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BHEL (BHEL) - Qtr. Update - Dtd. - February 01, 2013




Axis Capital Limited


02 Feb 2013





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BHEL’s Q3FY13 performance was disappointing with miss on revenue and net profit. Revenue at Rs 102 bn (down 4% YoY) and EBITDA at Rs 16.3 bn (OPM of 16%) were below our estimate of Rs 114 bn and Rs 20 bn (OPM of 17.3%) respectively. Higher than expected other income of Rs 3.3 bn cushioned net profit decline to Rs 11.8 bn (down 8% YoY; our est. Rs 12.8 bn). We believe BTG market is unlikely to improve over next 2-3 years and margin issue is structural. Hence we expect BHEL’s EPS to decline to Rs 15 in FY15 (Rs 26 in FY12). We roll forward to FY15E with revised TP of Rs 221 (Rs 179 earlier) on 15x FY15E EPS (earlier 15x FY15E EPS discounted at 15% pa). Upgrade to HOLD given 2% downside from CMP of Rs 225. Execution delays on deferments by customers: Execution was dismal due to deferment of payments by customers. However, in the current quarter, the customers have improved their payments and hence deliveries are expected to pick up from Q4FY13. Company cited example of Visa Power where the project was put on hold for last two years and recently the company has approached BHEL for re-starting the execution. Order inflow pick-up driven by PSUs: BHEL has booked orders worth Rs 107 bn during 9mFY13 and expects FY13 order flows at Rs 250-300 bn (vs. Rs 220 bn in FY12). BHEL has already won orders worth Rs 40 bn in Q4 till date. It expects to book another Rs 92 bn worth of orders in Q4 as it is L1 in two orders (Rs 54 bn order from Rajasthan and Rs 26 bn order from Odisha) and expects to book NTPC, Unchahar order for 1X500 MW on nomination basis worth Rs 12 bn. Order pipeline for FY14: BHEL expects to bid for 13 GW of orders over next 9-12 months, mainly from PSUs. Pricing: BHEL is L1 in Rajasthan EPC order for 2X660 MW and has quoted Rs 54 bn (Rs 40 mn/MW) vs. Rs 62 bn previously in 2011 for the same order. We believe these prices are at or below BHEL’s breakeven levels. Working capital increased from Rs112 bn in Mar ’12 to Rs 210 bn in Dec ’12 largely due to lower customer advances. Consequently, cash declined to Rs 35 bn as on Dec’12 from Rs 67 bn. At CMP the stock trades at 11x FY14E EPS of Rs 20 and 15x FY15E EPS of Rs 15. Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1144 Charanjit Singh (Vice President – Capital Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1123

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