Analysts cautiously optimistic on BHEL's Q4 results

Net profit of Rs 396 crore after two quarters of losses surprised Street

Quarterly results have been a drag on Bharat Heavy Electricals Limited (BHEL) stock performance. But, it took the Street by surprise in the quarter ended March(Q4). After two consecutive quarters of losses, BHEL posted a profit of Rs 396 crore, slightly lower than Bloomberg consensus estimate of Rs 422 crore. Revenues at Rs 11,356 crore (though down marginally on a year-on-year, or y-o-y, basis) have also picked up and were at their best. Revenues, in fact, were ahead of estimates of Rs 10,445 crore, aided by better execution. Order inflows in FY16 of Rs 43,700 crore, a jump of 42 per cent, were also a surprise.

While BHEL’s stock ended trade with gains of 4.5 per cent on Thursday, almost reclaiming losses after the December quarter results that were announced in February, analysts prefer to wait for a detailed management commentary before making any revision to earnings estimates for FY17. Angel Broking’s Santosh Yellapu explains: “Management commentary tends to throw many surprises, going by the  record in the past four-five quarters.” That aside, ascertaining the help from other income (estimated at Rs 300-400 crore in Q4) is also critical. Also, despite returning to profit, the numbers for 2015-16 lagged even the FY15 performance, where again profit at Rs 1,419 crore was down about 60 per cent y-o-y.

But, with contract-awarding activities expected to increase in FY17, guidance from management on likely demand from replacement and maintenance orders will be important. According to Yellapu, with these factors, BHEL is set to garner 11-12 gigawatts of projects in FY17. However, for a capital goods company like BHEL, unless longer-term revenue visibility of three to five years improves, the Street might not get excited.