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Will BHEL share price cross ₹400 with its Strong Order Book?

by Trade Brains | July 22, 2024 4:00 pm

Over the last few months we have seen heavy electrical stocks rise exponentially. Heavy electrical industries have always been the backbone of  modern industrial infrastructure. This industry produces critical components for power generation, transmission, and distribution systems. Their products are essential for sectors such as energy, manufacturing, and transportation.

Key players in this field provide solutions that power cities, drive industrial processes, and enable technological advancements. One company which has outperformed the market in the last few months is Bharat Heavy Electricals Limited.

Table of Contents

  • Industry Overview Of BHEL
  • Company Overview Of BHEL
    • Critical Projects
  • Financial Highlights Of BHEL
    • Recent Orders 
    • Competitors
  • Key Me trics Of BHEL
    • SWOT Analysis
  • Future Outlook Of BHEL
    • Price Target
  • Conclusion

Industry Overview Of BHEL

The advancement of infrastructure, the shift to renewable power sources, and the need for energy on a worldwide scale present a bright future for the heavy electrical sector. Its possibilities are further enhanced by the need for grid upgrade and the growing electrification trends. Digitalization and emerging markets present fresh chances for expansion and creativity.

Nonetheless, the industry faces difficulties like volatile raw material prices, fierce rivalry, and strict environmental laws. In this rapidly changing setting, flexibility, adoption of sustainable energy technology, and increased operational efficiency will be critical to success. Despite these obstacles, the industry’s vital position in driving contemporary economies guarantees its future relevance, and there is still plenty of space for growth and technical improvement in the years to come. 

Company Overview Of BHEL

Bharat Heavy Electricals Limited (BHEL) is an Indian state-owned engineering and manufacturing firm. With its headquarters located in New Delhi, it was founded in 1964. The biggest producer of power generation equipment in India, BHEL is well-known across a number of industries, including defense, power, transmission, and transportation.

The corporation employs over 30,000 people and runs multiple production facilities throughout India. With over 53% of India’s installed power generation capacity, BHEL is a major contributor to the country’s industrial development. It is renowned for its efforts in research and development, with a particular emphasis on environmentally friendly solutions.

Critical Projects

In 2023, Bharat Heavy Electricals Limited (BHEL) made significant strides in two key sectors. Firstly, BHEL signed an MoU with Nuclear Power Corporation of India Limited (NPCIL) to jointly pursue opportunities in nuclear power plants using Pressurized Heavy Water Reactor technology. This collaboration reinforces BHEL’s involvement in all three stages of India’s Nuclear Programme.

Secondly, BHEL announced its commitment to support Indian Railways’ ambitious modernization goals, particularly in overhauling signaling systems. As the railway sector undergoes technological upgrades, BHEL plans to adapt and participate in this modernization process. These developments underscore BHEL’s crucial role in India’s infrastructure development, spanning both energy and transportation sectors. 

Financial Highlights Of BHEL

Financial Year2020 (Mar)2021 (Mar)2022 (Mar)2023 (Mar)2024 (Mar)
Revenue (Crores)21,46317,30921,21123,36523,893
Net Profit (Crores)-1,468-2,700445477282
Operating Profit Margin %-1%-18%4%3%3%
Return on Equity (%)0%-10%3%3%2.97 %
Earnings per share-4.21-7.751.281.370.81

BHEL’s financials show a recovery trend. Revenue grew moderately from 21,463 Cr. to 23,893 Cr. over five years. The company turned around from losses in 2020-21 to profits, though declining, from 2022-24. Operating profit margin stabilized at 3% after negative years. Return on Equity improved but remains low at 2.97%. Earnings per share recovered from losses to 0.81 in 2024, down from 1.37 in 2023. Overall, BHEL has regained stability but faces challenges in sustaining profit growth and improving margins.

Recent Orders 

BHEL secured a ₹13,300 crore contract for a 1600 MW thermal power plant in Koderma, Jharkhand on June 26, 2024. This project will increase DVC’s thermal capacity to 8140 MW by 2030. In FY24, BHEL won orders for 80 Vande Bharat trains and 20 super fast gun mounts, with deliveries starting June 2025. The government plans to install 80 GW of thermal capacity by 2032, with 30 GW under construction and 44-45 GW to be awarded by FY27. This translates to over 10 GW of annual tenders in the next three years.

