BHEL Shares Fall The Most In 15 Months After Q4 Results; Analysts Bearish

A BHEL employee carrying a construction safety helmet. (Photo: BHEL website)

BHEL Shares Fall The Most In 15 Months After Q4 Results; Analysts Bearish

Shares of Bharat Heavy Electricals Ltd. slumped the most since March 13, 2020 as the company reported worse-than-expected fourth-quarter results on lower orders and deteriorating gross margins.

Shares of the state-owned engineering and manufacturing company fell as much as 19.09%, before paring its losses to trade 9.58% lower.

  • The New Delhi-based company reported a revenue of Rs 6,752 crore in quarter ended December, up nearly 47% year-on-year on a low base.

  • Ebitda margin was impacted as its net provisions rose to Rs 1,450 crore from Rs 332 crore a year earlier.

  • BHEL's gross margin widened 200 basis points over a year earlier but narrowed 290 basis points sequentially. Order inflow fell 31% year-on-year to Rs 4,400 crore.

Of the 30 analysts tracking the stock, two have a ‘buy’ rating, nine suggest a ‘hold’ and 19 recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 50.8%.

Here's what analysts made of BHEL's Q4 results:

Nirmal Bang

  • Maintained 'sell' rating at a target price of Rs 48, implying a potential downside of 37%.

  • With slowdown in order inflow and rising commodity costs, the pressure on profitability will persist going forward.

  • BHEL’s share price doubled year-to-date and the stock is currently trading at 24 times its estimated earnings per share for FY23. The brokerage said the sharp re-rating in the last six months is unwarranted amid muted ordering prospects.

  • Order wins in the oil and gas segment is encouraging.

  • The company has also achieved success in aerospace and defence (gas turbine for the Indian Navy and integrated platform management system for INS Vikrant).

  • With rising preference for renewable energy, the brokerage is structurally negative on thermal power capacity addition in India.

  • Key upside triggers for BHEL are sudden revival in thermal power capex, new business segments wining large-sized orders, favourable outcome of global strategic partnerships and improvement in the receivables position.

Kotak Institutional Equities

  • Maintained 'sell' rating; raised target price to Rs 34, still implying a potential downside of 55%.

  • BHEL reported weak results on execution, gross margin and working capital. If not for the reduction in revenues and related release of working capital, it would have reported the third straight year of negative cash flow from operations.

  • The large provisions/write-off taken cast doubts on the ability to release the remaining working capital. The weak gross margin casts doubt on the ability to report top-line high enough to cover fixed costs.

  • BHEL has seen depreciation of its gross block over time and hasn’t invested in fresh capex. Its current net block at Rs 2,400 crore is at FY10 levels. “We wonder the quantum of revenues such net block can support,” the brokerage said.

Motilal Oswal

  • Maintains ‘sell’ rating with a target price of Rs 40, implying a potential downside of 48%.

  • BHEL reported a disappointing 4QFY21 as revenue came in 29% below estimate.

  • Higher fixed cost dented operating performance, with the operating loss attributable to under-absorption of costs.

  • The company is yet to show a significant improvement in pending receivables. In spite of the management’s ongoing efforts, the brokerage expects receivables to remain elevated in the near future.

  • Order inflows remained weak, with a 31% YoY decline in Q4.

  • Estimates FY22 to be loss-making and reduces FY23 EPS estimate by 36%. While orders are few and far between, the pricing environment remains highly competitive, limiting scope for margin expansion.

  • On its ongoing diversification strategy, the company has won its first order for a sulfur recovery unit for IOCL Panipat and is restructuring its solar business division, but any material financial impact is still a long time away.


  • Maintains ‘reduce’, with target price of Rs 29, implying a potential downside of more than 60%.

  • Sub-optimal utilisation continues to erode BHEL’s balance sheet with a sharper Q4 underperformance led by provisions.

  • Despite a consistent sequential pick-up in execution and drop in overheads, BHEL posted the highest annual Ebitda/PAT loss to date.

  • Favourable positioning in Rs 20,000 crore-plus thermal orders lends comfort on FY22 intake though — after a sharp 42% dip to Rs 13,500 crore in FY21. Meanwhile, receivables management remains a prime challenge, while potential scale-up in new initiatives is a tough call.

  • Given rapid transition towards renewables, investors would demand greater clarity on how BHEL’s thermal-heavy plant set-up will evolve and how it intends to scale up new areas, among others.

  • Market excitement about BHEL’s recent rally (2x in six months) overlooks its conventional business. Pending clarity by BHEL on scalability/transition to new revenue streams, the brokerage retains ‘reduce’.

Citi Research

  • Maintains ‘sell’, raises target price to Rs 45 from Rs 38 apiece, still implying a potential downside of 40%.

  • BHEL reported a weak end to FY21. While 4QFY21 revenue grew 47% year-on-year on a low base, Ebitda was impacted by higher provisions, low gross margins and fixed cost under-recovery.

  • Q4 order inflows were weak though the L1 pipeline looks decent. Maintains ‘sell’ on the stock as it looks expensive given the weak RoE profile, and risks to cash flows on continued industry headwinds.

  • Receivables reduce but remain high, aided primarily by low billing


  • Maintains ‘sell’ rating at a price target of Rs 40, implying a potential downside of 48%.

  • BHEL’s Q4 was terrible, FY21 is a year to forget for the company.

  • Domestic lockdown-led-demand destruction of power and its impact on discom financials leaves few near-term catalysts for BHEL.

  • BHEL cleaned up its balance sheet with Rs 1,800 crore in provisions for liquidated damages and bad debts. Whether this is a precursor to divestment remains to be seen.

  • Its backlog fell 6% YoY as the award of its largest contract from NTPC slipped to FY22.

  • Cuts FY22 EPS 7% to factor-in weak discom financials leaving little scope for capex but raises target price from Rs 28 to Rs 40 as the research house rolls forward its valuation along with capital goods sector rerating.

  • BHEL is up 43% over the past three months on divestment news speculation but a deal would be tough to execute due to the ESG focus, weak discoms and India’s move toward renewables

  • India’s power cycle is turning, but BHEL is a third-stage beneficiary. Until then, it faces challenges.

  • The government’s delay of thermal orders until FY23 due to weak demand, Covid-19-led demand destruction impacted discom financials worth Rs 46,600 crore, delayed a thermal capex recovery to FY23-24 are slowing BHEL’s orders.

  • Despite being well placed for $1.5 billion in orders and a 14.6GW pipeline BHEL’s clients are in no hurry to order.

  • It will take 1-2 years to convert its signed MoUs to produce maglev trains, marine propulsion systems and armoured trucks into business opportunities.

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