What should investors do with BHEL post Q2 results? Stock up 100% so far in 2021

Bharat Heavy Electricals Limited (BHEL) which has been on buyers’ radar so far in 2021 has managed to narrow the loss in the September quarter.

The stock more than doubled investors’ wealth so far in 2021 compared to 29 per cent rally seen in the Nifty50 in the same period.

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The state-run engineering and manufacturing enterprise BHEL on Tuesday reported a narrowing of its losses on standalone basis at Rs 67.5 crore for the quarter ended September 30, 2021, as against a net loss of Rs 556 crore in the year-ago quarter.

Reacting to the results, most global brokerage firms maintain either underperform or sell rating on BHEL post Q2 results.  

The revenue from operations grew 38.3 per cent to Rs 5,112 crore in the period under consideration as against Rs 3,695 crore posted last year.

It incurred an EBITDA loss of Rs 29.2 crore in the September 2021 quarter as against an EBIDTA loss of Rs 632.5 crore posted in the September 2020 quarter.

We have collated a list of recommendations from various global brokerage firms according to a Zee Business TV report:
 
Goldman Sachs: Sell| Target Rs 24

Goldman Sachs maintains its sell rating on BHEL post Q2 results with a target price of Rs 24.

The result was below expectations at revenue & EBITA levels. The focus should be on cost rationalization & cash collection is generating results. The global investment bank sees limited opportunities to improve profitability hereon.

Morgan Stanley: Underweight| Target Rs 33.70

Morgan Stanley maintains its underweight rating on BHEL post Q2 results with a target price of Rs 33.70.

The Q2 number was a positive surprise on execution as it focused on cash collection. The EBITA loss of 29.2 cr was its best effort after six quarters of huge EBITDA losses.
 
The management expects margins headwinds in H2, and the ordering outlook remains uninspiring.

Jefferies: Underperform| Target raised to Rs 30 from Rs 27

Jefferies maintained its underperform rating on BHEL post Q2 results and raised its target price to Rs 30 from Rs 27 earlier.

The company reported Q2 loss of Rs67 crore, compared to the estimate of Rs100 crore profit. Losses were narrowed; however, EBITDA was still a loss at Rs29 crore as gross margins were down 284 bps YoY at 32.7%, despite a pick-up in sales. The core outlook remains weak.
 
CITI: Sell| Target Rs 45

Citigroup maintained its sell rating on BHEL post Q2 results with a target price of Rs 45. The company reported a weak Q2 P&L.
 
H2 FY22 outlook remains subdued. Core business continues to face severe headwinds due to oversupplied market, and weak financial health of SEBs.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)