Bharat Heavy Electricals Ltd (BHEL) continues to show signs of stabilization. Revenue during the June quarter (Q1) increased 8%, while margin improvement and a favourable base boosted net profit a huge 93% from a year ago. The performance mimics that of the March quarter, which also saw improvement in revenue and profitability. But for investors looking for definitive signs of recovery, the Q1 results lag on one crucial parameter—order book and revenue visibility.

The order backlog stands at 1.17 trillion, slightly lower than the 1.18 trillion in the March quarter. Of this, the executable order book is pegged at around 90,000 crore, the rest being slow-moving and stalled projects. If BHEL keeps up the current quarterly revenue run-rate, the order backlog will be executed in around three years.

So, if the company has to maintain good revenue visibility, it will have to match the revenue with fresh orders, points out an analyst with a domestic broking firm. It is here that BHEL fell short. Against a revenue of 5,790 crore, it booked orders worth 4,371 crore.

Of course, the order inflows are significantly higher than what the company booked in the year-ago quarter. Also, management commentary indicates a healthy order pipeline. BHEL is favourably placed to get orders for 17,000 crore, the management told analysts. They see good opportunities emerging from emission control norms and retro-fitting of old thermal plants.

Even so, BHEL has a long way to go on the recovery path. It has to build on order inflow momentum to ensure revenue visibility. Its margins are still in the mid-single digits. Competition is high. The emission technology involving flue-gas desulfurization business is seeing pricing pressure.

So, even as signs of stabilization are emerging, the business environment remains challenging for any sharp improvement in profitability. Also, beyond the existing order pipeline, it has to be seen how much of the prospective business converts into orders. After all, there’s many a slip between the cup and the lip.