Buy Bharat Bijlee For A Gain of 28% In 6 Months Says HDFC Securities

HDFC Securities Ltd, a prominent brokerage company, has issued a buy call on Bharat Bijlee Ltd's stock. The brokerage has fixed a target price of Rs. 2344 for the stock, which it expects to hit in six months from its market price of Rs. 1825, resulting in a 28 percent growth. Bharat Bijlee is an Indian electrical engineering leader. Power, refineries, steel, cement, railways, machinery, construction, and textiles are among the company's project portfolio.

Q2FY22 results of Bharat Bijlee Ltd

HDFC Securities has said in its research report that "Bharat Bijlee Ltd reported a strong topline of Rs 305.4cr (up 108.9%/6.0% YoY/QoQ) on the back of healthy growth in industrial products segment. Higher raw material prices impacted gross margins which came at 25.8% in Q2FY22 as against 26.9% in the previous quarter (32.6% in Q2FY21). The company reported an EBITDA of Rs 22.5cr (up 141.6%/2.5% YoY/QoQ). EBITDA Margins for the quarter fell 25bps QoQ and stood at 7.4% (6.4% in Q2FY21). BBL reported PAT of Rs 14.4cr and PAT margin of 4.7% vs 4.1% in the corresponding quarter last year"

According to the brokerage "Both the segments reported decent growth during the quarter. The industrial products segment reported revenue to the tune of Rs 169.7cr (+71.8%/+23% YoY/QoQ), while Power Systems reported a topline of Rs 135.6cr (+186.5%/-9.6% YoY/QoQ). The industrial products segment reported EBIT margins of 13.5% (down ~440bps/~80bps YoY/QoQ). Power systems recorded EBIT margin of 5.3% as against 6.9% in the previous quarter (-4.4% in Q2FY21)."

The brokerage’s take on Bharat Bijlee Ltd.

HDFC Securities in its research report has claimed that "Bharat Bijlee Limited (BBL) is one of the leaders in the electrical engineering industry in India. The company has two primary business segments: Power Systems (~40%) that comprise Transformers and Projects divisions; and Industrial Systems segment (~60%) comprising Electric Motors, Drives & Industrial Automation and Elevator Systems divisions. It caters to an array of industries such as power, refineries, steel, cement, railways, machinery, construction and textiles. It continues to be focused on growth; through expansion of its manufacturing range and capacities, related diversifications and foray into new markets through strategic partnerships."

Buy Bharat Bijlee Says HDFC Securities

The brokerage has stated that "We like BBL for its status as one of the leading players in transformer segment and energy-efficient motors business coupled with favourable liquidity position and capital structure. Favourable government schemes like Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) coupled with likely CAPEX revival in the power and capital goods sector would augur well for the company. The company's balance sheet is healthy on the back of listed equity holdings with a fair value of Rs 650cr (~65% of Mcap of the company) and corporate deposits (Rs 230cr as at March-end 2021). Recovery in the CAPEX cycle and raw material price pressures would be key monitorables. The company is a deep value buy as its core business is trading at cheap valuation; we value the core business at 10x/12x Sep'23E EPS for base/bull case target."

According to HDFC Securities "We have considered equity holdings at 40% discount (mainly because of the uncertainty of realization in terms of timelines), while corporate deposits are taken at 10% discount to our Sep'23E projected numbers. We think the fair value of the stock is Rs 2148 (SOTP Value ~16.6x Sep'23E EPS) and the bull case fair value is Rs 2344 (SOTP Value ~18.1x Sep'23E EPS) over the next 4-6 quarters. Investors can buy the stock in the band of Rs 1812-1822 (14x Sep'23E EPS) and add on dips to Rs 1520-1530 band (11.8x Sep'23E EPS). Any move to monetize land asset could result in much higher targets for the stock as we have not considered it in our SOTP calculation."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.