Buy Bharat Heavy Electricals; target of Rs 110: Edelweiss

December 14
16:41 2017

Edelweiss’ research report on Bharat Heavy Electricals

We had upgraded BHEL to ‘BUY’ in July 2016 anchored by a few positive triggers on the horizon. Of these, thermal ordering/demand has not picked up materially, which remains a key monitorable. On the positive side though, the company’s executable order book (OB) has jumped to 78% (54% last year) in H1FY18 as execution of slow-moving orders has gathered pace and gross margin has improved to ~40%. Consequently, FY19/20 earnings visibility has improved along with potential for further improvement in working capital as thermal projects gather momentum. Maintain ‘BUY’ with DCF-based revised TP of INR110 (earlier INR115, implying FY19E PE at 23x) given reasonable working capital improvement potential and a medium-term revival in thermal demand from current 6-8GW p.a.


We believe, such transition will be slower and tendering for conventional energy would range in 10-12GW (including replacement) in foreseeable future, where BHEL commands significant market share (~65%). We maintain ‘BUY/SP’.

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