BHEL's share in fresh orders only at 1% in Q2

Company expected to be one of the worst performing Sensex companies as orders dry up and execution slowdown

The performance of Bharat Heavy Electricals in the second quarter of FY14 is set to drag down the revenue and profit growth of benchmarks as the company is still battling structural challenges. Even though of late there has been positive news flow on the capital goods sector and order inflow has shown a pick-up, BHEL is not a beneficiary of this trend. In the second quarter, order inflows picked up to Rs 38,569 crore, up 9% annually and 23% sequentially. This is the highest order inflows seen by the capital goods sector in two years but BHEL's share is an abysmal 1% of this, says Sharekhan. Larsen & Toubro has cornered 66% of most of these orders. 

 

Shares of BHEL rose 43%, after touching a low of Rs 101.50 in August, on expectations that the company could get new BTG orders from ultra mega power projects (UMPPs). The market believes that the risk of foreign competition has abated substantially and the rupee's depreciation would only help further. The other factor that contributed to the share price rally was the notification of standard bidding document for case-two bids with fuel cost as pass-through and approval of the coal block auction policy by the government. 

 

However, analysts believe that operational challenges faced by BHEL continue. ICICI  Securities believes that while foreign competition may not be a threat, domestic players have already queered the pitch as 30-35GW of BTG capacity is already awaiting fresh orders. Further, incremental ordering is likely to be weak, unless current issues are addressed. The power sector is battling multiple issues, ranging from fuel shortage to outstanding dues from state electricity boards. Analysts beleive that till these are resolved, BHEL may not see any meaningful recovery. Also slower capacity addition in the sector may impact BHEL's order inflows in the coming quarters. 

 

Analysts expect a decline in earnings per share of 21.2% CAGR over FY12-15. In the second quarter, some analysts expect BHEL's revenues to decline 17% year-on-year even though there may be an a healthy pick up sequentially. BHEL's operating margin is also expected to decline by 770 basis points between FY13 and FY15. The market is also not very keen on BHEL taking over troubled projects, which could further add to the company's balance sheet stress. Macquarie Capital believes BHEL could see sharp earnings downgrades.