Stock of the Day - Bhel Ltd

Stock of the Day - Bhel Ltd
Stock of the Day - Bhel Ltd

Fundamental & Technical Analysis
by Tanushree Jaiswal Last Updated: Mar 04, 2024 - 06:39 pm 361 Views
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Bhel Movement of day

Bhel Intraday Analysis of day

1. Price Movement Analysis: BHEL opened at ₹ 237.10, closed at ₹ 235.90, with highs & lows at ₹ 275.85 & ₹ 237.10 respectively, indicating volatile intraday movements.
2. Price Performance: Over one week, stock surged by 16.01%, reflecting strong momentum; past month's gain of 13.15% indicates sustained bullish sentiment; 1-year increase of 254.15% signals significant growth.
3. Support & Resistance Levels: Classic pivot levels show resistance at ₹ 237.38 & support at ₹ 235.03, guiding potential price movements intraday.
4. Moving Averages: Short-term SM at ₹ 237.59 suggests uptrend; longer-term SMAs also indicate bullish sentiment, with 200-day SM confirming trend.
5. Market Capitalization & Beta: Mcap stands at ₹ 92,117 crores, with bet of 1.19, indicating slightly higher volatility compared to market.

Probable Rationale Behind Bhel Surge

BHEL shares rise to their highest level since May 2021 as result of possible major order. Monday's 12% jump in BHEL shares was largest one-day increase since 12.5% increase on September 1st of last year. Following board of another state-run peer company, NTPC, approving ₹17,195.3 crore investment for third phase of Singrauli Super Thermal Power Project, stock of NTPC is surging. 

Project is estimated to be two 800 MW units. Following board of another state-run peer company, NTPC, approving ₹17,195.3 crore investment for third phase of Singrauli Super Thermal Power Project, stock of NTPC is surging. project is estimated to be two 800 MW units. However, why is BHEL growing in response to NTPC's investment approval?

BHEL's recent climb is attributed to its major win in securing order for India's largest capacity hydro project, substantial 2,880 MW multipurpose project. Project, located in Roing, Lower Dibang Valley district of Arunachal Pradesh, was secured through international competitive bidding (ICB). Notably, order was placed by NHPC, underscoring BHEL's prowess in power sector.

BHEL's Strategic Moves
Critical equipment for this colossal project is slated to be manufactured at BHEL's plants in Bhopal, Bengaluru, Jhansi, & Rudrapur. Execution activities on-site will be spearheaded by firm’s power sector - eastern region division, based in Kolkata. This strategic move aligns with BHEL's focus on diversification across various segments, including railways, defence, nuclear, & hydro.

Expert Perspectives on BHEL's Trajectory
Industry experts or veterans see potential in BHEL's long-term trajectory. Despite awaited disclosure of order size, execution timeframe for project is anticipated to span 9-10 years. Analysts highlight positive outlook, pointing towards revival in thermal power orders & company’s strategic diversification efforts.

Contrasting Views: Balanced Approach
While bullish sentiment surrounds BHEL's recent achievements, there are varying perspectives among experts. Veteran expert suggests cautious stance, assigning 'reduce' rating on counter with target price of Rs 67. Expert emphasizes current PE ratio of 53.7 times/30.5 times FY24/25E as consideration for potential investors.

Expert’s Optimistic Take
Contrastingly, another set of experts, as represented by veterans, initiates coverage on BHEL with 'buy' rating & target price of ₹ 265. Brokerage envisions robust future for BHEL, anticipating revenue/EBITDA/PAT CAGR of 17 percent/76 percent/91 percent, respectively, over FY23-26E. This optimistic outlook is underpinned by expectations of healthy ordering, improving execution, & benefit of operating leverage.

Technical Insights: Momentary Pause?
From technical perspective, BHEL's stock exhibits 14-day relative strength index (RSI) of 82.5, placing it in overbought zone. This suggests potential for pullback, signalling momentary pause in stock’s upward trajectory.

Financial Summary

Stock PE 759
Book Value ₹ 74.9
Dividend Yield 0.26 %
ROCE 3.33 %
ROE 1.70 %
Debt to equity 0.35
Return on assets 0.77 %
PEG Ratio 493
Int Coverage 1.05

Bhel Financial Analysis

1. Sales Trend

BHEL's annual sales witnessed declining trend from 2012 to 2020, with subsequent recovery in recent years, reaching 23,365 in March 2023.

2. Operating Profits Fluctuation

Operating profits fluctuated over years, experiencing significant dip in 2015 & 2020 but showing signs of recovery in subsequent years, reaching 807 in March 2023.

3. Net Profits Resilience

Despite operational challenges, BHEL demonstrated resilience in net profits, with occasional downturns but positive trajectory overall, reaching 477 in March 2023.

Bhel Strengths
1. Consistent Dividend Pay-out: Company has demonstrated commendable commitment to shareholders by maintaining healthy dividend pay-out of 20.1%, providing investors with steady income stream.
2. Improved Debtor Days: There is positive trend in debtor days, showcasing enhancement from 62.0 to 48.9 days. This indicates improvement in company’s efficiency in collecting receivables.

Bhel Weaknesses
1. Low Interest Coverage Ratio: Company exhibits weakness in terms of low interest coverage ratio, suggesting potential challenges in meeting interest obligations. This warrants careful attention to financial management.
2. Declining Sales Growth: Over past five years, company has experienced concerning sales growth of -4.11%. This indicates challenge in expanding revenue, which may require strategic interventions for revitalization.
3. Low Return on Equity (ROE): Company faces weakness in generating returns for its shareholders, reflected in low return on equity of -2.25% over last three years. Improving ROE is crucial for enhancing shareholder value.
4. Questionable Tax Rate: Company's tax rate appears to be low, raising questions about its tax management strategy. This requires further scrutiny to ensure compliance & transparency.
5. Inclusion of Other Income in Earnings: Earnings include significant other income of ₹ 557 Cr. While other income can be legitimate, its prominence in earnings should be evaluated for comprehensive understanding of company’s financial health & operational performance.

Conclusion

BHEL's recent triumph in securing substantial hydro project order has undeniably fuelled its recent stock surge. However, as experts offer divergent views, investors must navigate this surge with balanced perspective. 

Company's strategic diversification, coupled with contrasting expert opinions, adds element of complexity for those eyeing stock. Whether recent highs are sustained or pullback is imminent, BHEL's journey in coming months promises to be one to watch for investors seeking both opportunities & risks in dynamic world of finance.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.

Disclaimer

Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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