Nomura maintains 'Reduce' on BHEL; target Rs 1850
Nomura has maintained 'Reduce' on Bharat Heavy Electricals Ltd (BHEL) saying the company faces risk from a potential upward revision in staff cost following continued failure in settlement of the wage revision agreement.
By ET Bureau |
MUMBAI: Nomura has maintained ���Reduce��� on Bharat Heavy Electricals Ltd (BHEL) saying the company faces risk from a potential upward revision in staff cost following continued failure in settlement of the wage revision agreement.
The brokerage reiterates ���Reduce��� rating on the stock given its high valuation and potential risk from lower-than-expected pace of execution and margin surprise on the downside. It has a price target of Rs 1,850.00 against the Sep 14 price of Rs 2,256.10.
On Sep 14, employees at BHEL's Trichy facility went on strike to protest the delay in wage revision settlement. BHEL is willing to offer a 25% hike in wages along with adjustments from January 2007, while employees are demanding a 35-40% hike. They also want future revisions every five years instead of the current practice of every 10 years. Current provisions in BHEL accounts are charged assuming a 25% hike. Thus, if the actual revision is higher, it could pose a downward risk, the securities firm says.
Nomura estimates recurring EPS to be affected by Rs 4/share for every 10 ppt increase in wage hike beyond the 25% provisioning. Its EPS estimates are Rs 82 and Rs 102 for FY10E and FY11E, respectively.
The brokerage reiterates ���Reduce��� rating on the stock given its high valuation and potential risk from lower-than-expected pace of execution and margin surprise on the downside. It has a price target of Rs 1,850.00 against the Sep 14 price of Rs 2,256.10.
On Sep 14, employees at BHEL's Trichy facility went on strike to protest the delay in wage revision settlement. BHEL is willing to offer a 25% hike in wages along with adjustments from January 2007, while employees are demanding a 35-40% hike. They also want future revisions every five years instead of the current practice of every 10 years. Current provisions in BHEL accounts are charged assuming a 25% hike. Thus, if the actual revision is higher, it could pose a downward risk, the securities firm says.
Nomura estimates recurring EPS to be affected by Rs 4/share for every 10 ppt increase in wage hike beyond the 25% provisioning. Its EPS estimates are Rs 82 and Rs 102 for FY10E and FY11E, respectively.
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