Suzlon Energy, BHEL shares gain up to 200% in 6 months. What Kotak says on these 2 stocks

Shares of Sulzon Energy and BHEL have gained up to 200 per cent in the last six months and if one goes by what Kotak Institutional Equities say, the market seems to be indicating that these two companies may alone conquer India’s power equipment market going ahead. It is even as neither of the two companies is present in solar — the likely biggest driver of incremental electricity supply in the future, Kotak said on Tuesday.

Kotak said that the broad electricity sector has been a standout sector in the broader ‘investment’ space and has delivered massive returns in the past 3-6 months, on expectations of rapid electrification of the Indian economy. It said most of sector stocks are now trading at ‘rich’ valuations and will consequently require meteoric increase in earnings over the medium term.

Also Read: How to watch Apple event 2023 live today: Apple iPhone 15, Apple Watch Series 9, Apple Watch Ultra 2, AirPods Pro 2 expected

Shares of Suzlon Energy are up 197 per cent in the last six months. BHEL has gained 88 per cent during the same period. “The implied incremental supply based on the market capitalisation of just two equipment companies (BHEL, Sulzon Energy; neither is present in solar or batteries) is rather shocking,” Kotak said.

The domestic brokerage’s reverse-valuation analysis based on BHEL’s current market capitalisation suggests that BHEL will need to deliver 14-20 GW of annual BTG capacity to justify its current stock price, despite assuming a sharp improvement in its margin profile.

"For context, BHEL witnessed orders of similar magnitude in the FY2008-11 cycle. We are yet to witness a strong uptick in ordering in the thermal power segment, which may justify such lofty expectations. It remains to be seen if electric utilities will put up new thermal generation capacity given India’s climate change commitments and  rapid development in battery technology," it said.

Watch: Multibagger Railway Stocks: IRFC, Ircon, RVNL, among other railway stocks give up to 270% return in YTD; more steam left?

In the case of Suzlon Energy, Kotak's reverse-valuation analysis based on current market capitalisation suggests that Suzlon will need to deliver 5-8 GW of annual wind turbine capacity to justify its current stock price. The company has a 33 per cent market share in the total installed wind electricity base.

"We note that the government has set a target of adding 8 GW of wind capacity annually until FY2030, to meet its renewable targets. As such, Suzlon will need to gain significant market share in the wind generation sector, to meet the current market expectations," it said.

Kotak said the implied capacity shown by the stock prices of BHEL and Suzlon Energy is more than the incremental demand until FY2028.

Also read: Stocks that share market analysts recommended on September 12, 2023: HDFC Bank, Zomato, PowerGrid and GAIL India

Also read: Retail inflation data for August to be out today, iPhone 15, Apple Watch Series 9 launch at Apple Event 2023 in Top News on September 12: Share markets, Bank Nifty outlook, Kundan Edifice IPO to open

Also read: L&T, PowerGrid, Jupiter Wagons, HFCL, other stocks to watch on September 12, 2023