Bharat Heavy Electricals Ltd. share price target

ICICI Securities Ltd | Retail Equity Research Bhel reported better-than-expected Q3FY17 results vis--vis consensus but lower than our estimates. The beat against consensus was on all accounts (revenue, margins and PAT). Recovery on the power segment EBIT above 10% mark was the key silver lining Revenues came in at | 6325 crore, up 18.8% (I-direct estimate of | 6548 crore). On the segmental front, power segment revenues came in at | 5096 crore, up 18.2% whereas industrial segment...

Doubtless, BHEL results were a beat. Hopefully, the browbeaten narratives will be a thing of past. Consider the magnitude of shock: for the street expectation of Rs2.5 bn operating loss, even the paltry operating profit of Rs710 mn, or 1.3% operating margins, attracted attention from all quarters. Further, the once deemed slow-moving projects are closer to their policy dnouement, we learn. While keeping the 12GW prospect intact, the order inflow might be 7GW for FY17, company opines. True, for near term, this is puzzling. However, to understand the steady-state, using DCF, we believe the best is priced in. And, thereby, we upgrade BHEL to HOLD from SELL....

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.

29% YoY to INR55.3b (meaningfully exceeding our estimate of INR47.3b), led by Power (sales up 32% YoY) and Industrial (+22.5% YoY) segments. Pace of execution improved due to management's focus on expediting project completion. EBIDTA of INR0.7b came in meaningfully above our estimate of INR4.1b loss. EBIDTA margin of 1.3% too was significantly above our estimate of -8.7%, supported by a) a 23% drop in other expenses (-700bp YoY to 10% of sales) and b) benefit of positive operating leverage. PAT stood at INR0.8b v/s our estimate of loss of INR3.7b....

1600MW Kareemnagar power project, the 1320MW Uppur project (Rs 56bn), 800MW NorthChennai(Rs28bn),and545MWTuticorinproject(Rs12bn).RevenuesatRs100bn( 21% yoy) were 5% lower than our estimate due to weak execution. Lack of operating...

9 Based on FY16 provisional sales of Rs 267bn (14% yoy), Q4FY16 implied sales at Rs 104bn (20% yoy) were lower than our estimate of Rs 107bn. FY16 loss of Rs 8.7bn impliesQ4FY16PATofRs3.9bn(55%yoy)lowerthanourestimateofRs7.9bn....

BHEL provisional results in-line with estimates: BHEL reported FY16 gross sales at INR267b (-14% YoY) vs. our estimate of INR275b. Q416 implied sales at INR105b (-19.5% YoY) vs. estimate INR112b and reflective of the challenges in...

Revenue de-grew on a YoY basis during Q2FY16 and H1FY16 to the extent of 3.4%and 8.8% to reach to Rs.1,02,997mn by H1FY16. Industry and Power segmentsde-grew by 8.6% and 7.5% on a YoY basis during H1FY16 to reach to Rs.24,825mnand Rs.82,114mn respectively.

8 BHEL's earnings in 2Q were impacted as65% of sales came from projects thathavea JointDeedUndertaking'(JDU)vs.55%ayearago. 9 BHEL expects to win additional order for 9.3GW by Mar'16 and targets Rs546bn of...