BHEL shares headed for a 70% crash or 35% jump post Q1 results? Here's what analysts say

Bharat Heavy Electricals (BHEL) Ltd announced a mixed set of numbers in the June 2024 quarter, leaving the analysts divided. A few analysts believe that the Q1FY25 numbers were better-than-expectations and strong order wins shall support the growth, while others believe that all positives are priced-in amid weak operational performance and stock may be headed for up to a 70 per cent fall.
 

BHEL reported widening of its net losses to Rs 211 crore from Rs 205 crore. The company's losses increased despite a rise in its topline and a rise in demand for power equipment due to India's rising electricity generation.
 

BHEL's revenue from operations increased 9.6 per cent on a year-on-year (YoY) basis to Rs 5,845 crore in the June quarter from Rs 5,003 crore in the same quarter last fiscal. However, its Ebitda loss contracted to Rs 169 crore for the quarter. BHEL had an outstanding orderbook of around Rs 1,31,600 crores as of April 1, 2024.

BHEL reported Q1FY25 operational margins better than estimated due to flattish staff expenses YoY while revenue grew 10 per cent YoY. However, EBITDA loss continues on execution of legacy projects while the large inflows seen in FY24 shall likely enter execution phase from FY26, said Nuvama Institutional Equities.
 

"Year to FY25 thermal OI of 4.8GW inched up OB to Rs 1.4 lakh crore, with another 10–12GW of tenders likely in FY25E. We retain ‘buy’ on the back of 35–40 GW thermal ordering likely over FY26E–28E of which we assume 25GW orders shall be spread over FY25E–26E. This implies BHEL’s OI at 8.4GW/year at 70 per cent market share," it added with a lifted target price of Rs 425.
 

Shares of BHEL rose to intraday high at Rs 319.90 on Thursday, only to drop more than 3.4 per cent to Rs 308.95 during the session, with a total market capitalization of 1.07 lakh crore. The PSU multibagger counter has surged more than 235 per cent from its 52-week lows at Rs 94.80 hit a year ago.
 

"With a growing and executable order book of Rs 1,350 bn, sustained momentum in the tendering of new thermal power projects, and a limited competitive environment, we anticipate the company to gradually regain its growth trajectory starting from 3QFY25," said JM Financial, with a 'buy' rating on the stock with a target price of Rs 361.
 

BHEL’s Q1 print was weak on execution and profitability. Ebitda losses have sustained YoY, despite 10 per cent revenue growth. Working capital appears to have deteriorated further, as reflected in the sequentially growing net finance cost. Thermal orders at over 3GW YTD are supportive of an uptick in execution and profitability over time, said Kotak Institutional Equities.
 

"Our marginally higher fair value of Rs 100 captures the lack of FCF generation in the growth phase and 15 per cent post-tax returns on existing gross blocks over time. Against a 20 GW capacity, we factor in peak thermal power order wins for BHEL at 15 GW, the consequent fall to 10 GW ordering and nil growth beyond," it added, retaining a 'sell' rating on the stock.

 

 

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