BHEL’s Strong Or­der In­flow, Fo­cus on Ex­e­cu­tion a Draw

Or­der flow is ex­pected to pick up in Q4; re­cent CEA ad­vi­sory to lower pay­outs for guar­an­tees

The Economic Times - - Smart -

Fo­cus on Or­ders

ET In­tel­li­gence Group: Over half of the an­a­lysts that track Bharat Heavy Elec­tri­cals (BHEL) are bear­ish on the stock con­sid­er­ing the ex­e­cu­tion de­lays it has faced in the past few quar­ters. But go­ing by the firm’s strong De­cem­ber quar­ter per­for­mance and fo­cus on im­prov­ing project ex­e­cu­tion, in­vestors may con­sider the stock as a con­trar­ian bet.

In the De­cem­ber quar­ter, BHEL’s net profit shot up nearly three times com­pared with the an­a­lysts’ es­ti­mates due to im­proved or­der ex­e­cu­tion. Rev­enues grew 18% YoY. This helped its op­er­a­tions turn prof­itable com­pared with an op­er­at­ing loss in the year-ago quar­ter. In ad­di­tion, im­proved col­lec­tion of out­stand­ing sales and re­duced in­ven­tory took pres­sure off its bal­ance sheet.

A ma­jor worry for in­vestors over the past few quar­ters has been lower or­der in­flows and de­layed ex­e­cu­tion. At De­cem­ber-end, the out­stand­ing or­der book was ₹ 98,400 crore, which gives rev­enue vis­i­bil­ity for the next 3.3 years.

The or­der flow is ex­pected to im­prove since his­tor­i­cally, the fourth Or­der in­flow (` cr) Or­der ex­e­cu­tion (` cr) quar­ter­has­shown­greaterorder­trac­tion. The man­age­ment said that it is the low­est bid­der in sev­eral projects. These or­ders are ex­pected in Q4FY17. The 1.08 GW Manuguru (Tamil Nadu) and 4GW Yadadri (Te­lan­gana) plants are ex­pected to get clear­ances soon,which­would­in­crea­seit­sex­e­cut- in­flow in Apr-Dec pe­riod dropped by YoY

in­creased ex­e­cu­tion and saw drop in or­der back­log dur­ing Apr-Dec

the to­tal out­stand­ing or­der book, nearly or­ders are slow mov­ing while the re­main­ing are ex­e­cutable

able or­der back­log by ₹ 22,000 crore.

An­other pos­i­tive fac­tor is a re­cent a dv i s o r y i s s u e d by Ce n t r a l Elec­tric­ity Author­ity stat­ing that the com­pany would no longer need the guar­an­tee from its tech­nol­ogy part­ner un­der a joint deed of un­der­tak­ing. Ear­lier, col­lab­o­ra­tors had been ask­ing for higher share of the or­der pay­ments in lieu of guar­an­tee, which af­fected BHEL’s mar­gin. With the lat­est ad­vi­sory, the com­pany will be able to save on these costs.

At ₹ 156.2, stock’s at 21 times FY18 pro­jected earn­ings — a 11% pre­mium to its five-year av­er­age. Given a higher or­der ex­e­cu­tion and pos­si­ble pickup in or­der flow, the stock may gain in­vestors’ at­ten­tion.

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