BHEL SELL RESULTS REVIEW 1QFY15 13 AUG CMP (as on 12 Aug 2014) Rs 224 Target Price Rs 188

Transcription

1 RESULTS REVIEW 1QFY15 13 AUG 2014 BHEL SELL INDUSTRY CAPITAL GOODS CMP (as on 12 Aug 2014) Rs 224 Target Price Rs 188 Nifty 7,727 Sensex 25,881 KEY STOCK DATA Bloomberg/Reuters BHEL IN/BHEL.BO No. of Shares (mn) 2,448 MCap (Rs bn) / ($ mn) 549 / 8,976 6m avg traded value (Rs mn) 1,663 STOCK PERFORMANCE (%) 52 Week high / low Rs 292 / 100 3M 6M 12M Absolute (%) Relative (%) SHAREHOLDING PATTERN (%) Promoters FIs & Local MFs FIIs Public & Others 4.42 Source : BSE Abhinav Sharma abhinav.sharma@hdfcsec.com Revival not yet on the horizon BHEL s 1QFY15 PAT of Rs 1.94bn was way below our estimate of Rs 3.3bn as revenue declined 20% YoY while OPM came in at 4.2% (down 180bps YoY) vs. estimate of 7.3%. This is the 7 th consecutive quarter of revenue de-growth. With a new and stable government at the centre, hopes of a turnaround in power sector have risen. But with PLFs at 20 year low, meaningful revival will take time to fructify. BHEL s order inflows will remain muted for FY15/16. BHEL s rigid fixed costs, upcoming pay revisions and pricing pressure will ensure low teen RoEs in the foreseeable future. At CMP the stock is trading at 14x FY16E EPS which we believe is expensive given low teen RoE and high earnings volatility. We retain our EPS estimates and TP of Rs 188/sh (12x FY16E EPS). Retain SELL. Order inflow for 1QFY15 was Rs 11.3bn driven primarily by industry sector inflow of Rs 8.2bn. Closing order book was Rs 974bn (lowest in last 6 years). Management mentioned about GW of projects to be ordered by the end of FY15. The company is well placed (L1) in 4GW of these projects. Nearly all the projects in pipe line are from state and central sectors. Management mentioned about Rs 120bn of slow moving orders, largely in the private sector. Net cash at the end of the quarter was Rs 8bn. With demand growth at 20 year low, all India coal plant PLF has crashed to 65% in FY14 and nearly 30GW of capacity under construction has no long term PPA. Thus, even if the economy picks up, new ordering for power plants will be preceded by increase in PLF and absorption of untied capacity. We expect low capacity utilisation to continue as BHEL s capacity of 20GW is more than the expected yearly ordering for the foreseeable future. 7th pay commission recommendations (to be implemented from 4QFY16) will put further pressure on margins. Hence, with margins capped by competition, low capacity utilisation and rigid cost structure we see a sustained period of low RoE for BHEL. Retain SELL. FINANCIAL SUMMARY Year Ending March (Rs bn) 1QFY15 1QFY14 YoY (%) 4QFY14 QoQ (%) FY13 FY14 FY15E FY16E Net Sales (20) (66) Adjusted EBITDA (44) 27.3 (92) APAT (58) 18.2 (89) Diluted EPS (Rs) (58) 7.4 (89) P/E (x) EV / EBITDA (x) RoE (%) HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

2 Revenue has declined by 20% YoY, on the back of a 23% decline in 1QFY14 OPM has fallen due to negative operating leverage Industry segment margins have fallen more as compared to power segment QUARTERLY FINANCIALS (Rs mn) 1QFY15 1QFY14 YoY (%) 4QFY14 QoQ (%) Net Sales 51,550 64,581 (20) 150,315 (66) Material Expenses 25,966 36,341 86,727 Employee Expenses 15,771 14,750 13,204 Other Operating Expenses 7,634 9,605 23,049 EBITDA 2,179 3,886 (44) 27,334 (92) Interest Cost Depreciation 2,725 2,308 2,718 Other Income 3,478 5,385 2,889 PBT 2,459 6,685 27,026 Recurring Tax 524 2,031 8,832 Adjusted PAT 1,935 4,654 (58) 18,193 (89) Reported PAT 1,935 4,654 (58) 18,447 (90) MARGIN ANALYSIS 1QFY15 1QFY14 YoY (bps) 4QFY14 QoQ (bps) Material Expenses as % of Net Sales (590) 57.7 (733) Employee Expenses as % of Net Sales ,181 SG&A Expenses as % of Net Sales (6) 15.3 (53) EBITDA Margin (%) (179) 18.2 (1,396) Net Profit Margin (%) (345) 12.3 (852) Tax Rate (%) (907) 32.7 (1,137) SEGMENTAL PERFORMANCE (Rs mn) 1QFY15 1QFY14 YoY (%) 4QFY14 QoQ (%) Segmental Revenues - Power 41,442 53,786 (23) 122,108 (66) - Industry 11,331 12,926 (12) 32,208 (65) Segmental EBIT - Power 5,250 7,589 (31) 23,354 (78) - Industry 395 1,311 (70) 6,268 (94) EBIT Margin (%) -Power Industry Page 2

3 Order inflow in FY15 will be supported by state and central sector orders while private sector will mostly stay away Order backlog continues to decline Rs bn 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, Order backlog (Rs bn) Order book to trailing twelve month sales x Both revenue growth and margins are trending down EBITDA margin (LHS) Sales growth 30% 40% 25% 30% 20% 20% 10% 15% 0% 10% -10% 5% -20% 0% -30% Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 We believe our order inflow estimates build in any foreseeable improvement KEY ASSUMPTIONS FY13 FY14 FY15E FY16E Order intake (Rs bn) YoY growth (%) 43 (11) 13 7 Closing order backlog (Rs bn) 1,152 1, YoY growth (%) (15) (5) (6) (6) Order backlog to sales (x) EBITDA margin (%) Page 3

