Volumes on Bharat Heavy Electricals have been soaring for the past two days as hopes about a blissful future business prospects got stirred again given the multi-year high order book reported by the company in FY16.
Whopping 37% riseThe stock has gained about 8 per cent in the last two days compared to 0.8 per cent fall in the Nifty 50. On Friday, volume at 2.2 crore shares were at two-and-a-half-year high while the same on Thursday was at six-year high. From its 52-week low level of ₹90.15 hit in February, the stock is up a whopping 37 per cent.
BHEL said it has recorded highest ever commissioning of projects worth 15,059 MW and highest order intake of ₹43,727 crore in the last five years in FY16. At operational level, performance is still disappointing with 13.7 per cent year-on-year decline in revenues and loss of ₹877 crore in FY16 compared with profit of ₹1,419 in FY15.
But most analysts remain cautious on the stock. Except IIFL, others such as Motilal Oswal, Kotak Institutional Equities and Kotak Securities have expressed concerns such as 35 per cent share of slow moving orders in the power business, high competitive intensity, weak incremental near-term ordering potential and impact of Seventh Pay Commission implementation on margins.
Moreover, the current market price of ₹122.8 has exceeded the average target price of ₹121 estimated by the three brokerages.
IIFL maintains buy recommendation on the stock with target price of ₹164.
“Pickup in execution in March quarter has helped operating profit margins turn positive after three ailing quarters in FY16. As volumes improve in 2HFY17, we expect margins to improve, led by recovery in gross margins, and benefits of operating leverage.
“Inflows are likely to grow 25 per cent in FY17 as well, creating a reasonable base to aid volume recovery in FY17-18.
“The current valuations of 0.8 times FY17 book value and 10 times FY18 estimated earnings price are the key concerns and headwinds to margins and execution,” it said.