Comments
BHEL, the country’s largest power equipment manufacturer, which is already strained due to lack of new orders, lag in implementing current orders and high employee cost, on Monday saw its stock bleed to a seven-year low on Dalal Street.
This followed the company reporting a near-50 per cent drop in first quarter net profit for fourth consecutive time on Saturday.
‘No leeway’
The BHEL stock on Monday closed at Rs 120.90, down 19.08 per cent on the BSE. Market watchers do not expect an immediate turnaround for the company. “We have several orders pending and it is not giving us the leeway. Nearly, 11,000-13,000 MW of new orders are in the offing. But there is no quick decision on order finalisation. The margins have contracted for all the players, as everyone has set up capacities,” P.K. Bajpai, Director (Finance) of BHEL told Business Line.
According to Bajpai, the company is capable of cutting down variable costs that would improve its margins in the coming quarters. “Every company is expecting bulk orders to be released. BHEL would bid aggressively and have advantages over others players as it is an integrated and dominant player,” he added.
The quantum of decline in BHEL’s revenue has taken the Street by surprise. “The sharp decline in revenue seems to suggest that the stress in the power sector has further increased. For BHEL, while declining order book has been a challenge for quite some time, problems of executing its current order book are now coming to the fore,” Amar Kedia and Vinnet Verma of Nomura Equity Research said in an August 5 report.
“We expect the stock to react very negatively on account of weak numbers as well as poor order book,” the Nomura analysts added.
Order book worries
Considering the slowdown in investments and problems in the power sector, order intake will continue to remain tepid. With many headwinds in the power sector, order visibility is limited. Further, there is intense competition to bag those orders. BHEL reported an order book of Rs 1.08 lakh crore as on June 30m down from Rs 1.15 lakh crore on the same date previous year.
“Given the strong competition (domestic as well as international), declining order flows and a weak capital expenditure cycle, we expect BHEL’s profit margin and return on equity to decline from the current levels. Hence, the cheaper valuations are largely overshadowed by structural issues plaguing the company,” said Amit Patil, Research Analyst (Capital Goods) at Angel Broking.
It is to be seen if the stock price sees any improvement on Tuesday. Besides increase in working capital, slowdown in orders and corresponding reduction in cash float, lately, slower execution has also weighed on the stock, said Sandeep Shenoy, Head of Equities at Anand Rathi.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.