Brokerages have divergent views on Bharat Heavy Electricals Limited (BHEL) following its Q3 FY25 results, with Morgan Stanley (MS) remaining bullish, while CLSA retains a cautious stance due to margin concerns.
Morgan Stanley on BHEL: Overweight, target ₹352
Morgan Stanley maintains an ‘Overweight’ call on BHEL with a target price of ₹352, citing strong revenue growth and robust order inflows.
- Standalone revenue rose 32% YoY, beating estimates by 5%.
- EBITDA stood at ₹3 billion, surpassing MS estimates of ₹2.5 billion.
- Adjusted PAT came in at ₹1.25 billion, significantly higher than the estimated ₹720 million.
- Power and industry segment revenue surged 32% YoY, with EBIT margins at 11.2% and 6.2%, respectively.
- Order inflows stood at ₹68.6 billion in Q3, compared to ₹25.7 billion in Q3FY24, with 80% of new orders coming from the industry segment.
CLSA on BHEL: Underperform, target cut to ₹166
CLSA reiterates an ‘Underperform’ rating, reducing its target price to ₹166, citing margin pressures and market competitiveness.
- Stock’s inclusion in global passive indices has already played out, removing a key re-rating catalyst.
- L&T’s entry into the thermal power equipment space challenges BHEL’s dominance, raising competitive concerns.
- EBITDA margins remain weak, staying flat QoQ despite a 10% QoQ topline growth.
- BHEL’s backlog grew 47% YoY, fueled by Modi 3.0-led capex revival, but CLSA believes execution and margins remain weak.
- Stock appears expensive at 34x FY26 estimated PE, limiting further upside.
Market View
While Morgan Stanley highlights BHEL’s strong execution, improving order book, and better-than-expected profitability, CLSA remains cautious on margins, competition, and valuations. Investors should weigh execution consistency, pricing pressures, and competitive risks before making investment decisions.
Disclaimer
This article is for informational purposes only and should not be considered financial or investment advice. Investors are advised to conduct their own research or consult with a professional before making investment decisions. Business Upturn is not responsible for any financial outcomes based on this report.
