BHEL announced good set of order inflow numbers for FY13, which has surprised both us and the street. BHEL reported a 1.0% year-over-year increase in its FY13 top-line to Rs 500.1 bn. Slow-down in power sector award activity and structural issues surrounding the sector have led to muted top-line growth, IndiaNivesh Securities said in a report after the company released its provisional results.
EBITDA margin compression scenario and stretched working capital cycles (leading to higher interest expenses) led to 235 bps decline in FY13 profit before tax margins to 18.5% (from 20.8% in FY12).
Surprising factor in provisional results announced have been BHEL’s Order Inflow (OI) numbers of Rs 315.2 bn (vs. Rs 220.9 bn in FY12, indicating 42.7% year-over-year increase). Also, management has surpassed its OI growth guidance for FY13.
The report said that BHEL is well positioned to benefit from (1) Revival in the power sector award activity, given their market positioning, (2) recent strategic initiatives to diversify in to new areas (inc. of solar power, Railway wagons) & geographies, (3) huge bid pipeline (highlighted by management).
At current market price of Rs 182, BHEL is trading at FY14E, P/E multiple of 6.6x. We maintain FY14E based price target of Rs 222. With some signs of revival in the award activity already seen, we upgrade the stock by one notch from HOLD to BUY.
