BHEL’s Q1 order inflows robust but earnings are unpredictable


State-run Bharat Heavy Electricals Ltd (BHEL) results for three months ended June (Q1FY24) are far from inspiring. Dismal operating performance led to wider losses. Loss at Ebitda level stood at 364 crore last quarter, up from 170 crore in Q1FY23, hurt by higher operating expenses and elevated provisions. This comes at a time when BHEL’s net revenues have increased by 7% year-on-year to 5,003 crore. Investors are not pleased. Company’s shares closed 2.4% down on Monday.

Going ahead, analysts expect the spike in operating expenses to normalise. On the order inflows front, the news is encouraging. In Q1, BHEL’s order inflows jumped to 15,600 crore to 15,600 crore. This gave a fillip to the order book, which stood at 1.01 trillion as on 30 June. Note that last quarter’s order inflows included a large Vande Bharat order for 80 train sets worth 9,600 crore which the company won in consortium with Titagarh Wagons Ltd.

Adjusted for this large order, the ordering was less than the execution in Q1FY24, according to Kotak Institutional Equities. That said, the brokerage is of the view that order inflow is a lesser problem, as pipeline of incremental ordering is healthy for thermal, defence and transport sectors. It is the difficulty of predicting profitability that is the constraint, it said. Plus, competitive headwinds could lead to aggressive pricing, thus delaying margin recovery.

Lately, stocks of capital goods companies have garnered investors’ attention given the government’s thrust on capital expenditure. “In recent months, the narrative towards thermal energy has strengthened given the rising power demand and challenging Renewable Energy 2030 targets and the need for thermal power to balance evening power demand (given solar availability is only during the day),” said Subhadip Mitra, exe-cutive director, Nuvama Institutional Equities. Against this backdrop, thermal ordering should revive over medium term. This bodes well for BHEL’s order inflows and long-term revenue visibility, he says.

The stock’s up move this year can be partly explained by the ongoing optimism as well. So far in 2023, the BHEL stock has risen by 22% vis-à-vis 8% gain of the Nifty 500 index.

Apart from timely thermal orders, growth from the non-thermal areas such as rail, defence is key to track. Further, higher receivables could lead to a stretched working capital situation, hurting profitability outlook. “The recently released annual report shares prospects of working capital remaining high for the next two years,” said the Kotak report. Slower than expected orders that can dampen revenue visibility is a risk.

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Updated: 07 Aug 2023, 09:53 PM IST

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