Reduce BHEL; target of Rs 67: Prabhudas Lilladher

Prabhudas Lilladher's research report on BHEL

BHEL reported a revenue growth of 2.1% to Rs82.3bn, with Adj. EBITDA margins coming in at ~7.5% in Q4FY23 vs 3.8% in Q4FY22 (adjusting for net provision). FY23 order inflows came in at Rs235bn (flat YoY) and order book stands at Rs913bn (4.1x FY23 revenue). Thermal power ordering is witnessing a pickup, after a gap of three years owing to rising power demand. BHEL is favorably placed in ~3700MW of orders. Additionally, projects of ~6000MW are under bidding stage for Yamunanagar, Adani Mundra, Talabira and Nayveli, which augurs well for BHEL in the medium term. While in industrial segment management targets to gradually increase its revenue contribution (~21% as of FY23), owing to strong traction witnessed in defence (SRGM for Navy), railways (strong Vande Bharat prospects), nuclear and hydro. We believe, pickup in thermal power orders and companies focus on diversification in segments such as railways, defence, nuclear, hydro augurs well for company in long term. However, execution pace, operational efficiency and margins in near term will be closely watched. The stock is trading at PE of 31.1x/17.7x FY24/25E. Upgrade to ‘Reduce’.

Outlook

We roll forward to FY25E and upgrade to ‘Reduce’ (Sell earlier) with revised TP of Rs67 (Rs36 earlier) valuing it at 15x FY25E (12x FY24E), factoring in gradual revival of thermal tendering and execution pace.

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