BHEL results disappoint, net down 69%

Both sales and profits well below consensus estimates; analysts say macro picture and coal supplies need to improve visibly for sector to begin looking up

Bharat Heavy Electricals Ltd (BHEL), the country's largest power equipment manufacturer, posted a disappointing set of numbers for the quarter ended December 2014.

Net profit was 69 per cent less than in the same period a year before, on lower revenue and operating income, Rs 212.6 crore as compared to Rs 694.8 crore, respectively. Total income dipped 27 per cent to Rs 6,472 crore from Rs 8,926 crore in the same earlier period. There were  client-centric delays, too, said analysts, due to the state of affairs in the power sector.

“The numbers are lower than our estimates on revenue and Ebitda (operating earnings) margins but higher than expectations on profit after tax (due to higher other income),” said Sanjeev Zarbade, vice-president at equity research firm Kotak Securities. The consensus estimate at Bloomberg was for sales at Rs 7,354 crore and net profit at Rs 450 crore.

In the core power segment, revenue dipped 33 per cent to Rs 4,862 crore and profit by more than half to Rs 458.7 crore from Rs 1,208 crore in the corresponding quarter of 2013-14. The industrial segment reported a 6.7 per cent fall in revenue to Rs 1,493 cror, but profit fell to only Rs 6.4 crore from Rs 231.8 crore in the year-before period.

Undoubtedly, weak economic growth and industrial activity, and coal mining-related issues hurt the company. The December 2014 quarter was the 10th in a row wherein the company reported a decline in profit. Sales have declined for nine quarters, year on year. A slowing in orders have also impacted cash flow.

BHEL said its order book was Rs 103,900 crore as on December, almost flat as compared to Rs 103,700 crore in the earlier quarter but higher than the Rs 100,600 crore at the end of December 2013. Orders for the financial year's nine months ending December were up about 80 per cent at Rs 21,000 crore, said an analyst with a domestic brokerage, requesting anonymity. However, the jump was largely due to the low base effect, as a large chunk of new orders came in the March quarter of 2014.

“Overall, the results were disappointing. We believe it will take at least three to four months after completion of coal auctions for power projects to start picking up,” said the analyst.

The results were announced after market hours and the share price closed on Thursday at Rs 267.90 at the BSE, up 4.9 per cent from a day before.

There is a bit of stability in performance, with sales flattish compared to the September quarter, while profit was up 70.3 per cent sequentially, though partly due to a low base effect. The analyst quoted above adds, “Receivables have also come down meaningfully, which is positive.”

However, don’t expect any meaningful recovery in the business anytime soon, said the analyst, as the overall macro environment remains weak. “Let there be clarity and let the macro picture start looking up. While the government’s moves to ease coal supply is in the right direction, the initial stage would see a thrust on improving the utilisation of existing power projects, beside completing projects under construction. Competition, too, will be higher as compared to a couple of years ago.”

In a Bloomberg poll of 21 analysts since the start of this calendar year, 12 were bearish on the stock, three were neutral and five have a 'buy' rating. Their average price is Rs 238, compared to the current one of Rs 267.90.