10th February, 2021

Q3FY21 RESULT UPDATE

Retail Equity Research

Bharat Heavy Electricals Limited HOLD
Capital Goods-Electrical Equipment Products 12M Investment period Rating as per Mid Cap
BSE CODE: 500103 NSE CODE: BHEL CMP Rs. 39 TARGET Rs. 42 RETURN 8%
(Closing: 09-02-21)
Bloomberg CODE: BHEL:IN SENSEX: 51,329

KEY CHANGES: TARGET RATING EARNINGS

Company Data
Weak operations affects performance Market Cap (cr) Rs. 13,510
BHEL, a government owned entity, is India’s largest engineering company Enterprise Value (cr) Rs. 12,126
and dominates the supply of equipment for power plants in India. Key Outstanding Shares (cr) 348.2
products include gas turbines, generators, thermal sets, diesel shunters, Free Float 37.0%
turbo / hydro sets, transformers, switch gears, circuit breakers and boilers. Dividend Yield 3.1%
 In Q3FY21, standalone revenue fell 23.0% YoY, primarily due to 52 week high Rs. 44
continued weak operations post-COVID. 52 week low Rs. 19
 EBITDA came in at Rs. 180cr loss (vs. Rs. 329cr profit in Q3FY20) due to 6m average volume (cr) 0.4
increased inventory costs and higher operating costs. Beta 1.8
 Company posted a net loss at Rs. 231cr and the order backlog stood at Face value Rs. 2
Rs. 106,686cr as of quarter-end. Shareholding % Q1FY21 Q2FY21 Q3FY21
 “Atmanirbhar Bharat” enabling localization of equipments supported Promoters 63.2 63.2 63.2
by BHEL’s strategy to partner with Global OEMs to leverage
FII’s 5.1 4.2 4.3
manufacturing facilities remains a positive catalyst going forward.
MFs/Insti 18.1 15.6 13.5
However, we remain cautious on the stock amid ongoing weakness in
Public 11.0 14.2 15.8
operations and maintain our HOLD rating with a rolled forward price
target of Rs. 42 based on 14.5x FY23E adj. EPS. Others 2.6 2.9 3.1
Total 100.0 100.0 100.0
Revenue growth remains subdued Promoters’ pledge 0.0 0.0 0.0
Price Performance 3 Month 6 Month 1 Year
In Q3FY21, BHEL’s standalone revenue declined by 23.0% YoY to Rs. 4,203cr. However,
revenue recovered on sequential basis posting a 22.1% QoQ growth as the business Absolute Return 37.6% 10.1% -2.5%
environment improves. Looking at segmental performance, power segment was down Absolute Sensex 20.5% 34.9% 24.8%
26.7% YoY to Rs. 2,986cr and industry segment reduced by 12.1% YoY to Rs. 1,217cr. Relative Return* 17.1% -24.9% -27.3%
Order backlog slightly decreased by 0.9% QoQ to Rs. 106,686cr as compared to Rs. *over or under performance to benchmark index
107,645 in Q2FY21.
60 BHEL Sensex Rebased
Poor operational stats; Cost control in focus
Gross margin contracted 400bps YoY to 30.0% in Q3FY21 (almost flat on sequential 40
basis) on the account of weak execution and other headwinds due to pandemic. During
the quarter, company reported EBITDA loss of Rs. 180cr against the Rs. 329cr profit in 20
Q3FY20. However, on sequential basis, employee costs remained flat and other
operating expense declined (44.9% QoQ). Net loss stood at Rs. 231cr (vs. Rs. 159cr
0
profit in Q3FY20) due to decline in other income (-43.6% YoY). Feb-20 May-20 Aug-20 Nov-20 Feb-21
Key concall highlights
Standalone (cr) FY21E FY22E FY23E
 Company signed 3 MOUs in the areas of Maglev train, Marine Gas Turbines for
manufacturing defense equipment and armoured trucks. Sales 14,763 25,097 27,607
 Management carried out restructuring of solar business to improve cost Growth (%) (28.0) 70.0 10.0
competitiveness and execution capabilities. EBITDA (2,204) 1,210 1,758
 Company placed as L-1 bidder for Sulphur Recovery Unit of IOCL Panipat. Also, it EBITDA Margin (%) (14.9) 4.8 6.4
is committed to explore opportunities in various streams including defense, Adj. PAT (2,104) 625 1,001
transportation, downstream Oil & Gas etc. Growth (%) 42.8 (129.7) 60.1
 As of 31-Dec-20, total order book of power sector stood at Rs. 86,325cr followed Adj. EPS (6.0) 1.8 2.9
by industry order book with Rs. 13,057cr and Rs. 7,304cr from exports segment. Growth (%) 42.8 (129.7) 60.1
P/E n.m. 21.6 13.5
Valuation
P/B 0.5 0.5 0.5
Considering the company’s focus on new growth opportunities and operational
EV/EBITDA n.m. 10.0 6.4
efficiencies, we believe, once the impact of pandemic fades away, the business would
get back to normalcy. However, the increase in demand of renewables sources of energy ROE (%) (7.8) 2.3 3.5
can impact the company’s business model. Hence, we plan to monitor the performance D/E 0.2 0.2 0.2
and maintain HOLD rating on the stock with a rolled forward price target of Rs. 42 based
on 14.5x FY23E adj. EPS.

