Warning bells ring louder at BHEL

BHEL’s first quarter results for the current fiscal have sent alarm bells among the investors. Both topline and bottomline were lower than the previous year, margins were under pressure and new order flows were hard to come.

BHEL, the leading player in India’s power and industrial electrical equipment markets, registered a turnover of Rs 6,353 crore during the first quarter of the current fiscal as against Rs 8,326 crore turnover achieved during the same quarter in the previous, thus recording 23.70% fall in topline. Net profit almost halved, falling from Rs 921 crore to Rs 465 crore during the same period. During the period operating margins shrunk by more than 800 basis points. Even more worrying factor is its order book position – order book at Rs 108,600 crore was lower by 6% quarter on quarter basis and during the quarter fresh orders booked were just Rs 1,470 crore. It clearly shows that poor performance by BHEL is likely to continue in the coming quarters too and the tide is unlikely to change soon. No wonder, share price at the bourses fell by nearly 20% upon the announcement of results.

BHEL’s performance highlights (Figures in crore rupees)

BHEL’s financial performance also indicates the poor health of power sector in the country. Power generation equipment supplied by BHEL accounts for more than 60 per cent of India’s total power generation capacity although its overall share has come down in the 12^th plan period due to competition from domestic and international players.. However, adverse macro-economic environment, project deferrals due to various reasons like land acquisition problems and fuel linkage problems, and a weak investment climate have resulted in lower order inflows for BHEL. Last year, the appreciation of Korean Won and Chinese Yuan helped the company to remain competitive but the current spate of rupee depreciation could have its own set of problems too for the company. Major portion of its super-critical technology is yet to be indigenized and due to recent rupee depreciation its import cost may shoot up, thus impacting its operating margins which are already under pressure.

BHEL is a cash rich company with a debt of just Rs 123 crore as on 31^st March 2012. Its cash and cash equivalents as on that date stood at Rs 6,672 crore which was 30.72% less than the previous year. By the end of March 2013, this balance has gone down further due to delays in realization of debtors. The company funds its large working capital requirements from the advances it receives against new orders. However, slower inflow of orders and delayed realization from debtors may impact its bank balances substantially. If there is no substantial improvement in its performance, which is very unlikely, BHEL may be in for a downgrade by the rating agencies.

When Praful Patel became the Aviation Minister in 2004, Air India was ruling the Indian skies. When he left the ministry in 2011, Air India was bleeding with billions of dollars in losses. Now he is the Minister for Heavy Industries and Public Enterprises and BHEL comes under the purview of his ministry. Let’s hope history doesn’t repeat itself this time.