BHEL's Net Slides, Order Book Shrinks
DSIJ Intelligence / 01 Feb 2013
Marred by the slowdown in the power generation sector, BHEL has reported a decline in its revenues as well as net profit. Its order book has also shrunk by 7%.
Bharat Heavy Electricals, a state owned Maharatna company and power equipments major, has again disappointed the streets with its quarterly numbers. The company, in its Dec 2012 results, has reported a 5% decline in its sales to Rs 10,539 crore. The total revenues also declined by 4% to Rs 10,219 crore. On the net profit front, the company has reported a massive 17% decline in its net profit to Rs 1181 crore.
The result is in stark contrast with the private sector capital goods major L&T, which reported a 13% growth in its net profit. L&T's host of issues are related to the power sector in which it operates. The Power sector has been going through a very rough phase, with problems like project funding, coal and gas supply, land acquisition etc. The lowered business activity in this sector has been a drag on BHEL, which derives nearly 80% of its revenues from its order book in the power sector.
In the capital goods sector, a growing order book is considered as a sign of robust outlook of the company. BHEL fails in this aspect, as it has seen a consistent decline in its order book this fiscal. BHEL's order book in Q3 has declined by 7% to Rs 1.13 lakh crore. L&T, on the other hand, reported a 14% jump in its order book. In FY12 too, BHEL had seen pressure on the order book as its order inflow was only at Rs 22000 crore compared to nearly Rs 60000 crore in FY11.
Realising the same, the PSU has already taken hits on its capacity utilisation to the tune of about 30%. If believed, some news reports say that BHEL is also facing liquidity related issues. If the situation of the power sector does not improve significantly, then together with the eroding order book, BHEL may face severe problems going ahead. It is also believed that its order book may face high risk of cancellation due to the recent 'Coalgate scam' in which many power generators are named guilty.
The private players as well as Chinese competition are taking a toll on its EBITDA margins, which are down by 312 basis points in the quarter on a YoY basis. The margins are down mainly due to higher employee costs and other expenses.
Considering the disappointing results, no wise would invest in the company. We advise investors to exit the counter.
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