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BHEL is frequently on the failure, can the government save it?

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Mumbai: BHEL’s STOCK price reflects what the MARKET think of its performance. After reporting a 58.4 % fall in its net profit, stock price of BHEL is down 8 % with continued selling. Most of the brokerages covering the stock have recommended to their customers to reduce position or move to better shares.

Morgan Stanley, continually negative on the stock had earlier called for a 3 ‘M’ de-rating on BHEL – MARKET share, margins & multiples. The first level has already played out with market share losses to together international and domestic competition, foremost in part of the 3rd driver (multiple) moreover playing out. The 2nd level of the de-rating carries on – EBITDA margins were down 190 basis point Year on Year  to just 2.6 % in the June quarter (the 7th successive quarter of decrease & second lowest level in 10 years), and more pain is predicted to follow. Edelweiss says that margins were affected by 670 basis points dip in the industry segment, which encounters competitors from more compact providers and Chinese players.

BHEL’s revenue decreased by 20 % in the June quarter, but even more important its order book continues to decline. It revealed order inflows of Rs 1,100 cr which prompted Citi to issue a warning that the company’s order book has dropped below Rs 1 trillion marks & may have dipped below this year’s mark. Citi adds that the company may miss its sales & order book guidance for the current year.

Though, there are some brave broking companies who are maintaining a ‘Buy’ on the company. Satyam Agarwal of Motilal Oswal recommends including the STOCK with a price target on of Rs 300. Agarwal expects order flow to pick up during the current financial & the reason that order flows were low in the June quarter was on account to elections. No new tasks have been ordered in the current financial. Though, Kotak Securities says that BHEL’s management has indicated early signs of resurgence in accordance with the new government’s policy actions.

BHEL’s order pipeline remains to be powerful at 16-17 GW led by the public sector. The company is favorably placed for order worth 4GW, with another 4GW under assessment, says the Kotak review. Though, the broking company has a ‘Sell’ recommendation on the company.

BHEL will need to increase its order book as sales once again have outstripped order inflow. Visibility of sales has fallen down to 2.6 years. Agarwal of Motilal Oswal feels that order visibility will increase to three times in the current fiscal.

In the post result conference call, BHEL’s management said that execution is likely to enhance, with tasks even in the private sector like Lalitpur, Bara, Monnet, etc seeing some pick-up. Also for new intake, the company is providing a lower execution period, & management expects projects particularly in Andhra Pradesh / Telangana, etc to avail this.

Not many analysts seem to be convinced by the management response and feel that the uptick in the power sector and new business from other sectors is likely to be a time consuming affair.

It is obvious that we are back to where we were before the elections in the case of BHEL & power sector. The company & the sector are completely dependent on the power sector reforms to take off. Though, the power minister Piyush Goyal is still in the learning phase. The current Parliament session did not witness any Cabinet decision relevant to reforms suggested for the power sector. The wait for a major overhaul of the sector as well as for BHEL has just got more time.

EPC WORLD NEWS BUREAU

The post BHEL is frequently on the failure, can the government save it? appeared first on EPC World.


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