BHEL Conference Call Takeaways

The state-owned BHEL recently held a conference call to the analysts after the Q3 results. The Sensex company has seen a very bearish sentiment on the stock due to the weak outlook on the power sector. While the company has seen a lower inflow of the order during the year, its revenue and net profit has also declined on a YoY basis. Here are the key takeaways of its conference call:

• BHEL's current order book is at Rs 11,3071 crore, of which 79% is in the power sector, 13% is in the industry segment and the rest is composed of international orders.
• The company has finally received the 'Maharatna' status which will enable it to invest further in the assets. During the call, the company also said that the 'Maharatna' status has enabled it to take decisions in the merger and acquisition field.
• It has said that in the first nine months of the current fiscal, the order inflow has been Rs 10,693 of which Rs 6,701 have come from the power sector. It has, however, acknowledged that the situation of the sector remains very competitive.
• On the funding front, it said that the funding constraints have led to cancellation of the work by some companies. The number of private developers have put their projects on hold for which equipments have already been ordered.
• It also said that BHEL has been forced to suspend work due to mounting dues from these project developers. Earlier the funds had dried up in the sector. It also said that the scenario is short lived as there are some positives with respect to payments that are now being released in some of the projects.
• On the SEB restructuring front, it said that about six to seven SEBs have already approved the restructuring package which will improve the situation in the power sector.
• The company has said that it has stopped supplies to Visa Power and Indiabulls. If Visa power makes the payment to BHEL, only then will it resume work. Indiabulls (Amravati and Nashik) has got back to normalcy and when BHEL will restart work once it receives the payments.
• From the conference call, we understand that the scenario may take some time to change as the current capacities need to operate at the full, in order for the companies to invest in the new capacities (capex plans).
• The slowdown is in all the sectors and hence the situation is very difficult at the moment. The management, however, said that the country cannot grow unless it invests in the power sector, which will ultimately benefit BHEL.
• CCI (Cabinet Committee on Investments) recently held a meeting in which it has given a positive signal to some of the stalled projects. The exact outcome has not been shared by the company though.
• BHEL also said that the state and central sector participation has remained strong in the power sector while that of the private sector has taken a beating as the confidence is low on that front and it will only be restored when earlier projects are completed in time.
• In the transmission sector, it has said that the activity has slowed down due to environmental reasons.

What we understand from an investor point of view is that, BHEL may continue to face pressure on its order book for some time. On the execution front, however, there may be some positive as it has said that the funds for some projects have been released.

With the competition is becoming stiff due to the cancellation of the orders, margins might further become thin. BHEL may also start looking for an acquisition target as it has got the 'Maharatna' status.

After the conference call, our view of the company has become firm and it is advisable to avoid the stock.