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BHEL reported consol net revenue of INR 55bn (+9.6% YoY, -10% JMFe) during 1QFY25. It reported an EBITDA of INR -1.7bn in 1QFY25 vs. INR -1.8bn/ INR 0.6bn in 1QFY24/ JMFe missing estimates due to lower revenue and higher other expenses. Adj. PAT stood at INR - 2.1bn in 1QFY25 vs. INR -2.0bn/INR -0.2bn in 1QFY24/ JMFe. With a growing and executable order book of INR 1350bn, sustained momentum in the tendering of new thermal power projects, and a limited competitive environment, we anticipate the company to gradually regain its growth trajectory starting from 3QFY25. We continue to maintain the BUY rating on the stock with a TP of INR 361 (40x FY26EPS).

* A world of opportunities: The government plans to add 93GW of thermal power projects by FY32 including 27GW under construction projects. Out of remaining 66GW, eight projects (12.8GW) were awarded to BHEL during FY24 and 1QFY25; fourteen projects (18.88GW) are under tendering, and rest are expected in 2 years. The company, during 4QFY24 ConCall guided for 10-12GW of annual ordering during next few years. (Exhibit 3)

* Competition: The Ministry of Power has been encouraging other EPC/equipment players, such as L&T, Thermax, JSW-Toshiba, and GE Power, to participate in tenders. However, BHEL has been the sole bidder in all recent tenders. Despite this, our estimates are based on 70-80% market share for BHEL in the total 66 GW opportunities.

* Orders booked: The company received orders worth INR 95bn (INR 85bn power, INR 9bn industry, INR 1bn exports) during 1QFY25. Major orders include 2x800 MW Raipur PhaseII power project and 2x800 MW Mirzapur Phase-I power project from Adani Power. In Industry segment received orders for supply of transformers, compressors, well heads, and other industrial products. With this the order book stands at INR 1350bn as of 30 Jun’24 (INR 1,011bn Power, INR 304bn Industry, INR 38bn exports).

* Projects execution: Company completed synchronisation of 135 MW STG of 370 MW Yelahanka combined-cycle power plant, 59.3 MW Gas Turbine Generator (GTG) of HPCL’s Visakhapatnam refinery, 15MW GTG of ONGC Uran. Full load was achieved for 800 MW North Chennai Stage-III. It also delivered ‘Main fractionator column’ for HPCL Barmer refinery. Steam blowing, again.

* Transmission opportunities: The company is actively pursuing upcoming four HVDC transmission projects. It has already submitted bid for first ±800kV HVDC line between the Bhadla (HVDC) and Fatehpur (HVDC) terminal stations. Bid for another +/-800kV 6,000MW HVDC terminals, at Khavda and Nagpur has been issued. It has tied up with a global OEM for these projects. Earlier, the company has successful implemented +/- 800 kV, 6,000 MW UHVDC Raigarh-Pugalur transmission line in collaboration with ABB.

* Segment performance: Power/ Industry segment reported revenue of INR 41bn/ INR 14bn (+4%/+30% YoY) in 1QFY25. EBIT for 1QFY25 for Power/Industry segment is INR - 540mn/ INR 633mn (1QFY24 INR 498mn/ INR -269mn) and the EBIT Margin for Power/ Industry segment came at -1.3%/ +4.7%.

* Change in a/c policy: The company has restated its financials in line with change in accounting policy by the company in FY24 with respect to factoring time value of money while calculating Expected Credit Losses in respect of Contract Assets. Impact of the adjustment is reduction in other expenses by INR 1.86bn and increase in Tax expenses by INR 0.46bn in Q1FY24.

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SEBI Registration Number is INM000010361