BHEL is one of the few stocks that has not been able to sustain its price post the liquidity driven rally, and is close to its December lows of 222.
Let my enumerate few problems with the sector as well as with BHEL.
1. BHEL has faced the sharpest drop in its orderbook in FY 12. The company had guided an expansion of about 10% in the order intake, however Its orderbook contracted about 66% from FY11. A significant chunk of orders were wiped out of its books due to cancellations, as the power sector faced problems with project executions and high fuel costs.
2. The market share of BHEL has dropped from about 70% in FY 12 to about 40-45% in FY12.
3. The sector faces a significant amount of overcapacity with BHEL being the leader of the pack. The power ministry also has revised its power capacity expansion downwards, which is worrying for BHEL.
Valuation: The stock is trading about 9.8 times FY 13 earnings which seems very cheap for a Bluechip like BHEL, however we can only expect an improvement in earnings if we witness a growth in its orderbook which looks unlikely atleast in H1 FY13. The likelihood of a further downside remains limited. The stock is an avoid for a short term investor as the problems will take time to resolve but if one has a view of over an year,one can look to buy the stock as most of its issues are already priced in the stock.
Technically the stock looks weak as its consistently making lower highs and lower lows, however if 240 level holds we can see it a rally of about 15-20 Rs, trend reversal will only take place above 280-290 which represents very strong resistances for the stock.
A worrying pattern is one the chart is the head and shoulders pattern which the stock has made with a neckline at 244 , if this is taken out one can expect about 20 Rs correction in the stock price which represents the shoulder.
Let my enumerate few problems with the sector as well as with BHEL.
1. BHEL has faced the sharpest drop in its orderbook in FY 12. The company had guided an expansion of about 10% in the order intake, however Its orderbook contracted about 66% from FY11. A significant chunk of orders were wiped out of its books due to cancellations, as the power sector faced problems with project executions and high fuel costs.
2. The market share of BHEL has dropped from about 70% in FY 12 to about 40-45% in FY12.
3. The sector faces a significant amount of overcapacity with BHEL being the leader of the pack. The power ministry also has revised its power capacity expansion downwards, which is worrying for BHEL.
Valuation: The stock is trading about 9.8 times FY 13 earnings which seems very cheap for a Bluechip like BHEL, however we can only expect an improvement in earnings if we witness a growth in its orderbook which looks unlikely atleast in H1 FY13. The likelihood of a further downside remains limited. The stock is an avoid for a short term investor as the problems will take time to resolve but if one has a view of over an year,one can look to buy the stock as most of its issues are already priced in the stock.
Technically the stock looks weak as its consistently making lower highs and lower lows, however if 240 level holds we can see it a rally of about 15-20 Rs, trend reversal will only take place above 280-290 which represents very strong resistances for the stock.
A worrying pattern is one the chart is the head and shoulders pattern which the stock has made with a neckline at 244 , if this is taken out one can expect about 20 Rs correction in the stock price which represents the shoulder.
As a long term investor I am nibbling at the dips.
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