Bhel profits hit by poor utilization, high working capital

Bharat Heavy Electricals Ltd (Bhel) reported dismal results in the three months to September, marking eight consecutive quarters of decline in net revenue and profit. The travails of the infrastructure segment continue to hurt the operating performance of the country’s largest capital goods maker. Bhel’s woes are a combination of weak execution and high receivables. Some slow moving, large orders, mainly in the energy sector, and a declining order backlog led to a sharp 32% decline in net revenue from the year-ago period. It meant low utilization of its factories, hurting operating profitability. Raw material costs and other expenses were contained to an extent. But staff costs rose quite a bit. Operating profit, which plummeted by 52% from the year-ago period, was also hugely below Bloomberg’s consensus. The operating margin shocked the Street; at 4.7%, it was nearly 2 percentage points lower than in the year-ago period. Profitability dipped in both the power and industry segments. A bigger concern is the high capital employed in spite of the decline in revenue, which indicates the stretched working capital cycle. A report from Espirito Santo Securities India Pvt. Ltd also points out that Bhel’s high receivables situation is unlikely to change soon. Besides, about one-third of the receivables are outstanding for more than one year. Read more at: http://www.livemint.com/Money/JxxPe4mB6q7LIApeu0a8LI/Bhel-profits-hit-by-poor-utilization-high-working-capital.html?utm_source=copy more at: http://www.livemint.com/Money/JxxPe4mB6q7LIApeu0a8LI/Bhel-profits-hit-by-poor-utilization-high-working-capital.html