the stock with a TP of INR52 (15x FY21E EPS, in line with the 10-year average P/E). PBIT margin expanded by 200bp YoY to 10.3% in Power but shrank by 180bp YoY BHEL continues struggling on account of (a) the weak ordering environment in the power sector, (b) high receivables of INR380b and (c) high employee cost at ~21% of sales. We maintain our earnings estimates and a TP of INR52 (15x FY21E EPS, in line with the 10-year average P/E).

Reasonable order inflows across power, industrial business During Q1FY20, order inflow came in at | 3892 crore, down 11% YoY, of which power segment contributed | 1913 crore, industrial segment contributed | 1926 crore. Bhel's order backlog as on Q1FY20 was at | 107806 crore. The company has strengthened its position in emission control equipment (FGD) by wining further orders during the quarter and is favourably placed in orders worth ~| 14000 crore. It sees ~ 8-10 GW (~| 50000 crore) power sector opportunities to be finalised by year end. On...

Q4FY19 revenue growth was flat at 2% YoY to Rs103bn and 40% sequentially. Power segment revenue was down 3% YoY at Rs81bn. Industry revenue was up 14% YoY at Rs17bn. EBITDA margin improved by 140bps YoY to 13.5% on account...

Decent order inflows across power, industrial business During Q4FY19, order inflow was at | 6630 crore, down 73% YoY on a high base. For FY19, order inflows came in at | 23860 crore, of which power segment contributed | 15500 crore, industrial segment contributed | 7000 crore and exports contributed | 1400 crore. Bhel's order backlog as on FY19 was at | 110000 crore. Bhel has strengthened its position in emission control equipment (FGD) by wining further orders during the quarter. For FY19, FGD...

Revenues came in at | 7336.4 crore, which grew 10.7% YoY, above our estimate of | 7030.7 crore. On the segmental front, power segment revenues grew 2.9% to | 5355.8 crore YoY whereas...

Subdued performance: BHEL reported revenue of Rs73bn (+9% yoy), above our expectation of Rs69bn. Revenue growth in the power segment was muted at just 3% yoy, while industrial segment jumped 41% yoy. EBITM in power and industrial segments declined by 373bps and 8bps to 10.7% and 3.5%, respectively. EBIDTA declined 28% yoy to Rs2.2bn on weak gross margins (down 437 bps yoy) and a forex loss of Rs2.07bn reported under other expenses. PAT increased to Rs1.9bn, driven by higher other income, on account of interest income on an income tax refund of Rs870mn. Receivables inched up to ~Rs397bn from Rs389.9bn qoq state utilities accounted for 51%, while central...

Revenue came in at | 6779.9 crore which grew by 6.2% on YoY basis which were below our estimate of | 6929.7 crore. On the segmental front, power segment revenues grew by mere 1.7% to | 5153.2 crore on YoY basis whereas industrial segment have shown an improvement with revenues growing by 31.7% to | 1453.8 crore. EBITDA came in at | 240.8 crore (against our estimates of | 342.8 crore) vs. a loss of | 95.3 crore in Q2FY18, owing to weaker...

Order inflow grew by 143% yoy to Rs43bn and the company is favourably placed (L1) in additional orders worth Rs170bn. Order backlog too increased by 15% yoy to Rs1.17tn. BHEL is focusing on ramping up its executable order book (~Rs980bn) to achieve better operating leverage as Rs190bn worth of orders are slowmoving. We value the stock at a P/E of 15x on FY20E EPS and ascribe a target...