Markets
BHEL investors are charged up on robust new order inflows
Summary
- Plus, the company’s strategy of becoming a diversified engineering company by expanding presence into other sectors such as railways and defence, is a long-term positive
Shares of Bharat Heavy Electricals Ltd. (BHEL) surged nearly 8% to hit a fresh 52-week high of Rs130.55 apeice on the National Stock Exchange on Friday, fuelled by investor optimism following improving trend in state-run company’s new order inflows. On 30 August, the company said it has bagged an order for setting up a 2x800 MW Supercritical Thermal Power Project Stage-II at Lara, Chhattisgarh, through international competitive bidding.
According to analysts at Nuvama Research, the estimated value of the project is Rs10,000 crore to ₹12,000 crore, taking its year-to FY24 order inflows to Rs30,000 to ₹34,000 crore versus ₹23,500 crore in FY23. Also, with the likely increase in demand for thermal power, there is a case for higher thermal capex and this bodes well for BHEL’s future earnings.
“Accordingly, we reckon fresh thermal ordering over the next four–five years at ~30GW, of which BHEL could bag 50% in our view. This implies ~3GW/year of thermal order inflow for BHEL, in addition to the base order inflow of Rs15,000–20000 crore, potentially driving an EPS CAGR of 83% over FY23–26E," added the Nuvama report. EPS is earnings per share.
Lately, the company has been on an order bagging spree. On 25 August, BHEL won a ₹2,242 crore order from NHPC Ltd for 12x240 MW electro-mechanical equipment, and a ₹4,000 crore contract from Adani Power earlier last month. These orders are expected to contribute to a positive revaluation of the company's stock.
Remember, the company’s June quarter (Q1FY24) earnings performance was dismal with widening losses.
In Q1, BHEL’s order inflows jumped year-on-year to ₹15,600 crore. This gave a fillip to the order book, which stood at Rs1.01 trillion as on 30 June. However, Q1 order inflows included a large Vande Bharat order for 80 train sets worth ₹9,600 crore which the company won in consortium with Titagarh Wagons Ltd. Adjusted for this large order, the ordering was less than the execution in Q1FY24, pointed out analysts. But now, the tide seems to be turning in favour of the company with improving thermal power demand.
Plus, the company’s strategy of becoming a diversified engineering company by expanding presence into other sectors such as railways and defence, is a long-term positive.
“Railway is a key growth area for BHEL. The company's recent success in winning Vande Bharat train order opens the door for other such significant opportunities in the segment," said analysts at Antique Stock Broking Ltd in a report dated 31 August. Defense is another emerging segment for the company and could boost BHEL's order book over the next few years, added the report.
Meanwhile, in this calendar year so far, the BHEL stock has risen a whopping 63%, far outporforming the Nifty 500 index’s single-digit returns. The trajectory of new order wins and its impact on earnings performance would decide the stock’s future course.
