Citi Research ups share price target for BHEL to Rs 323 from Rs 271 on better earning expectation

MUMBAI: Citi Research has upgraded share price target for state-run power equipment maker BHEL to Rs 323 from Rs 271 to factor in the likely upside in earnings and order inflows, the brokerage said in a report dated July 17.

Citi has a ‘buy’ rating on BHEL shares. Shares of BHEL closed at Rs 282.45 on the Bombay Stock Exchange, down over 1 per cent from the previous close. BSE’s benchmark index Sensex ended 0.15 per cent down at 28,420.12.

“We increase our target price to Rs323 (from Rs271) reflecting 19% earnings per share increase in FY17 and 5 per cent, 31 per cent higher order inflows in FY16 and FY17 (respectively) than previously estimated. Our target price to equity multiple remains the same at 23 times Mar17 estimates, in line with sector peers,” the report said.

Citi said peak deficit in India declined 3 per cent and energy deficits fell 5 per cent in Jun 2015. Against this backdrop, a 20 gigawatts per annum market market in FY16 and FY17 is confounding observers.

“Post implementation of Financial Restructuring Plan, state utilities have become more rational buyers – buying only as much power as they can afford (earlier - buying and paying with borrowings). This has resulted in demand figures getting severely understated, which reduces official deficit numbers. However, NTPC and other state GENCOs are adding capacity with longer term requirements in mind,” the report said.