Bharat Heavy Electricals

Transcription

1 2QFY19 Result Update Bharat Heavy Electricals Reuters: BHEL.BO; Bloomberg: BHEL IN Revenues In Line; Margin And Order Inflow Remain Tepid Bharat Heavy Electricals (BHEL) posted 2QFY19 revenues of Rs67.8bn, up 5% YoY and in line with our as well as consensus estimate. Gross margin was up 60bps YoY at 41.4%. While EBITDA margin rose 100bps YoY to 3.6%, it was below our/consensus estimate of 5.4% each. Depreciation was down 72% YoY at Rs521mn, other income was 31% lower YoY at Rs1.5bn while the tax rate was at 31.8% versus 21.6% YoY. Consequently, PAT stood at Rs1.8bn, below our/consensus estimate of Rs2.4bn/Rs2.3bn, respectively. Order inflow in 2QFY19 remained weak at Rs52bn, while the order backlog was flat sequentially at Rs1,155bn. BHEL is focusing on ramping up its execution to achieve better operating leverage. However, the tender pipeline remains modest (8GW-10GW orders per annum likely), while the pricing pressure remains severe. Further, new projects are being awarded with unfavourable trade terms owing to the deferred payment structure. We have retained Accumulate rating on BHEL with a revised target price of Rs75 (from Rs73 earlier) based on 15x September 2020E earnings, rolling forward our valuation to FY21E financials. Order inflow position: BHEL reported order inflow of Rs52bn in 2QFY19 driven by Rs29bn FGD order for four power plants of NTPC. Total order inflow in 1HFY19 remains weak at Rs95bn compared to FY18 order inflow of Rs409bn. Power, spares, industry and overseas segments accounted for order inflows worth Rs42bn/Rs14bn/Rs32bn/Rs6bn, respectively, in 1HFY19. BHEL expects annual order placement of 8GW-10GW in FY19 based on tenders in the pipeline. BHEL is favourably placed in orders worth Rs250bn (up from Rs170bn in 1QFY19), primarily comprising EPC of 2x660MW Talcher, 1x800MW Singreni, 1x800MW Sagardighi and 2x660 Neyveli projects. However, we do not expect BHEL to surpass its FY18 order inflow of Rs409bn owing to modest tender pipeline amid declining capex for thermal power plants. We are factoring in order inflow estimates of Rs305bn/Rs350bn for FY19/FY20, respectively. Order backlog grew 19% YoY to Rs1,155bn on a low base, but it was flat on sequential basis. Other updates: (a) The board of BHEL has approved buyback of 189mn equity shares (5.16% of its paid-up share capital) at a price of Rs86 per share amounting to Rs16.2bn. The record date is fixed as 6 November (b) Total receivables stood at Rs389bn (Rs203bn current and Rs186bn noncurrent), of which 53% are of state electricity boards, 29% of central PSUs, 13% of private firms while 5% are of international clients. (c) Change in useful life of fixed assets will lead to a reduction in depreciation to Rs4.5bn-Rs5bn in FY19E compared to Rs7.8bn in FY18. Outlook: With a rising preference towards renewable energy generation and transmission loss reduction, we are structurally negative on thermal power capacity addition beyond 10GW per annum in India, clearly insufficient for a much higher installed capacity base of the BTG industry (35GW). With insufficient order placement activity in the industry, 6% RoE and 7% RoCE in FY21E and a high debtor position, we believe BHEL is not out of the woods yet. Key upside triggers: Key upside triggers for BHEL are winning a large-ticket size order (like an ultra mega power project), award of large projects on nomination basis, sudden revival in thermal power sector capex and a fall in competitive intensity leading to better realisation. 26 October 2018 ACCUMULATE Sector: Capital Goods CMP: Rs70 Target Price: Rs75 Upside: 8% Chirag Muchhala Research Analyst chirag.muchhala@nirmalbang.com Key Data Current Shares O/S (mn) 3,671.4 Mkt Cap (Rsbn/US$bn) 257.9/ Wk H / L (Rs) 108/64 Daily Vol. (3M NSE Avg.) 9,878,302 Price Performance (%) 1 M 6 M 1 Yr BHEL (2.0) (18.1) (22.5) Nifty Index (8.5) (4.2) (1.7) Source: Bloomberg Y/E March (Rsmn) 2QFY18 1QFY19 2QFY19 YoY (%) QoQ (%) 1HFY18 1HFY19 YoY (%) Net revenues 64,632 59,355 67, , , Raw material costs 38,252 33,677 39, ,206 73, Staff costs 13,988 14,180 15, ,076 29, Other expenses 10,681 8,626 10,236 (4.2) ,444 18, Total expenditure 62,920 56,483 65, , , EBITDA 1,711 2,872 2, (16.2) 3,740 5, EBITDA margin (%) Depreciation 1,872 1, (72.2) (70.4) 3,873 2,282 (41.1) Interest costs ,209 1, Other income 2,185 1,786 1,517 (30.6) (15.1) 3,895 3,303 (15.2) PBT 1,473 2,259 2, ,553 4, Tax , PAT 1,154 1,556 1, ,962 3, PAT margin (%) EPS (Rs) Source: Company, Nirmal Bang Research

