Bharat Heavy Electricals LtdQ2 FY19
Bharat Heavy Electricals Ltd
Q2 FY19 Earnings Call Analysis
Management growth scorecard
Revenue
Category 4
Margin
Category 3
Fundraise
No
Order
Yes
Capex
No
1 of 5 growth signals are positive — mixed outlook.
Full analysisRevenue guidance
Category 4- →BHEL expects a new growth cycle in the power sector due to improved electricity demand (7% growth in Q1 FY20 vs 5% in Q1 FY19), better fuel availability, and efforts to improve discoms' financial health.
- →Coal-based power plant ordering is likely to pick up shortly as coal generation balances renewable intermittency.
- →The company targets roughly 30 GW potential from emission control (FGD) projects and expects to convert a significant portion of L1 orders into confirmed orders by Q3/Q4 FY20.
- →New projects in power (e.g., Talcher, Singareni, Lara, Singrauli) and nuclear (around 10 sets of steam generators) provide strong order pipeline visibility.
- →Electrical projects worth six 700 MW turbine generator sets are expected.
- →Order inflow in power segment expected around Rs. 50,000 crores if conditions are "realistic."
- →Execution challenges due to customer clearances and working capital constraints may affect topline growth but improvement is expected in subsequent quarters.
Margin guidance
Category 3- →BHEL expects improvement and aims to return to targeted revenue figures from Q2 FY20 after Q1 execution challenges.
- →The company is optimistic about crossing Rs. 50,000 crores order inflow in FY20 if all goes realistically (not just optimistic).
- →Order backlog sizeable with power sector at Rs. 85,789 crores and industry Rs. 11,959 crores as of June 30, 2019.
- →Working on clearing bottlenecks like project clearances; expects most pending orders (e.g., Sagardighi, Talcher) to be finalized by Q3 or Q4 FY20.
- →Marginal increase in raw material costs projected; employee costs expected to reduce overall due to manpower rationalization.
- →Earnings impacted by execution delays and working capital stresses in Q1, but there is focus on improving cash inflows and operational efficiencies.
- →Management confident of achieving or exceeding full-year MOU revenue guidance of Rs. 31,000-32,000 crores.
- →Interest costs rising due to increased borrowing, but efforts to optimize manpower and cost control ongoing.
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Fundraise plans
No- →As of August 2019, there is no plan for new equity fundraising or buyback (Subodh Gupta confirmed no discussions on larger dividend payout or buyback).
- →The company has increased debt to fund working capital needs despite a cash balance; net cash after borrowings was around ₹5,046 crores as of March 2019.
- →Borrowings increased by ₹1,500 crores in Q1 FY20, raising total debt to ₹4,000 crores by June 30, 2019, primarily due to stringent payment terms and working capital pressures.
- →The company is leveraging market borrowing to address liquidity constraints but did not indicate any fresh fundraising through equity or additional significant debt beyond current levels at that time.
Order book
Yes- →Total order book as of June 30, 2019: ₹1,07,806 crores
- → - Power sector: ₹85,789 crores
- → - Industry sector: ₹11,959 crores
- → - Exports: ₹10,058 crores
- →Q1 FY20 order inflow: ₹3,892 crores (Power: ₹1,913 crores; Industry: ₹1,976 crores)
- →Pending key orders and pipelines:
- → - Sagardighi 1x800 MW and Talcher clearance expected by Q3 FY20
- → - Tenders in pipeline: Lara, Singrauli, Talabira, Singareni Collieries Limited
- → - NPCL fleet orders (700 MW) expected during current fiscal year
- → - FGD and emission control orders: 23,000 MW secured; 19 GW in L1 stage; 30 GW potential in pipeline
- → - Railway electrification and regenerative loco orders expected shortly
- →Orders executable backlog influenced by customer clearances and sequential execution requirements causing delays
Capex plans
No- BHEL has established a facility at Bangalore for manufacturing space-grade lithium-ion cells based on ISRO technology. This backward integration aims to meet indigenous lithium-ion cell requirements for ISRO satellites and large vehicles as well as potential defense applications (Page 3).
- Discussions indicate exploring partnerships or joint ventures in lithium-ion battery manufacturing, given government policy requirements for tie-ups with entities having at least 1 GW supply experience, as no OEM currently meets that in India (Page 14).
- No mention of large-scale new capital expenditure or buybacks/dividend payouts at the moment (Page 17).
- Focus on strategic collaborations, e.g., JV with a Japanese partner for high-speed rail and stainless steel coaches for metros, with plans to indigenize 25% local content (Page 16).
Overall, BHEL is investing strategically in new technology capabilities (like lithium-ion cells) and joint ventures rather than announcing large standalone capex.
How does Bharat Heavy Electricals Ltd rank vs peers in Electrical Equipment?
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Rev 4Mar 3
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