BHEL shares jump 6%; analysts remain bullish despite dismal Q2 earnings

Shares of BHEL jumped more than 6 percent on November 13. The stock is seeing recovery from when it fell last week after the company reported dismal Q2 numbers. For the quarter ended September 2023, the state-owned engineering firm reported consolidated net loss of Rs 238.12 crore as against profit of Rs 12.10 crore in the year-ago period.

Despite the disappointing quarterly results, analysts are bullish on Bharat Heavy Electricals (BHEL) stock, given the healthy pipeline of thermal orders and likely moderation in receivables.

At 1:37 pm, BHEL shares were trading 6 percent higher at Rs 136.80 on the National Stock Exchange. So far in 2023, the stock has jumped nearly 71 percent, outperforming benchmark Nifty 50 which has risen around 7 percent during this time.

BHEL reported consolidated net loss, EBITDA miss due to higher raw material cost, other expenses and higher-than-average interest costs. Other expenses stood at Rs 500 crore Q2 FY24 on account of higher provisions and foreign exchange loss.

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Outlook

Going forward, JM Financial Services analysts believe that the pain of higher debtors will ease FY25E onwards with the commissioning of large number of projects during FY24-26 including 2x660MW Talcher having better payment terms.

“The determination to turn around its low performance and task-oriented actions from the internally-grown new CMD will aid the company in turning around its performance,” it said.

Entry of BHEL in the scalable opportunities, emergence of large pumped-hydro storage plants market where the company commands good market share, scale-up of defence business, and increasing visibility on coal gasification are likely to help the company’s successful diversification beyond thermal, the brokerage added.

Nuvama Institutional Equities expects BHEL’s new thermal execution to pick up from FY25 end/FY26. The thermal ordering timeline, growth from non-thermal areas (rail, defence, hydrogen, etc) and realisation of provisions remain some key monitorables for BHEL, it said.

Should you buy, hold or sell BHEL shares?

“Given the healthy pipeline of thermal orders (25 GW + 30 GW) and likely moderation in receivables, we currently have a BUY rating on the stock with a target price of Rs 165,” JM Finacial said.

While the government focus has shifted towards renewables, analysts at Nuvama believe that thermal ordering will revive given a challenging 2030 renewable energy (RE) target. “We expect the annual thermal market to be in the range of 4-6 GW, with limited participation from private players,” it said.

Additionally, limited competition (barring L&T), will enable BHEL garner a higher share in the overall market (100 percent in FY18), currently estimated at 50 percent and better margins, the brokerage added. Nuvama has a ‘buy’ rating on the stock with a target price of Rs 150.

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Meanwhile, Prabhudas Lilladher has assigned a ‘reduce’ rating to the BHEL stock. “BHEL’s Q2FY24 performance has been dismal and below estimates on all fronts, ” said Research Analyst Amit Anwani. The brokerage firm further stated, “The stock is currently trading at 49.4x/28.1x FY24/25E and we have a ‘reduce’ rating.”

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