BHEL tanks around 10% on Rs 1,532 cr loss in Q4; here's what brokerages say

State-run Bharat Heavy Electricals (BHEL) shares tanked as much as 9.5 per cent to Rs 28.45 apiece on the BSE on Monday after the company during the weekend reported a consolidated net loss of Rs 1,532.18 crore for the March quarter, mainly due to lower revenues and deferred tax.

The stock, however, trimmed its losses later and at 09:31 am, it was trading around 4.5 per cent lower at Rs 30.05. In comparison, the benchmark S&P BSE Sensex was trading nearly a per cent lower at Rs 33,465.08 levels. 

BHEL's total income for the quarter review stood at Rs 5,193.51 crore, down from Rs 10,489.11 crore in the same period last year.

The company said it had opted for new section 115BAA of the Income Tax Act, 1961 in the current year. Accordingly, deferred tax as on April 1 ,2019 has been restated at the rate of 25.168 per cent which resulted in a reversal of deferred tax assets by Rs 974.41 crore. 

Consequently, profit after tax decreased by Rs 956.50 crore and other comprehensive income fell by Rs 17.91 crore. READ MORE

For the full fiscal 2019-20, the company suffered a consolidated net loss of Rs 1,468.35 crore. It had posted a consolidated net profit of Rs 1,002.42 crore in 2018-19.

Analysts at Prabhudas Lilladher note that in the short-to-medium term, BHEL would continue to face challenges such as lower-order inflow traction, softer execution, margin pressure as well as higher receivables, which could hamper company’s medium-term prospects. However, management’s focus on transformation strategy to diversify in the non-power business would aid near term revenue visibility, they wrote in a results review note dated June 13, 2020. 

The brokerage has cut FY21E/FY22E earnings by 81.7 per cent /25.1 per cent, factoring weak macro environment and impact of Covid-19 pandemic. It maintains a "Hold" rating on the stock with the target price (TP) of Rs 34.

ICICI Securities note that BHEL's overall execution was weak in Q4FY20 due to lockdown (company estimates nearly Rs 40 billion hit on revenues). In addition to the domestic lockdown, the execution was impacted also due to delay in imports from Europe and other geographies. "We expect execution weakness to continue in the near to medium term," the brokerage said. 

Given the execution challenges, ICICI Securities has cut its earnings estimates by 59 per cent and 6.5 per cent for FY21E and FY22E respectively. "Due to depressed earnings in FY21E because of lockdown, we value the stock on FY22E earnings with target P/E multiple of 8x versus a one-year forward multiple of 11x earlier," it said. 

The brokerage has downgraded the stock to REDUCE (from Hold) with a revised target price of Rs 27 (earlier: Rs 24).

On the contrary, Motilal Oswal Financial Services (MOFSL) has downgraded the stock to "Sell" with the target price of Rs 22. "We have cut our FY21E/FY22E earnings estimates by 46 per cent / 17 per cent to account for the poor execution and weak ordering environment. While orders are few to come by, the pricing environment remains highly competitive, limiting scope for margin expansion. We expect the company’s recent expression of diversification to materialise with a certain time lag owing to the subdued economic environment," the brokerage wrote in results review note.