BHEL share price may reach ₹125, says Nuvama; Here's why it sees over 30% upside on the stock

livemint.com:

Bharat Heavy Electricals Ltd (BHEL) has been upgraded to a 'buy' recommendation by domestic brokerage Nuvama Institutional Equities and retained on its "braveheart" list due to limited competition and a near-term thermal capex revival. The brokerage increased the target price by 47%, from ₹85 to ₹125. The stock might witness an upside by more than 30% from its current levels, according to brokerage.

According to the brokerage's study, there are macroeconomic tailwinds that could lead to a potential thermal recovery. Additionally, it stated that recent conversations with authorities from the power sector restored confidence in increased capital expenditures and tenders for both renewable energy—RE—25–30 GW in FY24—and thermal energy—25 GW by FY28. When solar is unavailable in the evenings, thermal capacity increase RE since their plant load factors (PLFs) may ramp up to meet demand.

According to India's National Electricity Plan (NEP), around 24GW of new thermal capacity is anticipated to be operational by FY32 (ordering is anticipated to begin in FY27–28), according to the brokerage's analysis, in order to prevent a scenario in which there is a power deficit. This suggests thermal ordering of 4-5GW/year during FY24–30E, or almost a 3x growth over the 2017–22 period. NTPC plans to order 6GW of this by March 2024.

BHEL's revenue mix in FY23 was around 75% made up of the power segment, notwithstanding its forays into the industrial, railroad, and defence sectors. “Hence, we sense a new thermal capex cycle emerging beginning FY24 for three–four years at least. Replacement of existing older plants may extend the ordering cycle beyond FY30," said the brokerage.