2 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 Exhibit 1: Financial summary Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Net revenues 284, , , , ,056 EBITDA 10,614 19,329 22,035 26,437 30,672 Net profit 4,959 8,066 13,799 16,191 18,839 EPS (Rs) EPS growth (%) NA EBITDA margin (%) P/E (x) P/BV (x) EV/EBITDA (x) Dividend yield (%) RoCE (%) RoE (%) Source: Company, Nirmal Bang Research Exhibit 2: Actual performance versus our estimates, Bloomberg consensus estimates 2QFY19 (Rsmn) Actual Our estimate Deviation (%) Bloomberg cons. est. Deviation (%) Revenues 67,799 68,689 (1.3) 69,256 (2.1) EBITDA 2,408 3,726 (35.4) 3,756 (35.9) PAT 1,852 2,422 (23.5) 2,323 (20.3) Source: Company, Bloomberg, Nirmal Bang Research Exhibit 3: Segment-wise snapshot Y/E March 2QFY18 1QFY19 2QFY19 YoY (%) QoQ (%) 1HFY18 1HFY19 YoY (%) Revenues (Rsmn) Power 50,647 46,362 51, ,003 97, Industry 11,037 11,539 14, ,751 26, Revenue mix (%) Power Industry EBIT (Rsmn) Power 6,691 4,878 4,257 (36.4) (12.7) 11,076 9,135 (17.5) Industry , , EBIT margin (%) Power Industry Source: Company, Nirmal Bang Research Exhibit 4: Quarterly order inflow and backlog position (Rsbn) weak order intake (Rsbn) 1,800 1,600 1,400 1,200 1, Order intake (LHS) Order backlog (RHS) Source: Company, Nirmal Bang Research 2 Bharat Heavy Electricals

3 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 1HFY19 Exhibit 5: Annual order inflow trend (Rsbn) ( (Rsbn) ,800 1,600 1,400 1,200 1, Order intake (LHS) Order backlog (RHS) Source: Company, Nirmal Bang Research Exhibit 6: Change in our estimates (Rsmn) Old New Deviation (%) Y/E March FY19E FY20E FY19E FY20E FY19E FY20E Revenues 327, , , ,320 (2.2) (4.4) EBITDA 24,186 29,177 22,035 26,437 (8.9) (9.4) PAT 13,263 16,818 13,799 16, (3.7) Source: Company, Nirmal Bang Research Exhibit 7: Upcoming projects for bidding Project State Developer Unit size (MW) Scope Singreni # Telangana SCCL 1x800 EPC Nashik Maharashtra MAHAGENCO 1x660 BTG Talabira Odisha NLC 3x800 EPC Talcher # Odisha NTPC 2x660 BTG Singrauli Uttar Pradesh NTPC 2x660 BTG Neyveli # Tamil Nadu NLC 2x660 BTG Sagardighi # West Bengal WBPDC 1x800 EPC Khurja Uttar Pradesh THDC 2x660 BTG Buxar Bihar SJVN 2x660 BTG Ennore Tamil Nadu TANGEDCO 1x660 BTG Note: # BHEL has L1 status; Source: Industry, Nirmal Bang Research 3 Bharat Heavy Electricals

