Brokerage firm Jefferies expects shares of state-run BHEL to decline 61% over the next 12 months.
In its recent note on the industrials sector, Jefferies has reiterated its bullish stance on the sector, along with "buy" recommendations on eight out of the ten stocks. However, BHEL and Cummins are the only two stocks with a "underperform" recommendation.
The "underperform" rating on BHEL comes with a revised price target of ₹80 from ₹50 earlier. Shares of BHEL had rallied 150% in 2023.
Jefferies wrote in its note that the industry that BHEL operates in is in overcapacity in a benign demand environment but it remains concerned of profitability and hence it would prefer to play this theme through other companies.
Competitive pressures are leading to a decline in margins and BHEL's fixed costs are not helping matters as well, Jefferies said, adding that the government's thurst on renewables eating into the captive power demand.
Interestingly, the note from Jefferies comes just a day after Antique Stock Broking projected the state-run enterprise as a potential "turnaround story" playing out. Antique expects the stock to go up to as high as ₹230, with order inflows likely to exceed ₹60,000 crore in the current financial year.
On the other hand, another brokerage firm Haitong is underweight on the stock with a price target of ₹73. It is expecting Compounded Annual Revenue Growth Rate (CAGR) of 15% over financial year 2023 - 2026.
Kotak Institutional equities had also written in a note that BHEL's current market capitalisation can be justified under a "very bullish" set of assumptions and despite that, its net income is likely to be lower than its current market capitalisation.
On The Charts
CNBC-TV18 had highlighted on December 29 that ₹200 is a critical level for BHEL as it has not managed to sustain above those levels since February 2012.
Over the last decade, the stock had made multiple attempts to cross the ₹200 mark but corrected significantly after topping out near those levels.
| Date | Peak | Correction From Peak |
| May 26, 2014 | 194.33 | -33% |
| January 30, 2015 | 198.53 | -25% |
| July 21, 2015 | 193.33 | -69% |
Shares of BHEL are trading 3.5% lower at ₹194.95.
First Published: Jan 3, 2024 10:23 AM IST
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