BHEL's Q4FY19 results (Neutral) - Order inflow remains weak
Q4FY19 result highlights
- BHEL reported a muted growth of 1.5% yoy in revenues to Rs102bn (est: Rs109bn) which was disappointing given the strong order backlog. FY19 revenues were at Rs303bn, a growth of 4.4% yoy.
- EBITDA margin came in at 13,5% (+140bps; est of 9.8%) led by mix of order executed and tight cost control. As a result, EBITDA was Rs14bn (est of Rs11bn). FY19 EBITDA margin was 7.1% and EBITDA was Rs21.4bn (+11% yoy)
- However, the PAT of Rs6.8bn was in line with our estimate of Rs6.6bn owing to high tax rate of 46.9% (vs our estimate of 35%). FY19 PAT was Rs12.bn, a growth of 51% yoy
- During Q4FY19, order inflow also declined by 74% yoy to Rs66.3bn. Order inflow was a bit disappointing in FY19 at Rs239bn, a decline of 42% yoy. As a result, order backlog declined from Rs1.2trn at end of FY18 to Rs1tn (3.3x Book to Bill ratio) at end of March 2019. The lower order intake seems driven by delay in finalizing orders led by elections.
- BHEL is favourably placed in orders worth Rs245bn and expects further tender pipeline of 10-11GW of power orders across coal, hydro and nuclear and has received Rs10bn order in April-May 2019 from Railways.
- Debtors at Rs346bn continue to remain elevated due to new tender rules where the payments terms have become skewed in favour of the customer (mostly state PSU and Central PSU). Besides, cash has decreased from Rs113bn at end of FY18 to Rs50bn (net of debt) partly led by buyback of Rs16bn.
Key positives: Strong EBITDA margin.
Key negatives: Weak order inflow for FY20E and FY21E.
Impact on financials: Increase our earnings estimates for FY20E by 5% to Rs14.7bn (EPS of Rs4.2/share) and introduce FY21 EPS of Rs4.4/share
Valuations & view
BHEL’s market share gains and diversification efforts have led to steady order wins for the company. BHEL’s strong order backlog and improved share of executable orders has enhanced revenue visibility for FY20. While we expect 10.5%/12% revenue/earnings CAGR for BHEL over FY19-21E, the earnings are at risk from higher than expected raw material costs and lower margins in recently diversified areas. As a result, we maintain our Neutral rating on the stock with a revised target price of Rs72, based on 17x FY20E earnings.
Bharat Heavy Electricals is an integrated power plant equipment manufacturer in India engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy, viz. Power, Transmission, Industry, Transportation (Railway), Renewable Energy, Oil & Gas and Defense with over 180 products offerings to meet the needs of these sectors. Co. operates through Power and Industry segments.
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