 "Capital goods firms remain in reverse gear")
Bharat Heavy Electricals Ltd, the country's largest power equipment manufacturer, led the way with a 64% drop in net profit -- its fifth straight profit drop. Slowdown in fresh orders coupled with high fixed cost pulled down net profit to Rs 455 crore as against Rs 1274 croe in the same period last year.
Net sales also declined 15% at Rs 8,819 crore during the three month period as against Rs 10,399 crore in the corresponding period. "The decline in profitability has been sharper because of the high fixed cost base of the company,” Salil Garg, Director-Corporate Ratings, India Ratings & Research said.
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BHEL has been grappling with high receivables from its customers which have held back payments owing to the liquidity crunch in the power utilities sector. Bhel’s trade receivables stood at Rs 29,760 crore at the end of September – a marginal rise as compared to receivables of Rs 29,234 crore at the end of the second quarter last financial year.
| Companies | Revenue (in Rs cr) | EBITDA (in Rs cr) | Net profit (in Rs cr) | Stock price on BSE on Wednesday (in Rs) |
| ABB | 1,762 (down 1.34% y-o-y) | 111 (up 40% y-o-y) | 36 (66% y-o-y) | 140.45 (down 1.30%) |
| Thermax | 1,043 (down 12.5%) | 93 (down 23.1%) | 30 (down 67%) | 628 (up 0.77%) |
| BHEL | 8,984 (down 14.9%) | 411 (down 78%) | 456 (down 64%) | 140.45 (down 1.30%) |
| Voltas | 1,080 ( up 7.2%) | 43 (down 6.8%) | 42 (up 34%) | 91.35 (down 2.04%) |
About 70% of BHEL's revenue comes from power segment and the industry segment contributes the balance. Both the segments saw a revenue drop of 15% which was higher than industry estimates. The positive impact of an increase in other income was also offset due to loss in Bharat Heavy Plates and Vessels, which was amalgamated with the power equipment manufacturer.
Bhel’s smaller peer, Thermax did no better. The Pune-based company reported 66% decline in net profit to Rs 30 crore as against Rs 91 crore in the second quarter of FY 2013. Revenue was down 12.5% to Rs 1043 crore. The company gave no specific reasons for the weak results except saying that the market for capital goods was sluggish.
Voltas’ second quarter revenue declined by 7% YoY -- lower than Street estimates. The decline is mainly due to a 14% dip in its electro mechanical projects segment. Though profit increased 35% to Rs 42 crore, that was mainly due to a 66% rise in other income and impact of exceptional items.
The only silver lining was ABB, which saw a 66% increase in net profit at Rs 36 crore as against Rs 21 crore, but sales were down marginally. "The economic environment in India remains muted and capex investments continue to be deferred. While the renewed momentum in reforms is a welcome measure, the markets are yet to realize its tangible benefits. In the meantime, we continue to pursue new growth opportunities, indigenise our portfolio and innovate to stay ahead” said Bazmi Husain, Managing Director, ABB India.
Analysts expect the pain to continue for at least two quarters. “The situation will not change overnight. Demand is weak and power distribution companies are not placing enough orders,'' said Kameswara Rao, Energy, Utilities, and Mining Leader in PwC. According to Rao, the sectoral problem is two-fold as private power generation companies are conserving cash to complete existing projects instead of investing in new ventures and fewer orders from state-run distribution companies.
"The Q2 results in capital goods sector were impacted due to weak execution and tepid order flow. Overall order flow in companies has declined over the last eight quarters. Even though there is a marginal increase in order inflow over Q2 of FY 2013 it is due to a lower base,'' said Amit Patil, research analyst in Angel Broking.
Engineering giant Larsen & Toubro too has been facing issues with respect to its power sector orders but it has been a standout performer in the space reporting 10% growth in sales in the second quarter. L&T, however, has a far more diversified business structure and the power division accounts for only 9% of its order book while the infrastructure division contributes about 69%.