BackBhel reports another weak quarter, no respite in sight
Poor execution, delays in tendering activity hamper the state-owned Bhel’s turnaround prospects
PremiumShares of Bharat Heavy Electricals Ltd (BHEL) nosedived 8.5% on the NSE on Monday, on a day when the Nifty 50 index rose by 1.3%. Not without reason. On Saturday, the state-run engineering company announced its quarterly results, which were disappointing, yet again. The key highlights of the December quarter result include mounting operational losses, subdued order inflows and elevated receivables.
Bhel reported an Ebitda loss of about ₹180 crore owing to stretched working capital needs and its inability to absorb high fixed costs. Ebitda is earnings before interest, taxes, depreciation and amortization. In the corresponding quarter of last year, Ebitda was ₹330 crore.
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Further, order inflows in the December quarter declined by 35% year-on-year (y-o-y), while the total order backlog was flat at ₹1.067 trillion. While total receivables fell by ₹1,666 crore, it was at ₹34,805 crore at December-end. Of the total receivables, state players accounted for 47%, the Centre 34%, private players 12%, and exports accounted for the balance, the management said.
To be sure, despite the management’s efforts to curtail costs and improve deliveries, Bhel’s recovery is expected to be slow. For a turnaround, analysts said, Bhel’s receivables have to improve meaningfully and this is unlikely to happen in a hurry. As for orders, though the management was gung-ho on order prospects, analysts caution about delays in the tendering activity. Further, even if order inflows improve, BHEL’s execution remains poor.
Revenue in the December quarter declined by 22% y-o-y. “The pick-up has been slower than the general industrial and infra space, where execution levels are already close to or sometimes higher than 3QFY20 levels (or pre-covid levels)," said Nomura Financial Advisory and Securities (India) Pvt. Ltd analysts in a report on 7 February.
Bhel’s diversification is positive, but is not likely to yield instant positive impact. Analysts at Motilal Oswal Financial Services Ltd said although Bhel is favourably placed as a bidder for IOCL’s Panipat project and is restructuring its solar business, any material financial impact of the moves is still a long time away. Given this backdrop, it’s not surprising that many analysts have a cautious view on the stock.
According to a Mint report, Bhel is among the candidates for the next round of disinvestments. Analysts said given the Street’s tendency to react to such developments, this should have given the stock a boost. But considering Bhel’s continued poor performance, it won’t be easy for the government to find suiters and the Street is aware of that, the analysts added.
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