BHEL sinks over 19% to hit 7-year low post Q1 results

 Bharat Heavy ElectricalsBSE -17.54 % Ltd (BHEL) plunged over 19 per cent on Monday to hit its lowest level of Rs 120.75 since January 2006, after the power equipment maker posted nearly 50 per cent decline in net profit number.

At 12:45 p.m.; BHELBSE -17.54 % was trading 18.8 per cent lower at Rs 121.30. The stock has plunged as much as 19.2 per cent to hit its multi-year low of Rs 120.65.

The power equipment maker reported a net profit of Rs 465.43 crore for the first quarter ended June 30, 2013 weighed down by lower sales. It had clocked a net profit of Rs 920.90 crore in the year-ago period.

"All the cost items in BHEL's 1QFY14 results were inline with expectations. Only thing amiss is sales, which are down 24 per cent YoY," Citigroup said in a report.

Top-line for the state-run company declined substantially to Rs 6,352.55 crore in the first quarter of current fiscal from Rs 8,326.24 crore reported in the same period a year ago, according to a regulatory filing.

The global investment bank has slashed its target price to Rs140 from Rs185 earlier to factor in cut in target P/E to 7x (from 8x earlier) and 3-12 per cent cut in EPS.

"Going forwards, investors should be looking for signs of business revival to get constructive on the BHEL stock. Without the same, the stock could very well decline more and remain at those levels for long periods of time," added the Citigroup note.

Further, management indicated that even the industrial segment orders (such as orders from Kohinoor Power, HPCLBSE -2.41 %, Haldia) are turning out to be slow-moving. As on Jun-13, the orderbook stood at Rs 1,086 bn, out of which 82 per cent orders are from the power sector.

Power segment declined by 20.6 per cent y-o-y to Rs 5,379 crore while industry segment declined by 34.4 per cent y-o-y to Rs 1,293cr.

"BHEL numbers were far below the streets and as well as our estimates. We anticipated there would be a sales drop y-o-y because of declining trend," said Abhineet Anand, Research Analyst, Quant Broking Pvt. Ltd.
But, what the management has stated in its conference call is the fact that a large number of private players who are in financial stress were not able to pay on time which has led BHEL to non-delivery for these clients, hence the sales drop that we are seeing around odd 24% is largely on account of that," he added.

At the end of June quarter, the company's outstanding order book stood at Rs 1,08,600 crore.

The management is trying for the last year's number which is around Rs 30,000 crore plus but what matters more is the sustainability of the order inflow," added Anand.