Nomura Financial Advisory and Securities has recommended 'Reduce' on Bharat Heavy Electricals (BHEL) with target price of Rs 123 as against current market price (CMP) of Rs 222 in its report.

Commenting on the investment rationale, Nomura said, ''BHEL's 1QFY15 earnings were sharply below our and consensus expectations, led by both weak revenue and margins. EBITDA and PAT plunged 44% y-y and 58% y-y, respectively. Reported order inflow of Rs 11 billion in 1QFY15 was poor in context to our full-year forecast of Rs 369 billion.

BHEL posted another disappointing quarter. While the Street already built in a fall in the top line, the decline of 20% y-y highlights that the state of the power sector continues to be quite challenging. The contraction in revenue weighed on margins, which supports our longstanding concerns that margins for BHEL will continue to decline over the coming years due to higher competitive pressures coupled with rising staff costs and overhead.

Receivables, which have been a serious concern for BHEL, remained at elevated levels with no material improvement on a q-q basis. We think the cycle for BHEL has yet to bottom out and we reaffirm our Reduce rating on the stock,'' it added.

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