Hold BHEL; target of Rs 208: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on BHEL“Bhel (BHEL) disappointed in Q1FY15 as revenues at Rs 5154 crore vs. our expectations of Rs 5807 crore. The key disappointment came from power segment revenues, which declined 23% YoY ay Rs4144 crore. Order inflows for Q1FY15 for stood at Rs 1129 crore whereas order backlog stood at Rs 97400 crore. EBITDA margins were at 4.5%, below our estimate of 6.5%. This was mainly owing to sticky employee costs and other fixed costs. Reported PAT for Q1FY15 stood at Rs 193 crore, down 59% YoY on the back of lower execution and muted margins.” “We expect share of industry segment revenues (sector comprises transportation, renewable, captive power plants, defence and power transmission) to have all ingredients to inch up its share in overall, in the long term, from current average of 18-20%. The initiatives taken by Bhel in the form of setting up of JVs/MoU for setting up a 4000 MW ultra mega solar power project and setting up capacity for manufacture of locomotives and EMUs are steps in right direction. Also, renewed focus of the new government on the renewable, water, defence and railways space will act as strong catalyst for Bhel to significantly raise the share of industry segment revenues in the long term (over FY17-20). The power equipment industry has turned towards EPC based ordering activity over the last few years. This, we believe, will structurally impact Bhel’s EBITDA margins as currently 25% of the backlog is EPC based. Also, with increased competition from domestic and international players, we expect Bhel’s margins to hover in the 11-13% range in the long run (given optimum capacity utilisation).” “Though Q1FY15 was muted in terms of order inflows, we expect H2FY15 E will be highly crucial for BHEL in terms of award wins as the company is L1 in 4000 MW of power segment orders and incremental pipeline of 8000 MW of orders are likely to get awarded in FY15E. We continue to value BHEL at 15x FY16E EPS and assign a fair value of Rs208/share (from Rs220 earlier) to account for Q1FY15 disappointment of execution, order wins and margins. Maintain Hold on the stock,” says ICICIdirect.com research report.  

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