Buy BHEL; target of Rs 228: AnandRathi

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26 Aug, 2025 12:21

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AnandRathi's research report on Bharat Heavy Electricals (BHEL)

"BHEL announced its audited numbers for FY13, with revenues up a meagre 1 percent yoy, to Rs 484bn, accurately reflecting the macroeconomic challenges and cash flow squeeze experienced by its clients. While the company did a creditable job of managing its bill of material, escalation in payroll and other expenditure (as a  percent of sales) resulted in margin erosion of 120bps yoy, to 19.4 percent. EBIDTA stood at Rs 94bn, declining 5 percent yoy. While the company reported higher capital costs in the form of interest and depreciation, the effect of the same was mitigated by a lower tax rate. Consequently, PAT settled at Rs 66bn, 6 percent lower yoy.

The company secured orders of Rs 315bn in FY13, which was ~9 percent below our estimates. We believe the disappointment largely came from some orders in the industry segment which may have got deferred to FY14. However, BHEL exceeded its order inflow guidance of Rs 300bn for FY13. At present, its unexecuted order book (OB) stands at ~Rs 1,150bn, implying an OB coverage of 2.5x. Noteworthy, orders in the power segment included the NTPC Bulk Tender I order for Nabhinagar (3X660MW) for Rs 29bn, EPC for Suratgarh, Raj (2 X660MW) for Rs 55bn and an export order with Rs 7.5bn for hydro power equipment to Bhutan.

We have always maintained that BHEL would be one of the biggest beneficiaries of any pick up in the domestic macroeconomic environment. With monetary easing underway, to support domestic infrastructure creation, we expect BHEL to be able to consolidate and improve its share of 1.5-2 percent in India’s GFCF, given the scale of its operations and technical expertise. While we are mindful of margin pressure and reduction in float generation, we remain cautiously optimistic on the company’s prospects. We maintain Buy, with a reduced price objective of Rs 228, (vs Rs 262 previously). Risks. Absence of order wins would impair the company’s financials," says AnandRathi research report.

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