· Power demand is set to witness a 10% YoY rise in FY19 as compared to 6.2% YoY in FY18. BHEL management has seen an uptick in the power rates, which is positive for the sector.
· Management has seen a renewed activity in the industrial segment.
· Indian Railways has planned for major capacity investments.
· 60% of Indian capital goods sector is formed by Heavy power and electrical industries.
Order Book and Backlog:
· Orders booked during 2QFY19 stood at Rs51.6bn and Rs95.3b in 1HFY19. Within segments, following is the split:
§ Power – Rs42.05bn
§ Spares and services – Rs14.4bn
§ Industry – Rs32.5bn
§ Exports – Rs6.4bn
§ Power – Rs29.4bn
§ Spares and services – Rs5.6bn
§ Industry – Rs16.5bn
§ Exports – Rs0.1bn
· Total order book until 2QFY19 stood at Rs1155bn, up 19% YoY. Following is the segment-wise split:
o Power – Rs900bn
o Industry – Rs120bn
o International – Rs130bn
· BHEL is L1 in orders worth Rs250bn. Following is the break-up between segments:
o Power – Rs175bn
o FGD – Rs30bn
o Industry – Rs15bn
o Spares and services – Rs10bn
o Exports –Rs20bn
· Management expects 10-15GW of orders in FY19, out of which BHEL expects to bag 8-10GW.
Payment terms and Working capital:
· Current receivables have declined sequentially from Rs227bn to Rs203bn. This is partly due to deferred revenues of Rs40bn getting classified from Current receivables to non-current receivables.
· Now that majority of ordering and payments happen through State utility boards, their share in BHEL’s receivables has risen (53% as on 2QFY19)
· As per management, the Total Receivables to Total Assets ratio is at 0.5, which is at par with many capital goods company.
· Contribution to the company’s receivables is by various stakeholders is as follows:
o SEB’s – 53%
o Central PSU’s – 29%
o Private companies – 13%
o Exports – 5%
· Generally after receiving an order, there is a 1.5 year gap between start of the project and recognition in revenues.
· Inventory has risen by Rs15bn sequentially.
Other Key Takeaways:
· Exchange rate gain for 1HFY19 stood at Rs3.6bn versus Rs4bn YoY.
· Current borrowing has gone up primarily due to working capital requirement. Most of the company’s Cash and equivalents are a part of FD.
· Wage revisions have already been implemented. Staff cost is expected to remain steady at around Rs15bn per quarter.
· Provision in Other expenses stood at Rs5.15bn versus Rs5.45bn YoY.
· Post IND-AS 16 adjustment, recurring depreciation is expected to be around Rs4.5-Rs5bn in FY19.