ICICI Securities has given a hold rating to Bharat Heavy Electrical Ltd (BHEL) with a target price of Rs 24.
BHEL is constantly looking at diversification opportunities. However, the huge size of thermal power projects is unlikely to be replaced by any other segment with a medium term perspective. High receivables remain a concern and this is expected to continue given the adverse change in payment terms by NTPC and the challenging liquidity scenario in some of the major state electricity boards like Telangana, Tamil Nadu, etc.
The company has recently floated an expression of interest inviting partnership from global companies and used its idle facilities and capabilities for setting up a manufacturing base in India.
The share price of the company remained unchanged from its previous close of Rs 23. The last traded stock price is Rs 23. Incorporated in 1964, BHEL has a market cap of Rs 8008.75 crore.
Investment Rationale
Given the value unlocking potential through foreign manufacturing partnership, the brokerage has raised forward P/E multiple from 10 times to 11 times FY21E and revised the target price to Rs 24 (earlier: Rs21). It has maintained hold rating on the stock given the overall challenging macro environment, low RoEs and delay in order finalisation.
Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 5459.24 crore, down -9.47 per cent from last quarter sales of Rs 6030.16 crore and down -23.33 per cent from last year's same quarter sales of Rs 7120.37 crore. The company reported net profit after tax of Rs 151.90 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 63.17 per cent stake in the company as of March 31, 2020, while FIIs held 9.36 per cent, DIIs 17.81 per cent and public & others 9.66 per cent.