Buy BHEL; target of Rs 120: ICICI Securities

ICICI Securities is bullish on BHEL recommended buy rating on the stock with a target price of Rs 120 in its research report dated August 07, 2023.

Broker Research

August 10, 2023 / 11:58 IST

Buy

ICICI Securities research report on BHEL

BHEL reported its highest quarterly order inflow of INR 145bn in Q1FY24 and is L1 in ~INR 80bn worth of orders. We expect order inflow for FY24E and FY25E to be >INR 400bn aided by improving order prospects for thermal coal. We believe India needs to add 5GW per year for next 15 years. We estimate 50GW of coal-based capacity to be >40 years old by FY32. India peak demand is expected to be 375GW by FY32 at 6% CAGR, or 330GW at 5% CAGR. To meet this additional peak demand, government is looking to add 75GW of storage and 50GW of thermal capacity. Note that storage is still at a nascent stage and ~20% of operational capacity will have aged to >40 years by 2032. In our opinion, India will therefore need to enhance its arsenal of thermal power plants to ensure smooth energy transition. As a result, BHEL is expected to remain a key beneficiary.

Outlook

We believe an order inflow of >INR 400bn over next three years will lead to rerating of the stock. As legacy orders get finish and execution on new projects starts, we expect, margins and profit to improve materially by FY26E. We maintain our BUY rating on the stock with an increased TP of INR 120 (earlier: INR 110).

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