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Quarterly Financials (Standalone)
Profit & Loss Account
YoY QoQ YoY
Q3FY21 Q3FY20 Q2FY21 9MFY21 9MFY20
Growth % Growth % Growth %
Revenue 4,203 5,458 (23.0) 3,444 22.1 9,543 15,897 (40.0)
EBITDA (180) 329 n.m. (632) 71.6 (1,871) 329 n.m.
EBITDA margins (4.3) 6.0 n.m. (18.4) 1410bps (19.6) 2.1 n.m.
Depreciation 113 114 (1.5) 115 (2.1) 346 349 (0.6)
EBIT (292) 214 n.m. (748) 60.9 (2,217) (20) n.m.
Interest 86 139 (38.3) 95 (9.2) 295 366 (19.4)
Other Income 85 151 (43.6) 105 (18.6) 286 432 (33.9)
Exceptional Items - - - - - - - -
PBT (293) 226 n.m. (737) 60.3 (2,227) 47 n.m.
Tax (62) 67 n.m. (181) 65.9 (542) (14) n.m.
Sh. of profit from Associate - - - - - - - -
Minority Interest - - - - - - - -
Reported PAT (231) 159 n.m. (556) 58.5 (1,684) 61 n.m.
Adjustments - - - - - - - -
Adj. PAT (231) 159 n.m. (556) 58.5 (1,684) 61 n.m.
No. of shares 348.2 345.3 - 347.6 - 348.2 345.3 -
Adj. EPS (Rs.) (0.7) 0.5 n.m. (1.6) 58.5 (4.8) 0.2 n.m.

Change in Estimates
Old estimates New estimates Change %
Year / Rs. cr FY21E FY22E FY21E FY22E FY23E FY21E FY22E
Revenue 22,998 26,727 14,763 25,097 27,607 (35.8) (6.1)
EBITDA 659 1,559 (2,204) 1,210 1,758 n.m. (22.4)
Margins (%) 2.9 5.8 (14.9) 4.8 6.4 n.m.) (100bps)
Adj. PAT 356 1,031 (2,104) 625 1,001 n.m. (39.3)
Adj. EPS 1.0 3.0 (6.0) 1.8 2.9 n.m. (39.3)

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PROFIT & LOSS BALANCE SHEET
Y.E March (Rs. cr) FY19A FY20A FY21E FY22E FY23E Y.E March (Rs. cr) FY19A FY20A FY21E FY22E FY23E
Revenue 29,423 20,491 14,763 25,097 27,607 Cash 7,503 6,419 5,894 5,935 6,703
% change 4.7 (30.4) (28.0) 70.0 10.0 Accounts Receivable 11,861 7,108 6,201 10,039 10,491
EBITDA 2,132 (233) (2,204) 1,210 1,758 Inventories 7,797 8,905 6,813 9,637 9,490
% change 6.8 (109.5) 744.8 (156.5) 43.0 Other Cur. Assets 11,211 10,272 10,358 10,600 10,658
Depreciation 475 503 438 418 430 Investments 669 670 706 706 706
EBIT 1,657 (736) (2,642) 792 1,328 Gross Fixed Assets 5,746 6,180 6,475 6,977 7,529
Interest 287 507 423 415 428 Net Fixed Assets 2,884 2,735 2,562 2,612 2,698
Other Income 678 581 435 457 434 CWIP 223 307 337 371 408
PBT 2,048 (662) (2,630) 833 1,334 Intangible Assets 95 86 86 86 86
% change 29.2 (132.3) 297.2 (131.7) 60.1 Def. Tax (Net) 3,497 2,756 2,104 1,667 2,335
Tax 839 811 (526) 208 334 Other Assets 18,690 22,014 22,520 22,520 22,520
Tax Rate (%) 41.0 (122.5) 20.0 25.0 25.0 Total Assets 64,431 61,271 57,580 64,173 66,094
Reported PAT 1,209 (1,473) (2,104) 625 1,001 Current Liabilities 20,599 17,714 18,108 24,161 25,029
Adj* - - - - - Provisions 5,463 5,248 4,066 3,741 3,741
Adj PAT 1,209 (1,473) (2,104) 625 1,001 Debt Funds 2,527 5,009 4,509 4,509 4,509
% change 49.8 (221.9) 42.8 (129.7) 60.1 Other Liabilities 4,410 4,120 3,820 4,020 4,020
No. of shares (cr) 348.2 348.2 348.2 348.2 348.2 Equity Capital 696 696 696 696 696
Adj EPS (Rs.) 3.5 (4.2) (6.0) 1.8 2.9 Reserves & Surplus 30,735 28,485 26,381 27,046 28,100
% change 58.0 (221.9) 42.8 (129.7) 60.1 Shareholder’s Fund 31,432 29,181 27,077 27,743 28,797
DPS (Rs.) 2.0 1.2 - 1.1 1.1 Minority Interest - - - - -
CEPS (Rs.) 4.8 (2.8) (4.8) 3.0 4.1 Total Liabilities 64,431 61,271 57,580 64,173 66,094
BVPS (Rs.) 90 84 78 80 83

