BHEL scrip dips 10% on cancellation of orders

Shares of state-owned Bharat Heavy Electricals Limited (BHEL) plunged on the bourses because of cancellations order inflow reported by the company in its third quarter results on Friday.

BHEL reported a net profit of Rs 1432 crore in the quarter ending December 30, 2011, against Rs 1412 crore in the previous quarter. While profits have remained flat, BHEL's order book has declined by nearly 9 per cent quarter-on-quarter and by 7 per cent year-on-year.

The company had an outstanding order book position of about Rs 1,46,500 crore as at end December, 2011. At the end of the second quarter of FY12, BHEL's outstanding order book position was Rs 1,61,000 crore.

The company has not been able to garner major orders in the last quarter. An order worth Rs 5,840 crore was cancelled which led to de-growth in the order book. “The major reason given for order cancellation was that customers were unable to make significant progress in getting clearances, said a report by Prabhudas Lilladher.

Investors were also upset because the third quarter results showed lower-than-expected margins. Many brokerages have downgraded the stock due to possibility of future cancellations of orders. Brokerages have given a ‘neutral' and ‘sell' ratings to the stock.

HSBC Global research estimates the “outlook unlikely to improve over the next four to six quarters.” They fear further cancellations or execution delays from the company's private sector order book.

Motilal Oswal feels that the multiple de-rating triggers will put the stock's valuations under pressure. There could be a “Possible downside to our order intake assumptions in FY12/13 due to worsening external environment in the power sector, downside risk to FY13 earnings estimate due to execution constraints and deteriorating working capital, and uncertainty around the company's proposed follow-on offer (FPO),” said a report by the brokerage.