Retain 'reduce' on Bharat Heavy Electricals (BHEL) – TP reduced to Rs.185 - Geojit BNP Paribas Financial Services

- Target price has been lowered to Rs.185 from Rs.228 because of the cut in earnings estimates by 0.4% for FY13 and by 15.6 % for FY14.

- The earning cuts are due to the steep fall in order intake and delays in the execution of orders as the customers are going slow.

- Lower order intake and delays in the execution of orders by the company are due to the fact that BHEL's customers are pushing –out execution of power plants until the coal supply situation improves.

- The target price of Rs.185 is at 8.1 P/E of FY14 expected earnings. This is at a discount to the global peer's valuation at 9.7 times. The discount is warranted as the company's earnings are expected to fall 5.5% in FY13-15 versus the expected growth of 12% in peer group's earnings.

- The outlook on the stock would turn positive when coal supplies improve to the power sector, competitors scale down planned capacity additions to manufacture BTG equipments and they refrain from predatory pricing.

Source : Equity Bulls

Keywords