5 reasons why BHEL shares have hit new 52-week low

Shares in power equipment company Bharat Heavy Electricals Ltd (Bhel) hit a fresh 52-week low on the bourses Friday. At 10.50 am, it traded 3 per cent lower at Rs 218.40 on the NSE, slightly higher than the intraday low of Rs 216.80, which is a new 52-week low for the stock.

Bhel, the country's largest power equipment maker, has been hit by a string of order cancellations and earnings downgrade over the past month. Over the last month, the stock has fallen 20 per cent, while the Sensex has declined 2.5 per cent.

"Most cap goods stocks are trading at stressed valuations. Bhel is trading at 2008 valuations or even lower. Order visibility improvement looks unlikely in the near term," Sandip Sabharwal, CEO (PMS) at Prabhudas Lilladher told NDTV Profit today.

Here are five reasons why Bhel shares are down.
 
1. Renewed selling pressure in shares have emerged on account of Rs 12,000 crore worth of order cancellation by the Rajasthan government. Bhel had emerged as the lowest bidder for the EPC (engineering, procurement and construction) tenders for new super critical units of Suratgarh and Chhabra thermal power stations over a year ago. In February, Tamil Nadu had announced its decision to dissolve the JV it had with Bhel to set up the 1600-MW Udangudi power project. Bhel has approached the Tamil Nadu government to reconsider its decision to cancel the Rs 8,000 crore joint venture.

2. Both Rajasthan & Tamil Nadu orders carried high margins. The cancellation means earnings per share (EPS) cuts of 5-7 per cent in FY14 and 15 per cent cut in FY15. The stock is trading at 11-times FY14 EPS against a low of 4-times forward EPS in 2008.
3. New orders are difficult to come because high interest rates have affected the investment cycle. So, cancellation of orders leads to negative sentiments. In the December quarter, the company had witnessed order cancellations of Rs 5,800 crore, which resulted in a negative order inflow of Rs 3,500 crore for the third quarter.
 
4. Coal availability for other projects is also looking bleak.

5. Expectations for weak March industrial output data in the next week have also fanned worries. The growth rate of the eight core industries slowed down to 2 per cent in March against 6.5 per cent last year on account of dismal expansion in crude oil and natural gas sectors. These eight industries have a weightage of 37.9 per cent in the overall Index of Industrial Production (IIP). In February, the eight infrastructure industries grew by 6.8 per cent after a dismal performance of 0.5 per cent a month ago.

Brokerages have turned negative on the stock

The stock has witnessed a string of downgrades over the last month. Kotak re-initiated coverage on the company with a "Sell" rating, saying earnings would be hit due to "a potential lull" in order wins and rising competition. Earlier, Citigroup had also recommended a "Sell" rating on the stock.

Shares in power equipment company Bharat Heavy Electricals Ltd (Bhel) hit a fresh 52-week low on the bourses Friday. At 10.50 am, it traded 3 per cent lower at Rs 218.40 on the NSE, slightly higher than the intraday low of Rs 216.80, which is a new 52-week low for the stock.

Bhel, the country's largest power equipment maker, has been hit by a string of order cancellations and earnings downgrade over the past month. Over the last month, the stock has fallen 20 per cent, while the Sensex has declined 2.5 per cent.

"Most cap goods stocks are trading at stressed valuations. Bhel is trading at 2008 valuations or even lower. Order visibility improvement looks unlikely in the near term," Sandip Sabharwal, CEO (PMS) at Prabhudas Lilladher told NDTV Profit today.

Here are five reasons why Bhel shares are down.
 
1. Renewed selling pressure in shares have emerged on account of Rs 12,000 crore worth of order cancellation by the Rajasthan government. Bhel had emerged as the lowest bidder for the EPC (engineering, procurement and construction) tenders for new super critical units of Suratgarh and Chhabra thermal power stations over a year ago. In February, Tamil Nadu had announced its decision to dissolve the JV it had with Bhel to set up the 1600-MW Udangudi power project. Bhel has approached the Tamil Nadu government to reconsider its decision to cancel the Rs 8,000 crore joint venture.

2. Both Rajasthan & Tamil Nadu orders carried high margins. The cancellation means earnings per share (EPS) cuts of 5-7 per cent in FY14 and 15 per cent cut in FY15. The stock is trading at 11-times FY14 EPS against a low of 4-times forward EPS in 2008.
3. New orders are difficult to come because high interest rates have affected the investment cycle. So, cancellation of orders leads to negative sentiments. In the December quarter, the company had witnessed order cancellations of Rs 5,800 crore, which resulted in a negative order inflow of Rs 3,500 crore for the third quarter.
 
4. Coal availability for other projects is also looking bleak.

5. Expectations for weak March industrial output data in the next week have also fanned worries. The growth rate of the eight core industries slowed down to 2 per cent in March against 6.5 per cent last year on account of dismal expansion in crude oil and natural gas sectors. These eight industries have a weightage of 37.9 per cent in the overall Index of Industrial Production (IIP). In February, the eight infrastructure industries grew by 6.8 per cent after a dismal performance of 0.5 per cent a month ago.

Brokerages have turned negative on the stock

The stock has witnessed a string of downgrades over the last month. Kotak re-initiated coverage on the company with a "Sell" rating, saying earnings would be hit due to "a potential lull" in order wins and rising competition. Earlier, Citigroup had also recommended a "Sell" rating on the stock.