CLSA has reiterated its Underperform rating on Bharat Heavy Electricals Limited (BHEL) with a target price of ₹189, indicating an 18% downside from the current market price of ₹231.05. CLSA highlighted that while BHEL is showing operational improvements, key catalysts like its inclusion in global passive indices have passed, and the recent entry of L&T in the thermal power equipment space challenges its market dominance.
In Q2FY25, BHEL demonstrated a turnaround, with execution growth of 33% (albeit from a low base) and backlog growth of 40%. The company’s gross margin rose by 347 basis points, reversing a seven-year decline and contributing to EBITDA profitability versus past losses. Despite these positive developments, CLSA expressed concern over BHEL’s high valuation, trading at 40 times FY26 estimated earnings.
The resurgence in fossil fuel orders due to India’s focus on energy security was seen as a bright spot, though CLSA noted the thermal business faces a bleak outlook beyond FY30.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors are advised to perform their due diligence before making investment decisions.
