BHEL slumps nearly 16 pct after earnings decline

MUMBAI/NEW DELHI (Reuters) - Shares in Bharat Heavy Electricals fell more than 15 percent to the lowest level in nearly eight years, after its quarterly profit dropped 49 percent on sharply lower sales in its power and industry businesses in a slowing economy.

The net profit drop prompted Deutsche Bank to downgrade the company to a "sell" rating on concerns about BHEL's balance sheet and a slowdown in its project execution, as several of its customers were unable to pay for their existing orders.

State-run BHEL, India's top power equipment maker, said on Saturday net profit slumped to 4.7 billion rupees in the April-June quarter from 9.2 billion rupees a year earlier.

 

It was the fourth consecutive quarterly fall in net profit and below analysts' expectations. Analysts, on average, had expected a consolidated net profit of 7.5 billion rupees, according to Thomson Reuters I/B/E/S.

BHEL shares were down nearly 19 percent at 121.25 rupees at 12:46 p.m., while the Mumbai market index was up 0.5 percent.

BHEL's EBITDA margin fell below expectations to 6 percent compared to 14.2 percent over the same period a year ago, according to Deutsche Bank.

"Agreed, India has to add a lot of power capacity and money supply could improve over the next 6-12 months, but delays in projects have hurt viability, making us believe there may be a few write-offs in the BS (Balance Sheet)," Deutsche Bank said in a research note.

The company's outstanding order book stood at 1.086 trillion rupees compared to 1.152 trillion in the previous quarter.

BHEL posted its results on Saturday, a day after Prime Minister Manmohan Singh visited the southern state of Tamil Nadu to show off new power projects by the company.

BHEL's local rival, Larsen & Toubro Ltd last month warned of more speed bumps after surprising investors with a profit drop as the protracted economic slowdown took a toll on infrastructure spending.

India, Asia's third-largest economy, is growing at its slowest pace in a decade and project bottlenecks, largely because of problems in acquiring land and high funding costs, have sapped investment in the infrastructure industry.

(Reporting by Matthias Williams and Abhishek Vishnoi; Editing by Matt Driskill)