As markets opened on Tuesday after a long weekend, Bharat Heavy Electricals Ltd (BHEL) shares tumbled 10%, hitting a new 52-week low of 51. Investor dismay is not surprising given the company’s deplorable performance in the June quarter.

The power equipment manufacturer reported an operating loss of 266 crore in April-June, a sharp contrast to 361 crore profit estimated by 14 brokerages polled by Bloomberg. The loss was more glaring as a 13% year-on-year growth in Ebitda (earnings before interest, tax, depreciation and amortization) during the March quarter had boosted sentiment, as a result of which the stock had risen.

However, by the looks of it, execution woes, especially in its core power sector business, have made a comeback. The power business that contributes nearly 80% to total revenue contracted 25% year-on-year. Brokerage firm Prabhudas Lilladher Pvt Ltd, in a report, attributed this to a delay in dispatches following lack of customer clearances, land constraints, and also local unrest. There was a delay in getting some imported content as well. Revenue from the industry segment fell 20% during the reporting quarter.

Weak revenue implies poor execution and capacity utilization. So, in spite of lower other expenses, BHEL slipped into the red after reporting a loss at the operating level.

Adding to the woes was BHEL’s order flow for the quarter which fell 11% year-on-year. In a report dated 28 May, brokerage and research house JM Financial Services Ltd had said new orders have back ended payment terms of 0-5% advance (vs 10- 15% earlier), 30% on material supply (vs 60-70% earlier), with the rest deferred beyond supply. This would lead to stretched working capital requirements even if the company bags orders and ramps up execution.

A slowdown in economy, meanwhile, gives little hope of a quick recovery in power generation and industrial sector.

BHEL shares have slipped below most analysts’ target price of 55-62, which discounts estimated FY21 earnings by around 15 times.

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