BHEL stock hammered on the bourses, as order inflow turns negative

Shares of state-owned power equipment major Bharat Heavy Electricals Ltd (BHEL) were hammered on the stock markets on Monday, after the company reported negative order inflow on Friday while announcing its Q3 results.

The BHEL scrip was down by more than nine per cent in the afternoon on the Bombay Stock Exchange, after most brokerages downgraded the firm following disappointing projections about future orders. The scrip breached the Rs250 mark, sharply down from Friday's closing of Rs273.65.

The company reported a net profit of Rs1,432 crore for Q3 of fiscal 2011-12, marginally higher than the Q2 figure of Rs1,412 crore. However, what worried the markets was the Rs5,800 crore order cancellations witnessed by the company during the third quarter, which resulted in a negative order inflow of Rs3,500 crore, the first time in several years.

While the company had at the beginning of the fiscal projected an order guidance of Rs66,000 crore for the year ending March 31, 2012, its actual order inflow for the nine-month period ending December 31 was a mere Rs13,360 crore.

"Recent cancellations clearly raise doubts regarding the sustainability of the current order book," said a report by Edelweiss. "BHEL's operating margins have declined sharper than anticipated which indicates a further downside risk to future margins apart from the obvious pressure building up on working capital side."

HSBC maintained a 'neutral' rating on the stock with a target of Rs295, noting that the outlook on order inflow was likely to remain weak over the coming four to six quarters. Disappointed with the performance, Goldman Sachs issued a 'sell' alert, suggesting the declining revenue trend may continue in fiscal years 2013 and 2014.