With bleak thermal power prospects, BHEL faces more pain in long run
With bleak thermal power prospects, BHEL faces more pain in long run – With an increasing preference for renewable energy amid high exposure to thermal power has become a serious explanation for the consistently disappointing earnings of power station equipment supplier Bharat Heavy Electricals Ltd.
BHEL posted a standalone net loss of ₹556 cr within the September quarter, against a profit of ₹118 crore for an equivalent period last year. The loss was bigger than Bloomberg’s consensus estimate of ₹239.80 cr. Revenues were less than expected also, declining by around 40% year-on-year (y-o-y) to ₹3,695 cr in Q2FY21.
Order inflows halved y-o-y to ₹3,720 crore and therefore the order book was flat at ₹1.1 trillion. Total receivables saw a marginal decline annually and sequentially but remained elevated at ₹34,900 crores in Q2. State-owned companies accounted for 48% of the entire receivables, the management said. it had been followed by the Centre (33%), private players (12%) and exports (7%), it added.
BHEL continued to report losses at the operating level within the September quarter as sequentially, but was above forecast. Lower employee costs helped reduce operating losses, analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd said during a report on 10 November.
Wage inflation has also eaten into the gains from fewer employees as currently, BHEL has an employee base of around 34,000, and employee cost formed 18%/25% of sales in the financial year 2019/fiscal year 2020. While we appreciate that the corporate has been ready to bring down the worker base from 46k in FY10, wage inflation has negated the advantage of an equivalent” said analysts from Motilal Oswal Financial Services Ltd during a report on 9 November.
Moreover, declining revenues imply lower absorption of fixed amounts, hurting profit margins as BHEL posted Ebitda-level loss in Financial Year 20, from 16-20% Ebitda margins within the good years (FY04-13),” the domestic brokerage reported.
Analysts added that the financial stress for BHEL will be continued unless it forays into other segments. The organization is trying to diversify, but the advantages aren’t expected soon.
BHEL had floated a worldwide expression of interest to leverage its manufacturing capabilities and facilities. The organization has signed 3 memorandums of understanding with international majors for defense & armored trucks, consistent with its presentation to investors.
“BHEL’s dependence on thermal power, including the supply of captive power plants within the industrial segment, is >80% of sales over the last five years. We estimate thermal power to be during a structural weak phase over the subsequent decade. The management is that specialize in diversifying into contract manufacturing, defense, and transportation, but efforts may take years to materialize,” said the Nomura report.
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