It’s the same old story of rising losses and poor execution

Revenue at Rs4,450 crore was much below the Street’s consensus estimate of Rs5,600 crore. At the operating level, BHEL reported a loss of Rs180 crore versus positive Ebitda of Rs330 crore a year ago. Inability to absorb higher fixed costs weighed in its operating performance. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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BHEL’s order inflows declined 35% y-o-y to Rs3,890 crore in 3QFY21. Gross margins eroded due to high commodity cost. Further, the pain point of pending receivables remained. So far in this financial year, its total debt stood at Rs34,800 crore, higher than Rs34,900 crore in the first half of 2021.

Even though business conditions at the company’s sites have improved to pre-covid levels, there is no light at the end of tunnel for BHEL yet. Despite the management’s efforts to control costs and improve deliveries, analysts are hardly excited about it. They caution that receivables are likely to remain elevated in the near-term. That, coupled with cost inflation and slowdown in order inflows, would keep profitability muted.

Given the rising preference for renewable energy generation, thermal power capacity addition in India has taken a massive backseat. This has weighed on investors’ sentiment for the stock. The company is foraying into other areas, but it is unlikely that there will be an instant positive financial impact of the same.

“While orders are few and far between, the pricing environment remains highly competitive, limiting scope for margin expansion. On its ongoing diversification strategy, the company is favourably placed as an L-1 bidder in a sulfur recovery unit (SRU) for IOCL Panipat and is restructuring its solar business division. Any material financial impact is still a long time away,” said analysts at Motilal Oswal Financial Services Ltd.