BHEL Stock Analysis: Crashed 5% to 52-Week Low on February 18- Reasons, Risks & Buying Opportunity
1. Business and Industry Overview:
Bharat Heavy Electricals Limited (BHEL) is India’s largest engineering and manufacturing enterprise of the Government of India in the energy and infrastructure sectors. It is an integrated power plant equipment manufacturer and one of the largest engineering and manufacturing companies in India in terms of turnover, ushering in the indigenous heavy electrical equipment industry in India—a dream that has been more than realized with a well-recognized track record of performance. It was established in 1964. It has played a vital role in the nation’s industrial development, offering a comprehensive portfolio that includes power generation equipment, transmission systems, transportation solutions, defense and aerospace components, and oil and gas sector products. The company’s operations include thermal, hydro, gas, nuclear, and solar photovoltaic power projects, reflecting its diversified expertise. It has been given the status of Maharatna, which means it has more autonomy and authority to operate independently and make investments.
BHEL has a dominant position in the power equipment manufacturing industry in India, accounting for 55% of India’s total installed power generation capacity. The company has been actively involved in India’s nuclear program since 1976, supplying critical components like reactor headers and steam generators. Presently, BHEL has 16 manufacturing divisions, 02 repair units, 04 regional offices, 08 service centers, and 15 regional centers and currently operates at more than 150 project sites across India and abroad. Its global footprint extends to over 76 countries, with an overseas installed capacity exceeding 9,000 MW across 21 countries, including Malaysia, Oman, Iraq, UAE, Bhutan, Egypt, and New Zealand.
The industry is currently experiencing a surge in demand for power equipment, driven by record-high electricity generation during peak periods. As India is marching towards a 5 trillion economy, there is a huge demand in the manufacturing industry. However, manufacturers like BHEL face challenges due to rising expenses, particularly in raw materials and services. Despite these challenges, the company has a strong market position and a diversified portfolio that provides resilience against competitive pressures.
2. Latest Stock News:
In the second quarter ending September 30, 2024, BHEL reported a net profit of ₹966.7 million, a significant turnaround from a loss of ₹583 million in the same period the previous year. This positive performance was attributed to a 28.5% increase in revenue from operations, totaling ₹65.84 billion, with the power segment contributing over 75% of the total revenue. However, the first quarter of 2024 saw a net loss of ₹2.13 billion, primarily due to a 9% rise in expenses, underscoring the volatility in operational costs.
The company stock fell 5.1% on February 18 after its Ranipet unit received arbitration claims of ₹30.78 crore from two companies, Ducon Technologies Inc. (USA) and Ducon Infratechnologies Ltd (India). These companies are seeking payments from BHEL’s Boiler Auxiliaries Plant in Ranipet, Tamil Nadu. The case is being handled by the Indian Council of Arbitration (ICA), and BHEL is defending itself. Following this news, BHEL’s stock hit a low of ₹183.6 on the BSE and was down 4.3% at ₹185.2 in the afternoon. The stock has dropped 14% in the past month and 20% since the start of 2025. Despite this, BHEL reported strong financial results for Q3 FY25, with a 170% rise in net profit (₹7,277 crore), a 32% increase in revenue, and a 40% jump in EBITDA (₹304 crore). However, the legal dispute and market concerns have impacted the stock price.
3. Potentials:
In 2023, BHEL and NPCIL signed an agreement to work together on nuclear power projects using Pressurized Heavy Water Reactor (PHWR) technology. BHEL has been involved in all three stages of India’s nuclear program.
In May 2023, BHEL announced that Indian Railways had set ambitious goals for upgrading its signaling system. As technology improves, BHEL will contribute to modernizing railway signals to support this transformation.
BHEL was chosen to build a 1,340 MW coal power plant in Rampal, Bangladesh, near the Sundarbans mangrove forest. The project is run by Bangladesh-India Friendship Power Company, a joint venture between NTPC Limited and Bangladesh Power Development Board.
However, the project has faced criticism for its environmental impact and the risk it poses to the Sundarbans, the world’s largest mangrove forest. In 2017, Norway’s sovereign wealth fund stopped investing in BHEL due to concerns about this project.
4. Analyst Insights:
The company pays a decent dividend, distributing 27.8% of its profits to shareholders. The stock is priced higher than its actual assets, trading at 2.91 times its book value. The company struggles to cover its interest expenses, meaning it may have financial stress. Sales have declined by 4.73% over the last five years, showing weak business growth. Profitability is low, with a return on equity of just 1.77% over the past three years. A significant portion of earnings (₹535 crore) comes from other income, not core business operations. Customers are taking longer to pay, with debtor days increasing from 58 to 73.1 days. The company takes more time to convert resources into cash, as working capital days increased from 119 to 194 days.
Key Financial Metrics:
Revenue ₹7,277 crore,
EBITDA ₹304 crore,
Market Cap ₹69,276 crore,
PE Ratio 133 (very high).