Buy BHEL; target of Rs 320: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's report on BHEL

“BHEL’s provisional FY15 numbers were a mixed bag. Revenue at INR308b (down 19.8% YoY) was 7% above our estimate of INR286b. This implies 4QFY15 revenue at INR136b (down 7.7% YoY), above our estimate of INR115b. PBT for FY15 at INR19.1b (down 62% YoY) was 35.5% below our estimate of INR25.8b and PAT at INR13.1b (down 64% YoY) was 36.6% below our estimate of INR17.9b. We await further clarity on the operational performance and also the one-offs. We would revise the estimates post detailed results.”

“During FY15, BHEL’s order intake stood at INR308b v/s INR280b in FY14 — growth of 10% YoY. Key orders received in 4Q include: i) 1,080mw TSGENCO (EPC, INR50b) and ii) 120mw Rammam stage III hydro electric project in West Bengal, (INR2.3b). Also, BHEL was L1 in i) 1,320mw Udangudi (EPC, ~INR78b), ii) 500mw Tuticorin (BTG, INR12b), iii) 1gw of Pakal DUL Hydro power with Patel Engg (~INR90b JV share, BHEL likely at INR10b) and iv) 1.2gw Pranhita Lift Irrigation (INR30b).”

“BHEL is strongly exposed to cyclical factors: i) contribution margins at ~42% v/s expected EBITDA margin of 12.4% (adjusted) in FY14, leading to a meaningful operating leverage, ii) core NWC stable at 200 days; cyclical factors of retention money (at 181 days in FY14 v/s 55-60 days in FY07-09) and customer advances (deteriorated from 63% of revenue in FY09 to 38% in FY14) that impacted reported NWC are expected to normalize as we expect power sector BTB to increase from 3.4x currently to 3.8x in FY16E. We maintain Buy with a target price of INR320/sh (18x FY17E), 36% upside”, says Motilal Oswal’s research report.

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