L&T, Bhel hit 52-week low; more pain to follow?

Exactly a year after Bharat Heavy Electricals Limited (Bhel) touched its 52-week high of Rs 482 on 16 November 2010, it plunged to a new 52-week low of Rs 286 today. Fortunes have turned with execution slowing down in power space due to well-known causes, like fuel linkages, high interest rates, environmental clearances and no policy reforms. Growing competition from Chinese players has also marred its order inflow.

Bhel’s second quarter results also did not help the company, though revenue growth of 24 percent was better than what many expected. Its operating profits declined by 60 bps (100 bps make 1 percent). Power segment result also declined, which means the numbers were mainly driven by the industrial segment. To top it all, the management was not able to make any forward-looking statement or give guidance as it has filed for its FPO.

[caption id=“attachment_132501” align=“alignleft” width=“380” caption=“The UMPPs were supposed to generate 4,000 MW of power projects each and biggies like L&T and Bhel were banking on these projects for robust order books.Reuters”]  [/caption]

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

It’s the same story for the other capital goods major Larsen and Toubro (L&T) which is down from its 52-week high of Rs 2,086 exactly a year ago to a low of Rs 1,224. L&T had cut its order inflow guidance from 15 percent to 5 percent, and investors have not stopped punishing the company for that.

The company, an HSBC report says, is also wary of increasing working capitalrequirements. It expects raise working capital to 15 percent of sales from 10 percent at the beginning of the year.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

Moreover, slow-moving orders form 9-10 percent of the book, compared to 5-6 percent at the beginning of the year. Slowdown in execution is the major concern for the stock along with two major arms of the company, power and defence, not showing much improvement. While the power segment is tackling its own issues, L&T in a recent Asia conference in the US admitted that delay in decision to award defence orders to private players will postpone their asset utilisation.

Bad news for the capital goods players does not end there. Mint today reported that a CAG report is challenging several government decisions on ultra mega power projects (UMPP). The UMPPs were supposed to generate 4,000 MW of power projects each and biggies like L&T and Bhel were banking on these projects for robust order books. If the report delays the government’s decision, further postponing order placements of the mega power projects, these two capital goods giants are in for more trouble.The markets are already wary of the sector and despite temporary, minor fillips on the back of some new order, the short-term scenario does not look impressive for any of them.