Motilal Oswal - Bharat Heavy Electricals Limited (BHEL) MOSL: BHEL (Sell)-Second-quarter underperformance driven by Power segment

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Motilal Oswal

MOSL: BHEL (Sell)-Second-quarter underperformance driven by Power segment

BHEL: Second-quarter underperformance driven by Power segment

(BHEL IN, Mkt Cap USD3.5b, CMP INR71, TP INR60, 15% Downside, Sell)

Operating performance below expectations: Sales grew 7.7% YoY to INR67.8b (our estimate: INR71.4b). Gross margin expanded 210bp YoY to 41.4% (in line with our estimate of 41.1%). EBITDA stood at INR2.4b (our estimate: INR4.9b), with the margin of 3.6% missing our estimate of 6.8% due to higher other expenses. Depreciation stood at INR521m, down 72% from INR1,872m in 2QFY18 on account of revision in useful life of assets. PAT of INR1.9b (+60.4% YoY) was meaningfully below our estimate of INR2.9b. For 1HFY19, sales/EBITDA/PAT grew 7%/391%/74% YoY. We estimate sales/EBIDTA/PAT growth of 11.5/50%/46% YoY in 2HFY19.
Order backlog stands at INR1.2t, L1 in INR250b of orders: Order book stood at INR1.16t (+19% YoY) – incrementally the company is L1 in INR250b of orders (Power: INR175b, FGD: INR30b, Industrial: 15b, International: INR20b). Order inflow for the quarter stood at INR51.6b (+175% YoY).
Earnings call highlights: (a) Expect industry wide orders of 8-10GW in FY19. (b) Of total debtors of INR390b, non-current debtors stand at INR187b. Current receivables stand at INR203b; have been bought down to 218 days. Of total debtors, 82% is from government companies, 13% from private companies and balance is from exports. (c) Execution is slow as most orders are won in 2HFY18, which will enter the execution phase in FY20.

26/10/2018 10 EN

Underlying

Bharat Heavy Electricals Limited

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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INE257A01026 National Stock Exchange of India India

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Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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MOSL: BHEL (Sell)-Second-quarter underperformance driven by Power segment

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MOSL : SHOPPERS STOP: Ticking the right boxes

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