CASH FLOW RATIOS

Y.E March (Rs. cr) FY19A FY20A FY21E FY22E FY23E Y.E March FY19A FY20A FY21E FY22E FY23E
Net inc. + Depn. 1,683 (970) (1,666) 1,043 1,431 Profitab. & Return
Non-cash adj. (9) (2,009) (640) 3,578 228 EBITDA margin (%) 7.2 (1.1) (14.9) 4.8 6.4
Changes in W.C (5,556) 97 2,912 (3,902) 36 EBIT margin (%) 5.6 (3.6) (17.9) 3.2 4.8
C.F. Operation (3,881) (2,882) 606 719 1,695 Net profit mgn.(%) 4.1 (7.2) (14.3) 2.5 3.6
Capital exp. (424) (434) (295) (502) (552) ROE (%) 3.8 (5.0) (7.8) 2.3 3.5
Change in inv. 1,717 1,700 (36) - - ROCE (%) 4.9 (2.2) (8.4) 2.5 4.0
Other invest.CF 622 561 - - - W.C & Liquidity
C.F – Investment 1,915 1,828 (331) (502) (552) Receivables (days) 147.1 126.6 153.3 146.0 138.7
Issue of equity - - - - - Inventory (days) 159.5 237.1 237.3 219.0 200.8
Issue/repay debt 2,457 2,502 (500) - - Payables (days) 232.6 236.7 306.6 262.8 251.9
Dividends paid (653) (505) - (375) (375) Current ratio (x) 1.7 1.4 1.3 1.3 1.3
Other finance.CF (1,811) (335) (300) 200 - Quick ratio (x) 1.1 0.8 0.5 0.6 0.6
C.F – Finance (7) 1,662 (800) (175) (375) Turnover & Leverage
Chg. in cash (1,973) 607 (525) 42 768 Gross asset T.O (x) 5.3 3.4 2.3 3.7 3.8
Closing cash 7,503 6,419 5,894 5,935 6,703 Total asset T.O (x) 0.5 0.3 0.2 0.4 0.4
Int. coverage ratio (x) 5.8 (1.5) (6.2) 1.9 3.1
Adj. debt/equity (x) 0.1 0.2 0.2 0.2 0.2
Valuation
EV/Sales (x) 0.7 0.3 0.8 0.5 0.4
EV/EBITDA (x) 9.6 n.m. n.m. 10.0 6.4
P/E (x) 21.1 n.m. n.m. 21.6 13.5
P/BV (x) 0.8 0.2 0.5 0.5 0.5

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Recommendation Summary Dates Rating Target
08-Mar-18 HOLD 90
120
01-Oct-18 HOLD 73
100
25-Jun-19 HOLD 77
80 13-Dec-19 HOLD 49
60 18-Feb-20 HOLD 38
17-Jun-20 HOLD 30
40
10-Feb-21 HOLD 42
20

0
Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Feb-21

Investment Rating Criteria

Ratings Large caps Midcaps Small Caps
Buy Upside is above 10% Upside is above 15% Upside is above 20%
Accumulate - Upside is between 10%-15% Upside is between 10%-20%
Hold Upside is between 0% - 10% Upside is between 0%-10% Upside is between 0%-10%
Reduce/sell Downside is more than 0% Downside is more than 0% Downside is more than 0%
Not rated

Definition:
Buy: Acquire at Current Market Price (CMP), with the target mentioned in the research note.
Accumulate: Partial buying or to accumulate as CMP dips in the future.
Hold: Hold the stock with the expected target mentioned in the note.
Reduce: Reduce your exposure to the stock due to limited upside.
Sell: Exit from the stock.
Not rated: The analyst has no investment opinion on the stock.

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return
basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of
valuations/ return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded
to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION
I, Anil.R author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject
issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

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ANIL R
Digitally signed by ANIL R
DN: c=IN, o=GEOJIT FINANCIAL SERVICES LTD, ou=FUNDAMENTAL
RESEARCH,
2.5.4.20=283e14158d22e350b60e91540d1c763d6bb7b25c7097c11
3840defd751ea61c1, postalCode=682024, st=KERALA,
serialNumber=9286280ddc37a48af3db92aba131218481f4ff4fc7539
4a87c1728685d9649da, cn=ANIL R
Date: 2021.02.10 12:23:21 +05'30'

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