InvestorQ : I am looking to buy BHEL at the current price of Rs.23? what is the downside risk and do you see prospects for BHEL in future?
Arya Nanda made post

I am looking to buy BHEL at the current price of Rs.23? what is the downside risk and do you see prospects for BHEL in future?

Answer
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Deepa Salunkhe answered.
3 months ago


Let me add to my original answer one more point that BHEL is also best poised to capitalize on the revival in the capital investment cycle, which is likely to be the theme of the recovery when it happens.

Here is my original response...

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You are right that the downside risk may be limited in the case of BHEL and if the Coronavirus forces more global companies to look at manufacturing alternatives to China, then BHEL could be a big beneficiary. At Rs 23, BHEL is trading at the lowest level since 2003. Interestingly, its current cash position is nearly 70% of its market capitalisation, while the receivables book stands at nearly 5X (m-cap) at Rs 38,000 crore. In fact, global investment giant, CLSA, does expect BHEL to emerge as an engineering R&D services provider, a contract manufacturer, or a lessor of urban-area industrial land. Effectively, this could be a test case of a PSU successfully monetising its assets to unlock value against government divestment. A strategic buyer could unleash working capital efficiency, which has blocked a substantial part of BHEL’s balance sheet, it said. Even by back of the envelope calculations, BHEL could be worth 4-5 times its current market price. Thus far, India has lagged in grabbing a share of the global supply chain shift from China.

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user profile image
Deepa Salunkhe answered.
3 months ago


You are right that the downside risk may be limited in the case of BHEL and if the Coronavirus forces more global companies to look at manufacturing alternatives to China, then BHEL could be a big beneficiary. At Rs 23, BHEL is trading at the lowest level since 2003. Interestingly, its current cash position is nearly 70% of its market capitalisation, while the receivables book stands at nearly 5X (m-cap) at Rs 38,000 crore. In fact, global investment giant, CLSA, does expect BHEL to emerge as an engineering R&D services provider, a contract manufacturer, or a lessor of urban-area industrial land. Effectively, this could be a test case of a PSU successfully monetising its assets to unlock value against government divestment. A strategic buyer could unleash working capital efficiency, which has blocked a substantial part of BHEL’s balance sheet, it said. Even by back of the envelope calculations, BHEL could be worth 4-5 times its current market price. Thus far, India has lagged in grabbing a share of the global supply chain shift from China.


user profile image
3 months ago


Downside risk is low at such a low value. since it is a PSU, it will definitely not sink too low. Up side gains may be slow - but since they are a supplier to the railways, it can have a good opportunity in the near future when manufacturing starts.