Brokerage firm Jefferies anticipates a considerable 61% decline in the shares of the state-run company Bharat Heavy Electricals Limited (BHEL) over the next 12 months. In its recent analysis of the industrial sector, Jefferies maintained an optimistic outlook for the sector as a whole, issuing “buy” recommendations for eight out of ten stocks. However, BHEL and Cummins received an “underperform” rating.
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The brokerage firm assigned the “underperform” tag for BHEL with a revised price target of ₹80, up from ₹50 previously. Despite a notable 150% rally in BHEL shares in 2023, Jefferies expressed concerns about the industry’s overcapacity in a relatively subdued demand environment. While acknowledging BHEL’s significant role, Jefferies prefers to explore this sector through other companies due to worries about profitability.
Intense competitive pressures are cited as a factor contributing to declining margins, exacerbated by BHEL’s fixed costs. Jefferies also highlighted government emphasis on renewables as a factor eroding captive power demand. Interestingly, Jefferies’ assessment contrasts with Antique Stock Broking’s recent projection of BHEL as a potential “turnaround story,” predicting a rise in stock value to ₹230 and expecting order inflows to surpass ₹60,000 crore in the current fiscal year.
In contrast, Haitong, another brokerage firm, maintains an underweight stance on BHEL with a price target of ₹73, projecting a Compounded Annual Revenue Growth Rate (CAGR) of 15% for the financial years 2023 to 2026. Kotak Institutional Equities, in a separate note, suggested that BHEL’s current market capitalization may be justifiable under a “very bullish” set of assumptions, but despite this, its net income is likely to fall short of its current market capitalization.
BHEL has faced challenges over the last decade in surpassing the ₹200 mark, experiencing significant corrections after approaching these levels.
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Published: 03 Jan 2024, 10:12 PM IST