Over the past year, BHEL share price has increased significantly, rising by about 300 percent. The price of BHEL shares has almost tripled investors’ money over the last year, closing at ₹319.20 last night.
BHEL share price: Shares of Bharat Heavy Electricals (BHEL) cracked almost 8 per cent in early deals on BSE on Wednesday, May 22, a day after the company reported its March quarter (Q4) scorecard. BHEL share price opened at ₹305 against its previous close of ₹319.20 and crashed about 7.6 per cent to hit the level of ₹295. The stock, however, pared losses soon and traded 4.61 per cent lower at ₹304.50 apiece around 9:20 am. Equity benchmark Sensex was 0.07 per cent up at 74,005 at that time.
BHEL share price has seen strong gains over the last year, surging almost 300 per cent. At the previous close of ₹319.20, BHEL share price has nearly quadrupled investors’ money over the past year.
BHEL share price hit its 52-week high of ₹322.35 in the previous session on May 21, 2024. Its 52-week low level is ₹77.30 which it hit on May 29 last year.
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BHEL Q4 result
After market hours on Tuesday, May 21, BHEL reported a 25.6 per cent year-on-year (YoY) fall in its consolidated net profit for Q4FY24 to ₹489.6 crore against a profit of ₹658 crore in the corresponding quarter last year.
The state-owned power generation equipment manufacturer’s revenue from operations rose marginally by 0.4 per cent to ₹8,260 crore in the quarter under review, compared to ₹8,227 crore in the year-ago period.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q4FY24 rose 30.6 per cent to ₹728 crore, compared to ₹1,049 crore in the same period last year. Margin came in at 8.8 per cent compared to 12.8 per cent in the year-ago period.
The company announced a final dividend at 12.50 per cent or 25 paise per share with a face value of ₹2 each on the paid-up share capital of the company for FY24.
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What should investors do?
Many brokerage firms retained their previous views on the stock after the Q4 result. Some of them, however, tweaked their target prices upwards.
Nuvama Wealth Management has maintained a buy call on the stock valuing it at 30 times March 2027E EPS, implying a revised target price of ₹400 from ₹265 earlier.
The brokerage firm has retained a buy call on the stock given 25GW of thermal TAM (total addressable market) spread over FY25–26E (versus 9.6GW in FY24), implying BHEL’s thermal OI (order inflow) of nearly 8.4GW/year at 70 per cent market share.
“We estimate EPS CAGR would be more than 88 per cent over FY25–27E, despite conservative assumptions: (i) 70 per cent market share in thermal power (versus 100 per cent in FY24), (ii) delayed execution pickup by FY26, (iii) higher provisions and other opex, and (iv) slow OPM ramp-up (6.5 per cent/11 per cent/12 per cent by FY25E/26E/27E) versus 18–20 per cent achieved during peak,” said Nuvama.
Brokerage firm Antique Stock Broking also maintained a buy call on the stock with a target price of ₹360, based on 36 times FY26E earnings.
Antique expects BHEL to report an average annual order intake of ₹600 billion during FY24–26E, more than two times against the long-term average of ₹274 billion booked during FY12–23.
“Despite the strong execution, we project the order book to rise to an all-time high of ₹2 trillion by FY27 end. Earnings could grow exponentially over the next three years, given strong operating leverage,” said Antique.
Antique pointed out that BHEL’s business outlook looks promising as nearly 10 GW orders are also expected to materialise in FY25. The brokerage firm expects BHEL’s business performance to improve from FY25 onwards as the company recently bagged better-margin orders enter execution leading to sharp improvement in the company’s profitability.
“We believe BHEL will witness a meaningful reversal in its ordering cycle over the next 3–4 years, led by both industry (non-power) and power segments. Supported by strong ordering, improving execution, and benefits of operating leverage, BHEL’s earnings are anticipated to climb up multi-fold over FY24–26,” said Antique.
Brokerage firm JM Financial also maintained a buy call on the stock and raised the target price to ₹353 from ₹243, valuing the stock 30 times FY26EPS.
“With healthy and executable order book ( ₹1,300 billion) and continued momentum in tendering of new projects in a limited competitive environment, we expect the company to gradually regain growth trajectory, Q3FY25 onwards,” said JM Financial.
However, brokerage firm Kotak Institutional Equities retained its sell call on the stock, slightly revising the fair value to ₹75 from ₹70 earlier.
The brokerage firm has lowered its revenue growth and EBITDA estimates while projecting unchanged EPS (earnings per share) estimates due to lower working capital.
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“Our estimates build in 1,000 bps improvement in EBITDA margin from existing levels adjusted for provision write-backs. We retain a sell rating with a fair value of ₹75 ( ₹70 earlier). Our fair value is based on 15 times discounted FY27E EPS,” said Kotak.
Kotak believes order inflows for BHEL have peaked and BHEL’s focus now would be to grow execution.
“With order pipeline for thermal remaining YoY and large railways order unlikely to be the norm, new areas of order will likely help BHEL just about maintain ordering levels,” said Kotak.
“The focus for BHEL would be to grow execution. Against 1.3 times YoY order backlog, the revenue growth guidance is a modest 10-15 per cent YoY. This, too, happens on a weak flat YoY revenue base. A potential miss in execution would impact working capital. Moreover, BHEL may end up sharing part of the pricing gains from orders with its vendors, limiting the case for margin uptick hereon,” Kotak said.
