CLSA maintains buy on BHEL post dismal Q1; stock up 2%

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Shares of BHEL recovered on Monday (up 2 percent intraday) after a knockout of around 10 percent last Friday post dismal Q1 results. Most analysts are negative on the stock except a few. CLSA maintains a buy rating impressed by its 15 percent quarterly growth in Q1FY16 backlog, led by 16-times growth in new orders which indicates a long-term turn in its cycle after six years.

The brokerage expects BHEL to secure better material pricing as it becomes biggest importer of large forging and boiler quality steel in the world. "Realisation of recent orders at Rs 4.5 crore/MW was also higher than orders with similar scope. These factors should lead to a 34 percent CAGR in EPS over FY15-17," it says in a report.

However, Bank of America Merill Lynch (BoA ML) and JP Morgan still reiterate bearish stance.

BoAML maintains underperform rating with a reduced target price of Rs 158 per share, implying a 41 percent downside risk. It has also cut FY16-18 earnings per share (EPS) by 14-17 percent to factor in weak execution outlook with a view that BHEL may disappoint on execution and earnings front.

"Execution delays may continue as its customers would be impacted by weak financials and low utilisation levels, which in turn should result in delayed disbursement of loans from their lenders," BoAML states.

Even though it expects consensus earnings downgrades to continue, BoAML feels BHEL’s guidance for 15-20 GW per annum of order tendering for the sector is optimistic.

Meanwhile, JP Morgan has a reduced target price of Rs 200 implying a 25 percent potential downside. It has cut FY16 EPS by 19 percent and FY17 by 3 percent.

At 13:38 hrs Bharat Heavy Electricals was quoting at Rs 269.70, up Rs 3.90, or 1.47 percent on the BSE.Follow @NasrinzStory