The shares of Bharat Heavy Electricals plunged over 8% in early trading session on Wednesday after the company reported a 25% drop in net profit year-on-year in Q4FY24. The share price of BHEL slipped 8.20% to intra-day low of Rs 295 on NSE.
State-owned BHEL reported a decline of over 25% in its consolidated net profit, which fell to Rs 489.62 crore in the March quarter.
This decrease is attributed mainly to higher expenses. In the quarter ended March 31, 2023, the company’s consolidated net profit was Rs 658.02 crore, according to a regulatory filing.
The firm’s total expenses increased to Rs 7,794.11 crore in the quarter, up from Rs 7,411.64 crore in the same period the previous year.
Meanwhile, total income for the quarter saw a slight increase, rising to Rs 8,416.84 crore from Rs 8,338.61 crore in the year-ago period.
Brokerages on BHEL
Antique on BHEL
Antique has maintained a ‘Buy’ rating on BHEL, raising the target price to Rs 360 from Rs 299. In its latest report, Antique noted that while BHEL experienced a miss on the operational front in the recent quarter, the overall business outlook remains promising.
The report highlights expectations of a significant reversal in BHEL’s ordering cycle over the next 3-4 years, which is anticipated to drive substantial growth. Furthermore, Antique projects that BHEL’s earnings will climb multiple-fold over the FY24-26 period, indicating a robust recovery and strong future performance.
Nuvama on BHEL
Nuvama has maintained a ‘Buy’ rating on BHEL, raising the target price significantly to Rs 400 from Rs 265. In its detailed report, Nuvama pointed out that while higher provisioning has negatively impacted BHEL’s profitability, the company’s project pipeline looks robust and promising.
BHEL is considered to be in an excellent position to benefit from the anticipated thermal power wave over the next 12-24 months. Additionally, Nuvama has adjusted its earnings per share (EPS) estimates for FY25 and FY26, revising them upwards by 0.4% and 7%, respectively.
This revision takes into account the ongoing execution of low operating profit margin (OPM) legacy orders until FY25 and a projected increase in new order executions starting from FY26, indicating a positive long-term outlook for the company.
CLSA on BHEL
CLSA has issued a ‘Sell’ call on BHEL with a target price of Rs 189. According to the CLSA report, BHEL reported a surprising 25% decline in its Q4 PAT. Despite the company’s backlog growing 44% year-on-year due to an increase in thermal orders, operational performance remained weak with flat execution in Q4.
The decline in PAT was attributed to slow-moving orders. For FY24, BHEL’s gross margin fell by 58 basis points, which management indicated should be the lowest point.
A key positive noted in the report was the resurgence of fossil orders, driven by concerns over energy security. However, CLSA expressed concerns about the long-term prospects of BHEL’s thermal business, suggesting it looks bleak beyond FY30.
Morgan Stanley on BHEL
Morgan Stanley has issued an ‘Equal-Weight’ call on BHEL, setting a target price of Rs 220. In its report, Morgan Stanley highlighted that BHEL’s Q4 earnings fell short of expectations.
Additionally, the company’s operating cash flow was weak, primarily due to an increase in net working capital. Despite these setbacks, the report noted an improvement in earnings visibility, driven by a strong influx of orders and a healthy prospect pipeline.
However, Morgan Stanley also pointed out a significant risk factor: BHEL’s depleted vendor base. The company may need to offer attractive terms to vendors to mitigate this issue, which could impact its operational efficiency and profitability.
Overall, while the near-term outlook shows promise with a robust order book, managing vendor relationships and operational cash flow will be crucial for sustained growth.
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