BHEL shares: PSU to turn profitable in Q3; catch the moment, says JM Financial

With a growing order book, limited competitive environment and pick-up in execution, JM Financial believes Bharat Heavy Electricals Ltd to regain its profitable growth trajectory from the December quarter and suggested a 'Buy' rating on the stock with a target price of Rs 361.

JM Financial expects BHEL to see a revenue growth of 34 per cent, Ebitda growth of 150 per cent and profit after tax growth of 233 per cent over FY24-26E.  "We continue to maintain the BUY on the stock with a target price of Rs 361 (40x FY26EPS) supported by healthy ordering, improving execution and the benefit of operating leverage," it said. 

Power deficit during non-solar hours is increasing, JM Financial noted adding that new drivers of power demand such as data centres, electrification of industry, manufacturing, EVs and households’ electrification are gradually changing historical demand trend lines. 

India, JM Financial said, is likely to see power deficit FY26 onwards. The government is in freighting mode and plans to add 93 GW of thermal power generation capacity by FY32, it said.

"Amidst this, BHEL is the only EPC player for new thermal projects," the brokerage said. 

At present, BHEL has 31 GW of thermal power projects under construction. Some 15 GW projects are in tendering and, 30 GW are under clearances with a target of adding 93 GW by FY32. BHEL received orders for 9,600 MW of thermal power projects during FY24 against 1,320 MW in FY23. In FY25, it has already bagged orders for 10,400 MW of projects. Additionally, bids for 5,320 MW have been submitted. 

"The pace of execution is gradually picking up at BHEL as per our channel checks. Given the favourable scope and flexible contractual terms, the company has already completed around 20 per cent of BTG supplies for Unit-3 of 2X800 MW Adani Power’s Mahan project vis-à-vis negligible for 2x800 MW NTPC Lara. The company has an order book for 12 units of 800 MW sets (9,600 MW) from Adani Power, indicating possibility of faster execution of these projects," JM Financial said. 

BHEL share price: Technical outlook 
On the technical front, JM Financial in another note said the stock has declined from the highs of Rs 335 level to a low of Rs 249 level in the previous week. It started trading above the highs of the previous week, indicating further strength to prevail.

"In the last 2 years, all major selling in the stock has ended at its 200-day EMA levels. In the current instance too, the stock has started bouncing up after finding support at its 200-day EMA level. Technically, it has started trading above the previous lower top of Rs 271 level, thereby negating the bearish formation of lower top lower bottom," it said,

Cumulative futures open interest for BHEL in the current series increased 10 per cent on the back of 8.5 per cent decline in the stock price. With the stock now bouncing up firmly and JM Financial expects short coverings to prevail.

"The stock has a strong price seasonality in the month of October. In the last 10 years, the stock has closed in the green on 7 occasions with an average return of 8 per cent. Quarter to date, the stock has underperformed the Nifty by 19 per cent. In comparison to NSE200 weights, MFs are underweight in the stock," the brokerage said.