Bhel’s dismal results mirror harsh ground reality in core sector
Apart from a drop in revenue and profits from the year-ago period, Bhel failed to meet the already-watered-down forecasts of brokerage firms
Even as the shares of Bharat Heavy Electricals Ltd (Bhel) rallied 4.98% on Thursday, the company posted a shockingly dismal performance for the December quarter. Apart from a drop in revenue and profits from the year-ago period, the country’s largest power equipment maker failed to meet the already-watered-down forecasts of brokerage firms.
One may note the stock beat returns of broader benchmark indices as it was fired by investor hopes on infrastructure reforms that would eventually trickle down into higher revenue for the capital goods segment. Be that as it may, for now, the firm is in troubled waters. Slow execution and project delays and prolonged billing cycles hit revenues that contracted by 28% from a year ago to ₹ 6,078.4 crore, a huge 17% below Bloomberg’s consensus forecast.
The company did try to manage costs on the raw material front. But the state-owned entity carries huge fixed costs following capacity expansion a couple of years back. So, as revenue dipped, profitability dipped, too. Operating margin for the quarter contracted 670 basis points to a meagre 4.7%. A basis point is one-hundredth of a percentage point.
The only consolation is it has maintained profitability at consistently wafer-thin levels through the current fiscal year, in spite of adversities in the economy. Not surprisingly, the operating profit fell by a huge 70% from the previous-year period to ₹ 293.8 crore.
Net profit fell equally hard at ₹ 212.6 crore for the quarter, in spite of lower interest costs and tax outgo.
Bhel’s order inflows, too, were not encouraging, coming 7% lower than the year-ago period at ₹ 6,600 crore. Competition from imports and other companies, and the lull in markets, given hardly any major power project announcements, kept the order book stagnant at around ₹ 1.04 trillion.
Analysts have been harping on about an improvement in the situation in the coming quarters, on the assumption that the worst is behind us. But will this help Bhel, given that it has issues on large projects, which are moving slow on execution? The current quarterly revenue indicates that barely a third of the capacity is being utilized. Until this improves, profitability may continue to be under pressure.
The writer doesn’t own shares in the above-mentioned companies.
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