They are confident of 10-12% revenue growth following ramp up in executable book and expect insulated margins (vs commodity inflation) given advance raw material procurement and PVC in government projects. BHEL is trying to get its acts together with focus on efficient execution, higher receivables, struggling thermal market and creating new business visibility. However, we believe results will only pan out gradually over medium term. Maintain ‘BUY’ with DCF-based TP of Rs 110 (31% upside).

Strong EBIDTA beat was led by R190 crore forex gain in Q4FY18, which for FY18 stood at Rs 520 crore, adjusted for which FY18 margin remained flattish. While execution could improve to low double digits in FY19 on improving order book, management is confident of stable margins despite commodity price jump as it has already booked raw materials required for next year.

BHEL posted sharp growth in new orders to Rs 41,000 crore, led by clearance of select large PSU tenders. On industrial side, 22% YoY growth to R7,500 crore was also encouraging. Management indicated improving traction in pollution control equipment, which is likely to extend over ensuing 12-24 months. Overall, receivables grew 12% YoY to Rs 35,500 crore, which suggests poor recovery for BHEL.