Moneycontrol Bureau
BHEL shares surged 5.4 percent intraday Wednesday, in addition to 3.3 percent rally in previous session after CLSA upgraded the stock to buy from sell.
The brokerage house also raised target price to Rs 164 (from Rs 155) following a 15 percent decline in the stock over the past six weeks and improved EPS visibility on the legal victory by its client Tamil Nadu Generation and Distribution Corporation (TANGEDCO) in Ennore project.
It says a pick-up in the execution of new orders from Q4FY17 and decline in share of legacy orders should drive margin improvement FY18 onwards. It slashed EPS estimates for FY17/18 by 5-7 percent on a delay in the resolution of stalled/slow-moving orders; and raised FY19 EPS by 3 percent to reflect a pick-up in execution.
BHEL's client, TANGEDCO, won a case regarding its Ennore project in the Supreme Court on October 18. This win not only improves execution visibility of BHEL's second-largest order (7 percent of backlog) but also a potential Rs 7,800 crore order from TANGEDCO. It should also reduce BHEL's share of slow-moving orders by 30 percent, the brokerage house says.
BHEL had won an Rs 7,600 crore order in Q3FY15 from TANGEDCO, beating Central Southern China – Trishe by 1 percent (evaluated bid) with a quote of Rs 78.5 m/MW. However, the losing party went to the High Court and got an order to stall the project after 11 months of placing an order and start of execution.
Given that BHEL had already started to execute the Ennore project before the HC order, ramp-up can be fast; this project could add around 10 percent to FY19 PAT, the brokerage house says.
Further, it expects BHEL to win another Rs 7,800 crore order from TANGEDCO, which has been stuck in the Madras HC, after this clear SC judgement.
Meanwhile, BHEL's largest order - Telangana Power Generation Corporation's Rs 18,000 crore Yadadri project - is awaiting environment clearance to start construction.
Given that much water has flowed under the bridge, CLSA expects this approval to come through in Q4FY17. In light of Telangana chief minister’s recent statement on awarding more orders to BHEL in the state on a nomination basis to speed up execution, it thinks that reports of Yadadri being shelved are speculative.
At 10:55 hours IST, the scrip of Bharat Heavy Electricals was quoting at Rs 142.20, up Rs 6.05, or 4.44 percent on the BSE.Posted by Sunil Shankar Matkar
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