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Bharat Heavy Electricals Ltd - Q2FY14 Result Update - "HOLD"




Kisan Ratilal Choksey Shares and Securities Private Limited


08 Nov 2013





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Bharat Heavy Electricals Ltd - Q2FY14 Result Update CMP: Rs 136 Target Price: Rs 144 Recommendation: HOLD “Subdued operational performance” BHEL net sales decreased by 15% YoY to Rs. 8,984 cr. Current quarter includes financial result of HPVP unit (earlier a fully own subsidiary) which was merged. Consequently sales is higher by Rs 16.7 cr and EBIDTA is lower by Rs 191.35 cr. Negative impact of Rs 191 cr is a onetime hit as mergers are entitled for benefit schemes. Adjusted Sales stands at Rs. 8,817 cr (down 16.5% YoY) and adjusted EBIDTA % at 6.8% (down 1100 bps). Adjusted EBIDTA declined sharply due to higher provisioning in current quarter coupled with lower operating leverage. Other income increased to Rs. 497 cr vs Rs 130.7 cr in Q2FY13 on back of forex gain of Rs. 365 cr which arrested fall in earnings to an extent. Consequently BHEL registered Adjusted PBT of Rs. 838 cr and Adj PAT of Rs. 587 cr. Order backlog at the end of the Q2FY14 stands at Rs. 102,300 cr (2.3x TTM sales). The company registered orders worth Rs. 4,470cr for H1FY14. Funds constraints in hands of developers continue to impact execution Net sales decline by 15% as both sales in industry and power sector declined by 15%. Fund constraints continue to impact ongoing power projects, where the project developers are not in a position to release payments. A number of private developers have put on hold their projects which have already been ordered. In some cases the company has been forced to suspend work due to mounting dues from these project developers (Cash over revenue policy). The company had mentioned in previous concall private players like Bajaj Hindustan, Monnet, Surana, Abhijeet are facing funds constraints consequently BHEL had slowed execution for the same projects. However, as of Q2FY14 projects of Bajaj Hindustan and Monnet have started gaining pace as developer have made funds available. Clearing of projects by CCI – positive for BHEL Clearances of project by CCI will add in positive manner for getting the other clearances for stalled projects. Of the projects cleared by CCI orders of some are already placed on BHEL and others will come up for tendering. Hence for orders already placed execution is expected to gradually pick up. Among projects cleared by CCI which are placed on BHEL are orders from Jindal, JP, DB group among others. Working capital continues to remain under pressure Adverse macro condition has resulted in deterioration of working capital cycle. Debtors stand at approx Rs 42,668 cr. Of total receivables Rs. 20,776 cr are due for payment; while remaining are not due for payment as they are related to completion of milestone. Cash balance stands at Rs. 6,221 cr. 15 GW of tenders expected in FY14 The company expects 15GW of tenders to be floated in current fiscal. The company is well placed to bagged decent chunk of orders. BHEL is in final stage for some of the projects, which include NTPC Unchahar - 500 MW BTG package, SG package for the 2x800 MW NTPC Darlipali project. There are other six sets of 116 megawatts for Pranahita lift irrigation scheme where BHEL is already placed as L1. BHEL is also the lowest bidder in the 206 megawatts Shahpur Kandi Hydro project for the PSPCL and 2x800 megawatt ESP package for NTPC Lara and the other three projects roughly totaled about 2500 MW. All these projects are in the final stages of negotiations with the customers and are waiting for some of the clearances. Consequently most of them ...

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