Competitors

BHEL operates in a competitive heavy engineering sector, particularly in power generation equipment. The company faces stiff competition from both domestic and international players. Major competitors include Larsen & Toubro (L&T), Siemens, and CG Power & Industrial Solutions ltd. in the domestic market.

Internationally, BHEL competes with giants like General Electric, Siemens, and Mitsubishi Heavy Industries. This crowded market has put pressure on BHEL’s market share and margins. The company is striving to diversify into renewable energy and transportation sectors to maintain its competitive edge.

Key Me trics Of BHEL

MetricsBharat Heavy Electricals Ltd.Siemens Ltd.ABB India Ltd.CG Power & Industrial Solutions Ltd
Market Capitalisation₹ 1,14,351 Cr.₹ 2,71,437 Cr.₹ 1,78,683 Cr.₹ 1,10,908Cr.
Current Market Price₹ 328₹ 7,622₹ 8,432₹ 726
Price to Earnings Ratio40511712279.8
Book Value₹ 70.2₹ 391₹ 281₹ 19.8
Dividend Yield %0.13 %0.13 %0.27 %0.21 %
ROCE2.97 %20.7 %30.7 %46.6 %
Debt to Equity Ratio0.360.010.010.01
Promoter Holdings63.17%75.00%75.00%58.11%
FII Holdings8.76%8.30%11.89%15.18%

SWOT Analysis

Drivers: BHEL’s growth is driven by India’s increasing power demand and government initiatives to expand thermal capacity. The company’s diverse portfolio, including orders for Vande Bharat trains and defense equipment, provides multiple revenue streams. BHEL’s focus on the defense sector and collaborations with international firms for new technologies position it well for future growth.

The planned 80 GW thermal capacity addition by 2032 and expected 10 GW annual tenders for the next three years offer significant opportunities for BHEL to secure more projects.

Restraints: BHEL faces challenges from the global shift towards renewable energy, which could impact long-term demand for thermal power equipment. Intense competition from both domestic and international players in the power sector may pressure profit margins. The company’s execution delays in past projects and working capital issues have affected its financial performance.

Additionally, BHEL’s heavy reliance on government orders makes it vulnerable to policy changes and budget allocations. The need for continuous technological upgrades to stay competitive in a rapidly evolving industry also poses a financial challenge.

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Future Outlook Of BHEL

BHEL’s future outlook appears cautiously optimistic, driven by several key factors:

  1. Thermal Power Expansion: The government’s plan to add 80 GW of thermal capacity by 2032 presents significant opportunities. With 10 GW of annual tenders expected over the next three years, BHEL is well-positioned to secure new projects.
  2. Diversification: BHEL’s expansion into defense and railway sectors (e.g., Vande Bharat trains) helps reduce dependence on the power sector and provides new growth avenues.
  3. Government Support: As a public sector undertaking, BHEL is likely to benefit from government initiatives aimed at boosting domestic manufacturing and energy security.
  4. Technology Collaborations: Partnerships with international firms for new technologies, such as maritime gas turbines, could enhance BHEL’s competitiveness.
  5. Order Book Growth: Recent large contracts, like the ₹13,300 crore Koderma project, strengthen BHEL’s order book and revenue visibility.

Price Target

ICICI Securities: has given a “BUY” rating on the stock with a price target of Rs.370. As the brokerage believes the order book of the company is looking strong for the next 3 years.

Nuvama: has given a “BUY” rating. They have also raised the price target on BHEL significantly from Rs. 265 to Rs. 400, as the brokerage is banking on the strong order pipeline that the company has currently.

Conclusion

In conclusion, BHEL’s performance in the coming months will be closely watched by investors and industry analysts alike. After facing challenges in recent years, including project delays and increased competition, it remains to be seen whether the company can successfully navigate the evolving energy landscape.

Will BHEL be able to capitalize on the growing demand for renewable energy solutions and diversify its portfolio beyond traditional power equipment? Can it improve its order book and project execution to regain its former market dominance? The company’s ability to adapt to changing market dynamics and government policies will likely determine its future trajectory. Share your perspectives on BHEL’s outlook below.

Written By Dipangshu Kundu

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