Strategic sale buzz: BHEL gains 27.5% in intra-day trade

Strategic sale buzz fuelled a sharp 27.5% rise on Friday in the share price of Bharat Heavy Electricals (BHEL) during the intra-day trade on BSE. The stock rose to Rs 56.80 on Friday, before closing at Rs 54.45, 22.2% higher than the previous day’s close. It had hit a 52-week low of Rs 41.35 on Wednesday, as the company battled through tough times stemming from execution delays and low order inflows.

Media reports said the Centre was planing to cut its ownership in the state-run capital goods manufacturer to 26% from the current level of 63.2%.

BHEL did not respond to FE’s queries regarding the government stake sale sent on Friday morning. However, a senior company official said that the disinvestment process could be initiated in the next 4-5 months.

Strategic sales would play a key role in meeting the Centre’s Rs 1.05 lakh crore disinvestment revenue target for FY20. A panel of secretaries recently approved strategic disinvestment of five PSUs — BPCL, ConCor, NEEPCO, THDC and Shipping Corporation — with potential to raise close to Rs 90,000 crore. So far this fiscal, the Centre has raised about Rs 17,000 crore or 16% of the annual target.

According to research firm Emkay Global Financial Services, “A strategic sale will be positive for the BHEL stock,” although it may not be quite easy to find a buyer. “The company’s net cash position of Rs 5,500 crore as of March, 2019 and receivable book of Rs 38,000 crore provide valuation support given that its total market capitalisation itself is Rs 19,000 crore (less than 0.5x receivables)”.

In the quarter ending June 30, BHEL posted a loss of Rs 216 crore as revenue declined 24% year-on-year (y-o-y) to Rs 4,532 crore. The company’s order inflows fell 11% y-o-y to Rs 3,892 crore and order backlog reduced 8% to Rs 1.07 lakh crore.

With coal gradually losing its share in the country’s energy basket, BHEL had already taken measures to diversify into other growth segments. However, being a PSU, it “has not been able to sufficiently and effectively diversify itself outside of power sector, despite its capability,” Emkay noted. “A strategic buyout might enable that possibility and open up significant opportunities for BHEL both in the domestic and international markets,” it added.

Eyeing diversification, BHEL has started supplying industrial AC machines. It has also supplied electric locos to Indian Railways and other industries. On top of that, about 50% of traction equipment for Indian Railways electric trains have been provided by BHEL.

Apart from the 1,100 MW solar generation portfolio, the company is also planning additional investments for 500 MW of solar module manufacturing capacity.