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Photo: Bloomberg
Photo: Bloomberg

With elevated receivables, it is a weary road to recovery for BHEL

  • The state-run company’s consolidated net loss widened to 893.14 crore in the June quarter from net loss of 218.93 crore in the same quarter last year

June quarter earnings of Bharat Heavy Engineering Ltd (BHEL) were disappointing. Reacting to it, the stock opened Monday's session in the red at 36.65, down more than a percent on the NSE.

The state-run company’s consolidated net loss widened to 893.14 crore in the June quarter from net loss of 218.93 crore in the same quarter last year. BHEL’s performance was impacted by weak execution. Also, with total debtors at 36,000 crore, the overhang of pending receivables remains.

In a post earnings conference call, its management said, from the total receivables, around 12% are from the private sector, 48% from state entities, 33% from the Center, and 7% pertain to the international markets. According to analysts, in spite of the company’s ongoing efforts, its receivables position is likely to remain elevated in the near future.

As for the order book, it was flat at 1.1 trillion in the June quarter. Order inflows at 1500 crore, declined 60% on a year-on-year basis.

“While orders are few and far between, the pricing environment remains highly competitive, limiting scope for margin expansion. While the company has received Expression of Interest (EoI) from three major OEMs regarding its ongoing diversification drive, we believe any material financial impact is still some time away," Motilal Oswal Financial Services Ltd said in a report 11 September.

Going ahead, the road to recovery for BHEL will be tedious due to a slew of factors. Such as a weak ordering environment in the power sector, high receivables and high employee cost at ~25% of sales, analysts said.

“In the current environment we see no major reduction in receivables, as cash flows of key clients would remain weak. In addition, we see no long-term growth prospects for BHEL as its exposure to structurally slowing down thermal power capex continues to remain high," analysts at PhillipCapital (India) Private Limited said in a report on 11 September. The broking house has downgraded the stock’s ratings from neutral to sell with a revised target price of 22 from 31 earlier.

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