Analysis: BHEL Q2 performance

Numbers disappoint, stock to touch a new 52-week low

Despite challenges faced by infrastructure sector, two infrastructure behemoths namely Larsen and Toubro (L&T) and Bharat Heavy Electricals (BHEL) have performed differently in September 2012 quarter. While L&T surpassed analysts’ expectations on all parameters, BHEL has disappointed today (See table). While order book of Larsen and Toubro grew 11.5 per cent to Rs 1,58,528 , the same for BHEL has tanked 24 per cent to Rs 1,22,000 crore.

Thus, market has accordingly rewarded both the stocks. L&T has touched its 52-week high of Rs 1719.5 today while BHEL is down almost 3.5 per cent. BHEL had touched its 52-week low level of Rs 195 on September 12. Analysts expect BHEL to continue to tread lower levels as they see no visibility of improvement in operating environment of power generation sector –a key prerequisite for revival in order inflows.

Q2FY123 (Rs cr)	L&T	Estimates	BHEL	Estimates
Sales	13,195	13,114	10,562	11,291
% chg (y-o-y)	17.3	16.6	0.2	7.1
Operating Profit	1,405	1,381.3	1,900	1,952.5
% chg (y-o-y)	19.7	17.7	-3.1	-0.4
Net Profit	869.8	833	1,2274	1,302
% chg (y-o-y)	8.9	4.3	-9.8	-7.8
Source: Companies

More importantly, BHEL’s order visibility (order book to sales ratio) has dipped to 2.5 times (FY12 revenues), which is considered grim by analysts given the long gestation nature of power projects and also the fact that most of the 12th plan orders are already placed and awarding for 13th plan is still some years away. On the other hand, revenue visibility for L&T remains strong at 3 times and only expected to improve given the diversified presence and relatively short duration of projects.

Thus the valuation gap between the two-- L&T trades at 19 times FY14 estimated earnings compared to BHEL’s 10 times --is expected to continue.