4 Exhibit 8: Key BTG projects awarded over the past three years in India Project Developer Winner Value (Rsbn) Unit size (MW) Scope Panki UPRVUNL BHEL x660 EPC Patratu NTPC-JBVNL BHEL x800 EPC Bhusawal MAHAGENCO BHEL x660 EPC Udangudi TANGEDCO BHEL x660 EPC Maitree (Rampal) NTPC-BPDB BHEL x660 EPC + extended BoP Bithnok and Barsingsar Neyveli Lignite Reliance Infra x250 each EPC Ghatampur Neyveli Lignite Bharat Forge - Alstom x660 TG Ghatampur Neyveli Lignite L&T x660 Boiler Rourkela NSPCL BHEL x250 EPC Uppur TANGEDCO BHEL x800 BTG Tuticorin SPIC Electric BHEL x525 BTG Karimnagar NTPC Bharat Forge - Alstom x800 TG Karimnagar NTPC BHEL x800 Boiler North Chennai TANGEDCO BHEL x800 BTG Barh 1 NTPC Doosan x660 Boiler Vijaywada* APGENCO BHEL x800 BTG Krishnapatnam* APGENCO BHEL x800 BTG Harduaganj UPRVUNL Toshiba - JSW x660 EPC Yadadri* TSGENCO BHEL x800 EPC Khargone NTPC L&T x660 EPC Manuguru* TSGENCO BHEL x270 EPC Kothagudem* TSGENCO BHEL x800 EPC Yelahanka KPCL BHEL x370 EPC Wanakbori GSECL BHEL x800 EPC Ennore SEZ TNEB BHEL x660 EPC + extended BoP Shree Singaji MPGENCO L&T x660 EPC Tanda NTPC L&T x660 Boiler Tanda NTPC Bharat Forge - Alstom x660 TG Ennore TNEB Lanco Infratech x660 EPC + extended BoP Note:* Three projects in Telangana and two projects in Andhra Pradesh awarded to BHEL on nomination basis Source: Respective companies, Industry, Nirmal Bang Research 4 Bharat Heavy Electricals

