Are BHEL investors overlooking concerns? | Mint

Are BHEL investors overlooking concerns?

BHEL reported a net loss of  ₹233 crore in Q2FY24 as compared to a net profit of  ₹10 crore in the same quarter last year. (Bloomberg)
BHEL reported a net loss of 233 crore in Q2FY24 as compared to a net profit of 10 crore in the same quarter last year. (Bloomberg)

Summary

  • Apart from a dismal September quarter, stretched working capital and higher debt were key disappointments

MUMBAI : The Bharat Heavy Electricals Ltd (BHEL) stock has zoomed 77% so far in 2023. The government’s capex thrust has come as a shot in the arm for capital goods stocks lately. But in the case of BHEL, a robust order inflow outlook mainly for its thermal power segment, is fuelling optimism among investors. So much so, that despite dismal September quarter (Q2FY24) earnings, the stock is up 13% reacting to the results.

BHEL reported a net loss of 233 crore in Q2FY24 as compared to a net profit of 10 crore in the same quarter last year. Higher raw material costs weighed on its operating performance. Stretched working capital position and higher debt were the other key disappointments. As of September end, BHEL’s working capital ballooned to 4,382 crore from 1,210 crore at March end. Higher debtor days (clients taking longer to pay) have led to elongated working capital cycle, a lingering concern for BHEL.

“Few power projects under construction viz. 3x800MW NTPC Patratu have back-ended (towards the end of project) payment terms which have been a source of working capital stress for the company," said JM Financial Institutional Securities Ltd.

The pain of higher debtor days will ease FY25 onwards with the commissioning of a large number of projects which have better payment terms, said the JM report.

But for now, the Street seems fixated on the state-owned company’s order prospects. Order inflow for Q2 surged 49% year-on-year to 17,900 crore taking the order book to 1.14 trillion as of September end.

Facing a continuous surge in power demand in the country, ministry of power/Government of India has revised its thermal ordering plan to 53GW by FY30-31 from 24GW earlier, said a Nuvama Research report. This implies 10-11GW of ordering every year and at least 5GW of order inflow for BHEL (50% market share) versus the current assumption of 3GW, it added.

What’s more, the company’s ongoing efforts to diversify into non-thermal power segments of railways, pumped-hydro storage plants, and defence, are expected to keep BHEL’s order book in good stead.

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