BHEL Shares Decline After Q3 Results Miss Estimates
Gross profit declined 12% YoY on a combination of weak execution and declining gross margin, Kotak Institutional Equities said.
Shares of Bharat Heavy Electricals Ltd. declined in trade on Monday after the company's third quarter results missed estimates.
"BHEL reported a disappointing print, much below estimates. Gross profit declined 12% year-on-year on a combination of weak execution and declining year-on-year/quarter-on-quarter gross margin," Kotak Institutional Equities said, in a note.
Nomura estimated a revenue of Rs 5,390.6 crore in the quarter ended December.
Bharat Heavy Electricals Q3 FY23 Highlights (Consolidated, YoY)
Revenue rises 2.5% to Rs 5,263.4 crore.
Ebitda up 62% at Rs 144.3 crore.
Ebitda margin at 2.7% vs 1.7%.
Net profit up 56% to Rs 42.3 crore.
The scrip closed 5.11% lower at Rs 71.55 apiece, compared with a 0.48% fall in the benchmark Nifty. It declined as much as 6.43% intraday.
The total traded volume stood at 2.4 times the 30-day average. The relative strength index stood at 35.
Of the 20 analysts tracking the company, two maintained 'buy', three suggested 'hold', while 15 analysts recommended 'sell'. The average 12-month consensus price target implied a potential downside of 28.1%, according to Bloomberg data.
Here's what analysts make of the results:
Nomura
Maintained 'neutral' rating on the stock on fairly-balanced risk-reward with a target price of Rs 79, implying a potential upside of 5.3%.
Execution and gross margins remain weak.
Sales at Rs 5,263 crore, up 2% year-on-year, missed brokerage and Bloomberg consensus estimates by 2% and 8% respectively.
The pick-up in execution had been elusive in the first nine months of the current fiscal.
Values company at 11 times the Dec-24 EV/Ebitda due to recovery in thermal tendering prospects.
Multiple is below long-term peaks due to legacy challenges.
Orders remain weak, although we view there are significant thermal power prospects over the next fiscal.
Believes that reversal of provisions may have led to the unusually-low other expenses.
Recent orders appear to be at low gross-margin as it being at 25.5% is significantly lower than historical levels.
Kotak Institutional Equities
Recommends 'sell' on the stock and raises fair value to Rs 37 from Rs 34, implying a potential downside of 51%.
Cuts earnings per share estimates.
Lowers Ebitda margin estimates by 150-200 basis points for 2024–25, while broadly retaining revenue estimates.
Increases ordering estimates by 7–8%, which increases earnings multiple to 13x from 11x.
Factors in 5.5. GW of orders in the 2025 fiscal.
The company needs to grow top line to 20% or higher levels at a minimum, assuming gross margin improvement, to report profit after tax break-even.