Shares of BHEL dropped over 2 per cent in Monday's trade, tracking the state-run firm's March quarter results, only to recover some of the lost ground in the first 30 minutes of trading. By 9.45 am, the scrip was trading 0.33 per cent lower at Rs 78.67. But a couple of brokerages have prices targets on the stock that suggest up to 50 per cent downside.
Kotak Institutional Equities finds fair value for BHEL at Rs 39, as it believes the path to profitability is still unclear. Goldman Sachs has a lower target of Rs 34 on the stock, as it finds Q4 results as mixed bag. This brokerage also felt that path to profitability is still some time away. Nuvama Institutional Equities, on the other hand, sees BHEL at Rs 85. CLSA finds the stock worth Rs 64 while Citi finds the stock worth Rs 56.
"We roll forward to FY25E and upgrade to ‘Reduce’ from 'Sell' earlier) with revised target price of Rs 67 (Rs 36 earlier) valuing BHEL at 15 times FY25E (12x FY24E), factoring in gradual revival of thermal tendering and execution pace," said Prabhudas Lilladher.
BHEL reported a 33 per cent drop in consolidated profit at Rs 611 crore for the March quarter compared with Rs 912 crore in the same quarter last year.
Prabhudas Lilladher said thermal power ordering is witnessing a pickup, after a gap of three years owing to rising power demand. It said BHEL is favourably placed in 3,700 MW of orders. "Additionally, projects of 6,000 MW are under bidding stage for Yamunanagar, Adani Mundra, Talabira and Nayveli, which augurs well for BHEL in the medium term. While in industrial segment management targets to gradually increase its revenue contribution (21 per cent as of FY23), owing to strong traction witnessed in defence (SRGM for Navy), railways (strong Vande Bharat prospects), nuclear and hydro," the brokerage said.
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Kotak Institutional Equities said BHEL's reported an in-line print prior to other expenses, with the write-back of cost provisions driving a beat on Ebitda (a miss on consensus). The full-year Ebitda, it noted, was deep in red after adjusting for provision writebacks and forex gains, and thus free cash flow was negative.
"BHEL continues to bid aggressively for incremental thermal orders, and order inflows remain benign, making it
difficult to gauge the pace of margin recovery from hereon. We broadly retain our FV at Rs39 (Rs 37 earlier)," Kotak said while retaining its 'Sell' call on the stock.
Nuvama is the most optimistic among the brokerages. It, however, noted that despite factoring in 4–5 GW of fresh orders and margins of 6 per cent by FY25E, it finds limited upside potential for BHEL. This brokerage has a target of Rs 85 for the stock from Rs 80 earlier, as it revised its FY24/25E by 3-8 per cent accounting for 2GW of thermal and 1.7GW of hydro (Dibang project) inflows in FY24.
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