4 SECTOR VALUATION SUMMARY Company TP CMP Rating Market Cap P/E (x) P/B (x) ROE (%) Rs bn US$bn FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E L&T* 1,694 1,488 BUY BHEL SELL Cummins India BUY Crompton Greaves SELL Thermax NEU Voltas SELL Source : HDFC sec Inst Research *Adjusted for subs. Value of Rs 399/sh Page 4

5 INCOME STATEMENT (Rs mn) FY12 FY13 FY14P FY15E FY16E Revenue 479, , , , ,291 Growth % (19.2) (4.9) 7.4 Raw material consumption 274, , , , ,776 Employee expenses 54,658 57,528 57,888 58,351 58,818 Other expenses 52,084 59,267 60,059 52,338 55,880 Total Expenses 380, , , , ,474 EBIDTA 98,880 93,894 47,953 49,319 55,817 EBIDTA % EBIDTA Growth % 16.1 (5.0) (48.9) Other Income 12,656 11,217 16,160 12,000 12,500 Depreciation 8,000 9,534 9,829 10,605 11,235 EBIT 103,535 95,577 54,284 50,714 57,082 Interest 513 1,253 1, PBT 103,023 94,324 52,958 50,045 56,532 Tax 32,623 28,177 15,849 16,014 18,090 APAT 70,400 66,147 37,110 34,030 38,442 Reported PAT 70,400 66,147 34,608 34,030 38,442 APAT growth % 17.1 (6.0) (43.9) (8.3) 13.0 EPS EPS growth % 17.1 (6.0) (43.9) (8.3) 13.0 BALANCE SHEET (Rs mn) FY12 FY13 FY14P FY15E FY16E SOURCES OF FUNDS Share Capital 4,895 4,895 4,895 4,895 4,895 Reserves 248, , , , ,298 TOTAL SHAREHOLDERS FUNDS 253, , , , ,193 TOTAL DEBT 1,234 14,152 26,548 9,152 4,152 Deferred Taxes (15,462) (15,507) (19,690) (19,690) (19,690) TOTAL SOURCES OF FUNDS 239, , , , ,656 APPLICATION OF FUNDS Gross block 97, , , , ,833 Net Block 42,968 44,584 37,831 34,226 29,991 CWIP 13,476 11,716 15,600 14,100 14,100 Investments 4,617 4,292 4,202 4,202 4,202 CURRENT ASSETS Inventories 134, ,638 97, , ,321 Trade receivables 358, , , , ,624 Cash & equivalents 66,720 77, ,729 95,690 99,678 Loans & Advances 30,118 29,345 31,910 38,961 40,909 Other Current Assets 1,506 2,000 2,525 3,943 4,140 TOTAL CURRENT ASSETS 591, , , , ,672 CURRENT LIAB & PROVS Current Liabilities 336, , , , ,135 Provisions 76,414 89, ,341 98,174 98,174 TOTAL CURRENT LIABILITIES 412, , , , ,309 NET CURRENT ASSETS 178, , , , ,363 TOTAL APPLICATION OF FUNDS 239, , , , ,656 Page 5

6 CASH FLOW (Rs mn) FY12 FY13 FY14P FY15E FY16E PAT from operations 57,744 54,930 18,447 22,030 25,942 Interest 513 1,253 1, Depreciation 8,000 9,534 9,829 10,605 11,235 Working capital change (85,852) (56,246) 4,207 (37,852) (21,867) Others 11,459 9,177 0 (0) 0 OPERATING CASH FLOW (8,136) 18,648 33,810 (4,548) 15,860 Capex (12,423) (9,006) (6,884) (5,500) (7,000) Free Cash Flow (20,559) 9,642 26,926 (10,048) 8,860 Investments & Others 9,907 6,053 16,250 12,000 12,500 INVESTING CASH FLOW (3,297) (3,381) 9,366 6,500 5,500 Capital issuance Debt issuance ,044 12,396 (17,396) (5,000) Interest (498) (1,225) (1,326) (669) (550) FCFE (10,649) 29,537 56,898 (14,775) 16,910 Dividend (17,937) (16,486) (8,104) (6,927) (11,822) FINANCING CASH FLOW (18,149) (4,667) 2,965 (24,991) (17,372) NET CASH FLOW (29,582) 10,601 46,141 (23,040) 3,988 Closing cash 66,720 77, ,729 95,690 99,678 KEY RATIOS PROFITABILITY % FY12 FY13 FY14P FY15E FY16E GPM EBITDA margin EBIT margin APAT margin RoE RoIC RoCE EFFICIENCY Tax rate % Asset turnover (x) Inventory (days) Debtor (days) Payables (days) Cash conversion cycle (days) Debt/EBITDA (x) Net D/E (0.3) (0.2) (0.3) (0.2) (0.2) VALUATION EPS (Rs/sh) DPS(Rs/sh) BV (Rs/sh) P/E P/BV EV/EBITDA EV/Revenues FCF/EV (%) (4.3) (2.2) 2.0 FCFE/MCAP (%) (1.9) (2.7) 3.1 Dividend yield (%) Page 6

7 RECOMMENDATION HISTORY BHEL TP Date CMP Reco Target 5-Aug SELL Nov SELL Feb SELL May SELL May SELL Aug SELL Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organisations described in this report. HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai Board : Page 7