Saturday, October 27, 2018

BHEL 2QFY19 key concall takeaways:

Macro Environment:
·         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:
o   1HFY19
§  Power – Rs42.05bn
§  Spares and services – Rs14.4bn
§  Industry – Rs32.5bn
§  Exports – Rs6.4bn
o   2QFY19
§  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.

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