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SummaryBearish on BHEL due to structural concerns: BHELís Q3FY13 results were below our as well as the streetís estimates, led by weaker performance across the board.

Start of revenue decline now

Bearish on BHEL due to structural concerns: BHELís Q3FY13 results were below our as well as the streetís estimates, led by weaker performance across the board. PAT (profit after tax) of R11.8 bn (down 18% y-y), albeit boosted by higher other income, missed our and the streetís estimates by 11% and 13%, respectively. Moreover, Q3FY13 implied order inflows of Rs19 bn were sharply below our expectations of R40 bn. YTDFY13 order inflow now totals R107 bn, which is way behind our full year estimate of R326 bn.

What does the result mean?

The numbers re-confirm our long-standing concerns on sales and margin decline that would lead to pressure on the balance sheet too. In fact, Q3FY13 marks the start of revenue decline for the company, in our view. While margins have also disappointed, we await managementís con-call to see if other expenses were higher due to any one-off provisions. Lower order inflow during the quarter and the sharp fall in industrial segment margins further confirm our belief that BHEL would not be able to sufficiently compensate for the decline in the power segment through its diversifications attempts.

Key numbers

* Revenue at R102 bn noted its first decline y-y in the last 10 years in any quarter. The revenue missed our and consensus estimates by 4% and 7%, respectively.

* Ebitda margin at 16.0% was well below our as well as consensus estimates of 17.9% and 18.0%, respectively. Margins contracted by 310bps y-y and 200bps q-q. The margin decline was led by a rise in other expenses.

* Weak topline and lower margins resulted in a higher miss at Ebitda level. Ebitda at R16.3 bn came in 14% and 17% lower than our and consensus estimates.

* Implied order inflow in Q3FY13 remained weak at R19 bn and was lower than our as well as the streetís expectations. The total order inflow for 9MFY13 now stands at R107 bn, which is behind our full year estimate of R326 bn.

* The order book, as of December 30, 2012 stands at R1,137 bn, down 22% y-y.

Management hopeful of ending FY13 with R300 bn order

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