Maharatna defence PSU stock, BHEL has witnessed sharp buying this week after a decent Q2FY25 with healthy pick-ups in the execution of orders. Brokerage Prabhudas Lilladher as recommended ACCUMULATE on BHEL stock for a target price of Rs 260. BHEL is currently below Rs 235 levels and has a market value above Rs 81,800 crore. YTD, the stock has zoomed by 19% on BSE.
BHEL Share Price:
The PSU stock stood at Rs 234.95 apiece, up by 2.24% on BSE, after market hours of October 29. The company's m-cap is at Rs 81,811.08 crore. However, BHEL has a very high price-to-equity ratio of 397.64x, while the return on equity is low at 0.84%.
Prabhudas Lilladher On BHEL Stock:
In its latest report, PL said, "We revise our FY26E EPS estimate by -1.5% factoring in lower other income, but upgrade the rating to 'Accumulate' from Reduce given the recent sharp correction in stock price, with a revised TP of Rs260 (Rs264 earlier). BHEL reported strong revenue growth of 28.5% YoY with EBITDA margin turning positive to 4.2% in Q2FY25."
PL's note added, that during Q2, BHEL continued to benefit from the robust opportunity in thermal power in India, booking orders worth up to Rs300bn across 7.2GW of projects. With the government aiming to tender out all 80GW of the planned capacity addition by FY28, the pipeline remains healthy with ~30GW still up for bidding. BHEL's non-power business also continues to do well, securing orders worth Rs17bn in Q2FY25 for the supply of equipment to various industrial customers across cement, steel, railways, and T&D.
That being said, PL believes 1) large thermal power order pipeline, 2) diversification into railways, defence, green hydrogen, coal gasification, etc., and 3) growing spares & services business augurs well for BHEL in the long term.
On the valuation, the brokerage said, "Execution pace and operational efficiency will be key monitorables. The stock is trading at a P/E of 65.8x/22.1x/16.3x on FY25/26/27E earnings. We value the stock at a P/E of 25x FY26E (same as earlier). Upgrade to 'Accumulate'."
In Q2FY25, BHEL reported PAT of Rs 97 crore against loss of Rs 58 crore in Q2FY24. While revenue stood at Rs 6,584 crore, higher from Rs 5,125 crore in Q2FY24. As of September 30, 2024, the company's outstanding order book is at Rs 1,60,000 crore.
BHEL Corporate Actions:
The Maharatna company holds a strong record of bonus issues, stock splits and dividends.
Dividend: The company has delivered up to 38 dividends since Aug. 27, 2001, as per Trendlyne data. In the last 12 months, the dividend payout was to the tune of Rs 0.25 per share. It has a dividend yield of 0.11%.
Bonus Issues: BHEL has rewarded its investors with two bonus issues. The first was of 1:1 bonus ratio in June 2007, followed by a bonus issue of 1:2 ratio in September 2017.
Stock Split: BHEL stock has split only once and that was in October 2011. The stock's face value was cut from Rs 10 to Rs 2, and hence a stock split ratio of 1:5.
BHEL is India's largest engineering and manufacturing enterprise in the energy and infrastructure sectors. Established in 1964, we are a leading power equipment manufacturer globally and one of the earliest and leading contributors towards building an Aatmanirbhar Bharat.
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