Stock Of The Day: BHEL Under Pressure After Q4 Earnings — Key Levels, Analyst Views

Shares of Bharat Heavy Electricals Ltd. slipped 5.6% on Monday after its profit fell in the fourth quarter of fiscal 2024.

Net profit of the company fell 25.6% year-on-year to Rs 490 crore during the January-March period, according to an exchange filing on Tuesday. Revenue rose 0.4% to Rs 8,260 crore during the quarter, as against Rs 8,227 crore over the same period last year.

The stock was trading 5.6% lower at Rs 310.3 apiece on the BSE, compared to a 0.15% rise in the benchmark S&P BSE Sensex at 10:10 a.m.

• Revenue up 0.4% to Rs 8,260 crore.

• Ebitda down 30.6% to Rs 728 crore.

• Margin at 8.8% versus 12.8%.

• Net profit fell 25.6% to Rs 490 crore.

• Resistance: Rs 322.5 (lifetime high)

• Support: Rs 267 (two-week low)

• Completed execution of 7 gigawatts of projects globally last year, sees projects in pipeline of around 10 GW

• Breakup of contract assets and trade receivables:

  -Contract assets: Rs 26,700 crore

  -Trade Receivables: Rs 8,000 crore

• Flue gas desulfurization project opportunity: approximately 130 GW tendered out in which BHEL share stands at 30%

• Looking at air defence gun opportunity and making a prototype with a European Original Equipment Manufacturer. 

• Currently, 65% order is from power and balance is industry sector

• Aims to make this a 50:50 mix going forward

• Govt plans to add 88 GW by 2032 on thermal side- expecting 10-12 GW ordering will be there annually and by 2032 this ordering will be completed

• Due to some provisions, EBIT margin was lower for industrial segment as it was project specific.

• Order book stood at Rs 1.31 lakh crore of which around 92,000 crore orders from power sector, rest from industrial sector

• Gross margins have declined due to supply chain issues and execution delay

Morgan Stanley Retains 'Equal-Weight' Rating on BHEL

• Price target of Rs 220, implies a downside of 31%.

• Fourth quarter revenue and margin were below both MS and street estimates

• Operating cash flow was weak on higher net working capital

• Expects ordering momentum to continue with policy makers' thrust on adding thermal capacity

• Believes earnings visibility improving with healthy prospect pipeline

• Key risk: Depleted vendor base poses risk to execution

Nuvama Retains 'Buy' on BHEL

• Price target of Rs 400, implies an upside of 25.4%.

• Ebitda margin fell 400 basis point to 8.8% YoY on higher provisioning

• Retains 'buy' given 25GW of thermal total addressable market spread over FY25–26E versus 9.6GW in fiscal 2024.

• Implies BHEL’s thermal order inflow of ~8.4GW/year at 70% market share

• Old legacy projects expected to be completed by FY25 end

• Estimate earnings per share CAGR of 88%+ over FY25–27E despite conservative assumptions

CLSA Maintains 'Sell' on BHEL

• Price target of Rs 189, implies a downside of 41%.

• Expects large thermal orders may take time to execute

• FY24 gross margins fell for sixth year, management expects this to be bottom

• Believes long gestation orders like Vande Bharat cannot offset continued slow orders

• Retains 'sell' rating given expensive valuation with FY26E EPS of 56-time.