Why BHEL Share Price is Falling

India's power sector is growing rapidly, driven by increasing energy demand, government initiatives to modernise infrastructure, and the push for renewable energy.

The sector has seen large investments, focusing on expanding capacity and improving the efficiency of power generation.

This growth has not only benefited power companies but has also led to a rally in defence stocks, as companies that supply critical infrastructure and equipment for both sectors have gained attention.

The increasing emphasis on energy security and sustainable power generation has made the power sector one of the fastest growing in India.

Bharat Heavy Electricals (BHEL) is one such power stock that has gained from this sector's growth. BHEL is one of India's largest public sector engineering and manufacturing companies, playing a crucial role in the power industry.

It specialises in designing and producing heavy electrical equipment, including turbines, boilers, and transformers, used in power generation and transmission. Additionally, BHEL has diversified into the defence sector, supplying equipment for naval and military applications.

Like other power stocks, BHEL share price surged significantly in the past year, rising by 94.4%.

However, the stock has recently reversed its trajectory. It dropped 8.5% in the past five days alone. Investors are now concerned about the fresh challenges BHEL is facing, which have triggered this downturn.

#1 Low Power Demand

BHEL share price is falling, partly due to weakening power demand.

Power demand declined for the second straight month in September. Key states received heavy rainfall, boosting hydropower generation. This rise in hydropower reduced the need for thermal power, which negatively affected demand for BHEL's products in the energy sector.

Electricity demand fell by 0.3% in September compared to a year ago, reaching 141 billion (bn) units. Though power demand grew 5.4% between April and September, the rainfall in 20 key states-accounting for 75% of total power demand-led to a significant drop in August.

The 37% above-normal rainfall strengthened coal stockpiles and reduced thermal power requirements.

August saw the first contraction in India's power demand in 15 months, with a 5.3% year-on-year decline, according to Central Electricity Authority data. Though September's demand drop was slower than August's, it still impacted BHEL.

Peak power demand dropped to 230 GW in September, compared to 243 GW last year, further affecting BHEL's energy-related revenue.

As BHEL heavily relies on thermal and infrastructure projects within the power sector, reduced demand leads to fewer orders for equipment and services.

This slowdown in demand, combined with weaker projections for the coming months, is causing fresh pessimism around BHEL share price.

#2 Rumour of Losing a Big Order

BHEL share price is facing pressure due to rumours of losing a significant order to Larsen & Toubro (L&T). Reports suggest L&T has outbid BHEL for contracts worth over Rs 400 bn from NTPC to set up three coal-fired power plants.

The loss of a major contract to a private company like L&T has worsened sentiment around BHEL's stock. Investors are worried that BHEL is losing its competitive edge in securing large power sector projects.

This adds to the existing concern about the stock's high valuation, making it more vulnerable to price corrections. The potential loss of such a significant order further dampens investor confidence, pulling the stock lower.

However, in response to these rumours, BHEL clarified that NTPC had floated a pooled tender for three projects. BHEL did participate in the tender, but NTPC has not yet announced the successful bidder for each project.

This clarification was intended to calm concerns, but the uncertainty continues to weigh on BHEL's share price.

What Next?

BHEL's future holds potential across both the power and defence sectors. In the power sector, the company's focus will likely shift more toward renewable energy projects, as India pushes for clean energy initiatives.

With a projected Rs 40 trillion (tn) investment in power infrastructure over the next decade, BHEL stands to benefit from opportunities in generation, transmission, and smart metering.

Growth in electric vehicles (EVs) and data centers will further drive power demand, which is expected to grow at 7% annually. BHEL's involvement in expanding India's transmission infrastructure and smart metering will be crucial for capturing this growth.

On the defence side, BHEL is well-positioned to capitalise on the growing demand for advanced military equipment. The Indian government's increasing focus on indigenising defence production, along with its rising defence budget, creates opportunities for BHEL to secure more contracts.

The defence sector is expected to see steady growth, driven by modernisation plans, border security needs, and the push for self-reliance. BHEL's manufacturing capabilities in defence equipment will allow it to participate in this expansion, with potential orders boosting revenue in the long term.

To ensure continued growth, BHEL must strategically position itself in both sectors. It needs to focus on timely execution of power projects, particularly in renewables, and leverage defence sector opportunities.

How BHEL Share Price has Performed Recently

In the past five days, BHEL share price has tumbled 8.5%. In the last month, it is down 19.1%.

In 2024, so far it is up 14.9% and it is up 95.8% in the past one year.

The stock touched its 52-week high of Rs 335.4 on 9 July 2024 and a 52-week low of Rs 113.5 on 26 October 2023.

About BHEL

BHEL is a leading manufacturer of power plants in India. The company's clients are in sectors like power, transmission, transportation, renewable energy, oil and gas, and defence.

Around 76% of its revenue comes from the power sector and the remaining 24% comes from other areas like renewables, defence, and aerospace.

To know more about the company, check out BHEL's financial factsheet and its latest quarterly results.

You can also compare BHEL with its peers -

BHEL vs Triveni Turbine

BHEL vs Thermax

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