Espirito retains sell on BHEL

Espirito Santo Securities reiterated its ‘Sell’ rating on Bharat Heavy Electricals with a fair value of Rs 190 per share. “BHEL Q3FY13 results disappointed us on all fronts, with revenues declining for the first time in a decade and EBITDA margin compression significantly higher than our estimate (240bps yoy vs. ESIB: flat yoy). Forex gains of Rs 1.8 billion came as a support to PAT, which was 13% below our estimate. Until the power sector issues (coal availability and pricing) are resolved, visibility on new orders will continue to be bleak. The same is reflected in BHEL’s order flows for the last seven quarters. Consequently, the order book has declined to Rs 1.14 trillion, down 31% from its peak at FY11 end. Against this backdrop, we see BHEL’s visibility on revenues and earnings deteriorating further. We reiterate our ‘Sell’ stance and FV of Rs 190 per share, implying 16% downside from current levels,” it said in a report.