Lag in order book execution to hit BHEL: Analysts

MUMBAI: Shares of BHEL have taken a severe beating after the capital goods major posted 17 per cent rise in full-year profit, well below forecasts, as higher wages and raw material costs squeezed margins.

BHEL on Thursday posted a provisional profit of Rs 2,815 crore for the year ended March 31, up from Rs 2,415 crore reported a year earlier.

The result sent shares of the state-run company down more than 8 per cent that day. Today, it further extended losses by 7 per cent to close at Rs 1,634.

According to analysts, BHEL, which had got huge order inflows of Rs 50,300 crore for FY2008, would not be able to sustain the order inflows.

���We estimate an order backlog of Rs 85,400 crore at the end of FY2008, providing 3.4 years of revenue visibility based on estimated following four quarters revenues. In spite of a strong order book, slower-than-expected execution may result in missing near-term growth projections,��� said an analyst with a local brokerage.

BHEL reported huge order inflows of Rs 50,300 crore for FY2008, implying order inflows of Rs 15,100 crore for 4QFY08.

Brokerage firms have also downgraded earnings estimates for the company on lower margin assumptions. Analysts cite increase in commodity prices leading to pressure on margins as a key risk for the company.

Other risks include possible deterioration in competitive position with foreign vendors winning significant orders in India, particularly from the private sector; competition in the domestic space; potential slips ups in the XIth and XIIth plan execution that would reduce market opportunity; and larger role that private sector is likely to have in power generation capacity addition in future as compared to the past.

According to reports, BHEL was in talks with Reliance Energy and state governments of Gujarat, Karnataka and Orissa to build power projects and was also looking at picking up to 26 per cent equity in these projects. India's plan to add 78,577 megawatt of capacity in the five years to 2012 is expected to help BHEL boost business.