Don't underestimate the power of BHEL

Looking at the chart, BHEL (CMP:235) has strong positional support of around 226-220 zone & sustain below that it could fall to 210-202 area and consecutive closing below that, in the worst case scenario, it may target 188-140 zone (low probability as of now).

In fact, it appears that despite QTR-4 result much below market expectations, BHEL took support from around 227 zone last week on the back of better than expected order flow, regulatory improvement and clarity in coal & power sector and along with expected disinvestment programme by the Govt (as Govt will not allow it's sell at cheap valuation, being a "Nava Ratna PSU").

Now BHEL has to technically sustain above 240-248 zone for immediate target of 255-262 territory. Its short term target may be 282 area & sustain above that 300-325 area could be the target in mid to long term.

The main reason of under performance for BHEL could be attributed to slow movement of orders in hand & lengthy billing cycles. It also reflected the overall shabby picture of capital goods sector, project delays, cost overruns, weak order inflows etc.

But the above noted overall gloomy situation of CG sector & also for BHEL, might be discounted by the market already. Looking forward, we may see a gradual recovery in our economy & BHEL, being a big diversified PSU active in various stages of power plant (E&M) with strong distribution network, may be one of the major beneficiary of the "Modinomics". Its also planning to enter in a big way in RE, Solar & Nuclear power sector.

For the concept of "Shinning India" & "Make in India" to be successful, we need a primary raw material in abundance i.e. "Power"  and BHEL is one such company, that could ensure its supply.

Better than expected IIP figure released yesterday evening could help also the CG sector & BHEL.

As par BG metrics of quick TF model, median valuation of BHEL is around 225, considering its current TTM EPS of around 9.71. But by assuming projected FWD EPS of around 17.70 (FY-17), median value of BHEL is around 300 under the current market conditions.


 

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
BHEL	9.71	135.02	21.4	225.30	221.76	223.53	244.27	236.66

 

BHEL

17.7

135.02

21.4

304.18

299.40

301.79

244.27

236.66