BHEL’s share price falls over 8% after the Q4 results; what should you do with the stock? This is what experts say.

BHEL Share Price

On Wednesday, May 22, Bharat Heavy Electricals (BHEL) shares plummeted nearly 8% in early trading on the BSE, following the release of their Q4 financial results. The stock opened at ₹305, down from its previous close of ₹319.20, and swiftly declined by 7.6%, reaching ₹295. However, it soon recovered some losses and was trading 4.61% lower at ₹304.50 per share around 9:20 am. During this period, the equity benchmark Sensex showed a marginal gain of 0.07%, standing at 74,005. The sharp decline in BHEL’s share price reflects investor reactions to the company’s latest quarterly performance.

BHEL’s share price has experienced significant growth over the past year, surging by nearly 300%. Closing at ₹319.20 in the latest session, BHEL shares have almost quadrupled investors’ money within this period. On May 21, 2024, the stock hit a new 52-week high of ₹322.35. This marks a substantial increase from its 52-week low of ₹77.30, which it reached on May 29 of the previous year.

The impressive rise in BHEL’s share price highlights the company’s robust performance and positive market sentiment. Over the last twelve months, the stock’s value has multiplied almost four times, reflecting strong investor confidence and substantial returns. This upward trajectory has been fueled by various factors, including potentially improved financial results, strategic business developments, and favorable market conditions.

BHEL’s ability to reach new highs underscores its resilience and growth potential in a competitive market. Investors who have held onto BHEL shares over the past year have seen significant gains, making it a standout performer in the stock market. As the company continues to progress, market participants will be keenly observing BHEL’s next moves and the sustainability of its current momentum.

BHEL Q4 result

After market hours on Tuesday, May 21, BHEL reported a 25.6% year-on-year (YoY) decline in its consolidated net profit for Q4FY24, amounting to ₹489.6 crore compared to ₹658 crore in the same quarter last year. Despite this, the state-owned power generation equipment manufacturer’s revenue from operations saw a slight increase of 0.4%, reaching ₹8,260 crore in the quarter under review, up from ₹8,227 crore in the corresponding period the previous year.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) for Q4FY24 rose 30.6% to ₹728 crore, a decline from ₹1,049 crore reported in the same period last year. Consequently, the EBITDA margin decreased to 8.8%, down from 12.8% in the year-ago quarter.

In light of these financial results, BHEL announced a final dividend of 12.50%, translating to 25 paise per share on a face value of ₹2 each for the paid-up share capital for FY24. Despite the drop in net profit, the marginal revenue increase and higher EBITDA indicate some operational resilience amidst the challenging financial landscape.

What should investors do?

Many brokerage firms maintained their earlier views on the stock following the Q4 results. Some of them, however, adjusted their goal prices higher.

Nuvama Wealth Management maintains a buy call on the company, valuing it at 30 times March 2027E EPS. This implies a revised target price of ₹400 from ₹265 earlier.

The brokerage company has maintained a buy call on the stock, citing 25GW of thermal TAM (total addressable market) spread across FY25-26E (compared to 9.6GW in FY24), implying BHEL’s thermal OI (order inflow) of about 8.4GW/year at 70% market share. 

“We estimate EPS CAGR would be more than 88 per cent over FY25-27E, despite conservative assumptions: (i) 70 per cent market share in thermal power (versus 100 per cent in FY24), (ii) delayed execution pickup by FY26, (iii) higher provisions and other opex, and (iv) slow OPM ramp-up (6.5 per cent/11 per cent/12 per cent by FY25E/26E/27E) versus 18-20 per cent achieved during peak,” Nuvama stated.

Antique company Broking maintains a buy call on the company, setting a target price of ₹360 based on 36 times FY26E earnings.

BHEL is expected to post an average annual order intake of ₹600 billion during FY24-26E, which is more than double the long-term average of ₹274 billion booked during FY12-23.

“Despite strong execution, we project the order book to reach an all-time high of ₹2 trillion by FY27 end.” According to Antique, earnings could expand enormously over the next three years due to excellent operating leverage.

Antique stated that BHEL’s business picture appears promising, with approximately 10 GW orders projected to materialise in FY25. The brokerage firm forecasts BHEL’s business performance to improve beginning in FY25, as the company recently secured higher-margin orders that will be executed, resulting in a significant increase in profitability.

“We think that BHEL’s ordering cycle will reverse significantly over the next 3-4 years, driven by both the industry (non-power) and the power segments. BHEL’s earnings are expected to increase multifold over FY24-26, owing to increased ordering, improved execution, and the benefits of operating leverage, according to Antique.

JM Financial has maintained a buy call on the stock and boosted the target price to ₹353 from ₹243, pricing it at 30 times FY26EPS.

“With healthy and executable order book (₹1,300 billion) and continued momentum in tendering of new projects in a limited competitive environment, we expect the company to gradually regain growth trajectory, Q3FY25 onwards,” stated JM Financial.

Kotak Institutional Equities maintained its sell recommendation on the company, revising the fair value to ₹75 from ₹70 before.

Due to weaker working capital, the brokerage firm has reduced its revenue growth and EBITDA expectations while maintaining its EPS (profits per share) forecast.

“Our forecasts factor in a 1,000 basis point increase in EBITDA margin from current levels, adjusted for provision write-backs. We maintain a sell rating and estimate a fair value of ₹75 (previously ₹70). “Our fair value is based on 15 times discounted FY27E EPS,” Kotak explained.

Kotak feels that BHEL’s order inflows have peaked, and that the company’s focus should now be on increasing execution.

“With order pipeline for thermal remaining YoY and large railways order unlikely to be the norm, new areas of order will likely help BHEL just about maintain ordering levels,” stated Kotak.

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