has a price target of Rs 29 on the stock. Kotak Institutional Equities finds it worthy of Rs 34. CLSA and Motilal Oswal Securities pegged the stock value at Rs 40 each. Nirmal Bang has a target of Rs 48.
Analysts said a sharp rerating of the stock that doubled in the last six months is unwarranted. They believe the company could report losses in FY22 and said BHEL’s divestment would be an uphill task.
On Monday, the scrip fell 18 per cent to hit a low of Rs 62.55 on BSE. Even at this price, Edelweiss’ target on the stock suggests 54 per cent further downside!
“In our view, market excitement about BHEL’s recent rally (two times in six months) overlooked its conventional business i.e. sticky balance sheet & costs, and underutilisation. With pending clarity on scalability and transition to new revenue streams, we retain ‘reduce’ rating with a revised target of Rs 29,” said Edelweiss.
CLSA said the March quarter was terrible for the company, with order backlog falling 6 per cent to Rs 1,02,100 crore. BHEL’s divestment, it said, is a nice story but is difficult to execute.
BHEL’s March quarter total revenues at Rs 7,245.16 far below analyst estimates. Higher fixed cost dented operating performance, with the operating loss attributable to under-absorption of costs, they said. Losses for th quarter stood at Rs 1,036.32 crore compared with Rs 1,532 crore in the year-ago quarter.
“The company is yet to show a significant improvement in pending receivables, with total debtors at Rs 31,300 crore in FY21 against Rs 34,800 crore in 9MFY21. Order inflows remained weak, with a 31 per cent YoY decline in Q4 and 43 per cent fall in FY21,” Motilal Oswal Securities said.
BHEL managed to achieve a positive operating cash flow of Rs 560 crore for FY21 — after two years of negative cash flows — but it was due to a reduction in revenues and related release of working capital, Kotak Institutional Equities said.
“The large provisions and write-offs cast doubts on BHEL’s ability to release the remaining working capital. The weak gross margin casts doubts on the ability to report top-line high enough to cover fixed costs. We lower estimates and incorporate the value of unutilised land to arrive at a fair value of Rs 34,” the brokerage said.
Motilal Oswal now estimates FY22 to be loss-making year for BHEL, and cut its FY23 EPS estimate for the PSU by 36 per cent. “While orders are few and far between, the pricing environment remains highly competitive, limiting the scope for margin expansion,” it said.
Nirmal Bang said BHEL’s share price had almost doubled year to date and the stock is currently trading at 24 times FY23 EPS.
“We believe such sharp re-rating in the last six months is unwarranted amid muted ordering prospects. But, order wins in the oil & gas segment are encouraging, in our view. We have increased its valuation multiple to 15 times from 11 times to factor in diversification efforts. Our new target price is Rs48 from Rs 36 earlier,” it said and retained ‘sell’ rating on the stock.
