Prabhudas Lilladher's research report on BHEL
BHEL reported strong revenue growth of 28.5% YoY with EBITDA margin turning positive to 4.2% in Q2FY25. During the quarter, the company continued to benefit from the robust opportunity in thermal power in India, booking orders worth up to Rs300bn across 7.2GW of projects. With the government aiming to tender out all 80GW of the planned capacity addition by FY28, the pipeline remains healthy with ~30GW still up for bidding. BHEL’s non-power business also continues to do well, securing orders worth Rs17bn in Q2FY25 for supply of equipment to various industrial customers across cement, steel, railways, and T&D. We believe 1) large thermal power order pipeline, 2) diversification into railways, defence, green hydrogen, coal gasification, etc., and 3) growing spares & services business augurs well for BHEL in the long-term. Execution pace and operational efficiency will be key monitorables. The stock is trading at a P/E of 65.8x/22.1x/16.3x on FY25/26/27E earnings. We value the stock at a P/E of 25x FY26E (same as earlier). Upgrade to ‘Accumulate’.
Outlook
We revise our FY26E EPS estimate by -1.5% factoring in lower other income, but upgrade the rating to ‘Accumulate’ from Reduce given the recent sharp correction in stock price, with a revised TP of Rs260 (Rs264 earlier).
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