5 Financial statement Exhibit 9: Income statement Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Net sales 284, , , , ,056 YoY growth (%) Raw material costs 171, , , , ,919 Staff costs 53,946 60,265 61,427 65,919 74,714 Other overheads 48,811 48,229 53,109 56,655 63,751 Total expenditure 273, , , , ,384 EBITDA 10,614 19,329 22,035 26,437 30,672 YoY growth (%) (177.7) EBITDA margin (%) Other income 7,659 6,931 7,039 7,126 7,512 Interest costs 3,506 2,546 2,859 3,145 3,316 Depreciation 8,488 7,864 4,985 5,509 5,886 Profit before tax 6,278 15,850 21,229 24,909 28,982 Tax 1,320 7,784 7,430 8,718 10,144 Net profit 4,959 8,066 13,799 16,191 18,839 PAT margin (%) EPS (Rs) YoY growth (%) NA Source: Company, Nirmal Bang Research Exhibit 11: Balance sheet Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Share capital 4,895 7,343 6,964 6,964 6,964 Reserves 318, , , , ,552 Net worth 322, , , , ,517 Total loans Total liabilities 323, , , , ,088 Net block 34,911 29,775 29,735 28,226 26,340 Capital work in progress 2,731 2,941 1,000 1,000 1,000 Investments 6,614 6,907 6,907 6,907 6,907 Inventories 73,724 62,588 73,341 83,739 96,693 Debtors 318, , , , ,489 Cash 104, , , , ,739 Other current assets 32,357 31,575 35,807 39,945 45,600 Total current assets 529, , , , ,521 Creditors 93, , , , ,782 Other current liabilities & provisions 195, , , , ,157 Total current liabilities 288, , , , ,939 Net current assets 241, , , , ,582 Deferred tax asset (net) 38,414 36,259 36,259 36,259 36,259 Total assets 323, , , , ,088 Source: Company, Nirmal Bang Research Exhibit 10: Cash flow Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E EBIT 2,125 11,465 17,050 20,927 24,787 (Inc.)/dec. in working capital (76) (1,537) (12,810) (1,045) (18,198) Cash flow from operations 2,050 9,928 4,239 19,882 6,588 Other income 7,659 6,931 7,039 7,126 7,512 Depreciation 8,488 7,864 4,985 5,509 5,886 Tax paid (-) (3,141) (5,629) (7,430) (8,718) (10,144) Net cash from operations 15,056 19,094 8,833 23,800 9,842 Capital expenditure (-) (3,327) (2,938) (3,005) (4,000) (4,000) Net cash after capex 11,729 16,156 5,829 19,800 5,842 Interest paid (-) (3,506) (2,546) (2,859) (3,145) (3,316) Dividends paid (-) (4,525) (7,818) (8,963) (11,407) (12,222) Inc./(dec.) in total borrowings (367) (324) (Inc.)/dec. in investments 27 (293) Cash from financial activities (8,371) (10,980) (12,201) (14,552) (15,538) Others 700 2,818 (352) - - Opening cash balance 100, , , , ,436 Closing cash balance 104, , , , ,739 Change in cash balance 4,058 7,994 (6,724) 5,248 (9,696) Source: Company, Nirmal Bang Research Exhibit 12: Key ratios Y/E March FY17 FY18 FY19E FY20E FY21E Per share (Rs) EPS Book value Valuation (x) P/E P/BV EV/EBITDA EV/sales Return ratios (%) RoCE RoE RoIC Profitability ratios (%) EBITDA margin EBIT margin PAT margin Turnover ratios Total asset turnover ratio (x) Debtor days Inventory days Creditor days Source: Company, Nirmal Bang Research 5 Bharat Heavy Electricals

6 Rating track Date Rating Market price (Rs) Target price (Rs) 27 January 2012 Buy January 2012 Buy April 2012 Hold April 2012 Hold May 2012 Hold July 2012 Hold September 2012 Hold October 2012 Sell October 2012 Sell January 2013 Sell February 2013 Sell March 2013 Sell April 2013 Sell April 2013 Sell May 2013 Sell July 2013 Sell August 2013 Sell October 2013 Sell November 2013 Sell January 2014 Sell February 2014 Sell April 2014 Sell April 2014 Sell June 2014 Sell July 2014 Sell August 2014 Sell October 2014 Sell November 2014 Sell December 2014 Sell January 2015 Sell February 2015 Sell April 2015 Sell April 2015 Sell May 2015 Sell July 2015 Sell August 2015 Sell October 2015 Sell November 2015 Sell January 2016 Sell February 2016 Sell April 2016 Sell April 2016 Sell May 2016 Sell July 2016 Sell September 2016 Sell October 2016 Sell November 2016 Sell January 2017 Sell February 2017 Sell February 2017 Sell April 2017 Sell May 2017 Sell July 2017 Sell August 2017 Sell October 2017 Sell November 2017 Sell January 2018 Sell February 2018 Sell April 2018 Sell May 2018 Sell July 2018 Sell July 2018 Accumulate October 2018 Accumulate October 2018 Accumulate Bharat Heavy Electricals

7 Apr-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Jan-18 Apr-18 Jul-18 Oct-18 Rating track graph Not Covered Covered 7 Bharat Heavy Electricals

8 DISCLOSURES This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I/We, Mr. Chirag Muchhala the research analysts is the author of this report, hereby certify that the views expressed in this research report accurately reflects my/our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 8 Bharat Heavy Electricals

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