BHEL shares get 'Buy' from ICICI Securities; here's why

Shares of Bharat Heavy Electricals Ltd (BHEL) have received a "buy' rating from ICICI Securities with an unchanged target price of Rs 370, as the brokerage believes the order book is strong for the PSU and that developers are swiftly finalising and awarding equipment orders, which is seen positive for BHEL.  

"Thermal equipment ordering is scaling the summit. In our view, it would be overly hasty to write an obituary for thermal or coal-based power yet. We posit, the need to add reliability to the grid has led policymakers to push the pedal on the addition of new thermal power plants. As a result, developers are swiftly finalising and awarding equipment orders. In parallel, the largest coal-based player (NTPC) is on the ready to add another 26GW of new coal-based power," ICICI Securities said,

It noted that the largest private player has already placed an order for 11GW of coal-based equipment and, in entirety, this is fuelling order inflow (OI) for BHEL. 

BHEL has already announced order inflows of Rs 36,400 crore and is L1 in another 3.2GW that is estimated at Rs 20,000 crore. ICICI Securities estimated an order inflow of Rs 1 lakh crore for BHEL in FY25. 

ICICI Securities cited NTPC's annual report saying: :"“The additional coal-based capacity requirement is 80GW, including 28GW which is currently under construction. Out of the 80GW, your company is expected to add 26GW of coal-based capacity, including 9.5GW which is under construction, and all these capacities are planned to be commissioned by 2031–32.” 

It noted that Adani has also finalised orders for a total of 11GW to BHEL. Total OI amounts to Rs 22,000 crore. The scope in these orders is limited to the supply of boilers, turbines and generators, ICICI Securities said., 

"BHEL is also trying to diversify its order book and has recently, in consortium with Titagarh Wagons, won a Vande Bharat order worth Rs 23,500 crore to supply 80 trainsets and service them for 35 years thereafter. BHEL’s share in the order is at Rs 15,000 crore. We expect more Vande Bharat orders in the next two-three years, where BHEL again stands to benefit from its experience," ICICI Securities said,

The brokerage said BHEL has also developed a strong moat in defence orders and is the sole supplier of SRGM naval guns. In FY23, it won an order to supply 20 SRGM guns worth Rs 3,800 crore. Besides, BHEL is working on defence indigenisation projects and hopes to participate in air defence guns, tanks and propulsion systems going forward, it noted.