Hammered-down BHEL shares find some favour amid gloomy outlook
Shares of state-run BHEL have found favour among some analysts as steep correction in the stock price has prompted them to revise their price targets.
Mumbai: Despite growing concerns over order book execution and slowdown in the capital goods sector, shares of state-run Bharat Heavy Electricals Ltd ( BHEL) have found favour among some analysts as steep correction in the stock price has prompted them to revise their price targets.
The stock had declined heavily in the last few months as investors dumped the shares on poor outlook for the capital goods sector and concerns over new order and slowing pace of order execution by the company. In the last month, the stock has fallen 10%.
It fell the most on 18 May when the share price hit a 52-week low of Rs 197.35 on NSE. However, outlook on the stock slightly improved after the company declared January-March quarter earnings above analysts' expectations. Revenues climbed 7% year-on-year and 82% sequentially.
"BHEL reported revenue 7% ahead of our estimates at Rs196 bn. EBITDA margin improved by 184bps YoY," said a note by IDBI Capital. "Due to NTPC's orders and pickup in activity from state and private sectors, order inflow is expected to improve during FY13...
Our rating stands upgraded from HOLD to BUY owing to 24% correction in stock price since our Q3FY12 result update," the note said. Yet, near-term concerns over the sectors remain due to declining profitability of the business and continued slowdown in order inflows.
"Order book dropped 18% - the first annual decline since FY99 ... given the execution period of 3.5-4 years for power projects, the ratio is now uncomfortable and would constrain revenue growth, going forward," said a note by Motilal Oswal Financial Services.
"We expect BHEL to report an EPS of INR24.8 in FY13 (down 12.2%) and INR19.8 in FY14 (down 20.2%). Maintain Neutral," the note said.
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