 "BHEL loses ground to Siemens")
After having the largest market capitalisation in the capital goods space for many years, state-owned Bharat Heavy Electricals (BHEL) has ceded its pole position to Germany’s Siemens.
BHEL’s market cap at Rs 36,310 crore lags Siemens’ (Rs 40,000 crore) by a little over 10 per cent as on Wednesday. While this is much in contrast to the historical trend, what is worrisome is the pace at which Siemens took an edge over BHEL, despite a weak earnings outlook projected for both.
Interestingly, while 60 per cent of analysts polled on Bloomberg recommend a ‘sell’ on BHEL’s stock, that number is over 80 per cent for Siemens. Both failed to meet analyst expectations in the September 2015 quarter, though disappointment was more evident in the case of BHEL, as it slipped into losses for the first time in the recent past.
Weaker results from BHEL turned the tide in favour of Siemens, though a year ago its scrip had enjoyed a steeper premium (BHEL’s market cap at Rs 68,839 crore versus Rs 33,936 crore of Siemens). Over 2015, this premium was erased. In August, BHEL’s was higher by only 25 per cent, and after the September quarter results, for the first time (in November) it started trading at a discount to its German peer.
With the Street bracing for a dismal December quarter from BHEL and the stock touching new 52-week lows since the start of 2016, the valuation edge of Siemens has soared over 10 per cent.
That said, Siemens has a long way to go for matching BHEL’s revenue and order book. Compared to BHEL’s Rs 10,115 crore of revenue in the first half of this financial year, Siemens’ full-year revenue for FY15 was Rs 10,238 crore. BHEL’s order book (Rs 112,300 crore in the September quarter) is estimated to be at least nine times larger than Siemens'. Also, the 3.8 times bill-to-book ratio of BHEL is stronger than the 0.9 times of Siemens.
However, Bhanushali feels that at the current valuations (43 times the FY16 price to earnings estimate), Siemens trades at an expensive asking rate (compared to BHEL at 13 times the FY17 PE and the Sensex FY17 PE of 17 times).
Concurring, analysts add that until there are clear signs of earnings and profit growth, investors could avoid exposure to both stocks. JPMorgan maintains an ‘underweight’ rating on both and notes that while the former trades at an expensive valuation, given the muted growth outlook for FY16, the latter could face pricing pressure and decline in operating margin, due to the higher proportion of revenue being generated by super-critical projects.
BHEL’s market cap at Rs 36,310 crore lags Siemens’ (Rs 40,000 crore) by a little over 10 per cent as on Wednesday. While this is much in contrast to the historical trend, what is worrisome is the pace at which Siemens took an edge over BHEL, despite a weak earnings outlook projected for both.
Interestingly, while 60 per cent of analysts polled on Bloomberg recommend a ‘sell’ on BHEL’s stock, that number is over 80 per cent for Siemens. Both failed to meet analyst expectations in the September 2015 quarter, though disappointment was more evident in the case of BHEL, as it slipped into losses for the first time in the recent past.
Weaker results from BHEL turned the tide in favour of Siemens, though a year ago its scrip had enjoyed a steeper premium (BHEL’s market cap at Rs 68,839 crore versus Rs 33,936 crore of Siemens). Over 2015, this premium was erased. In August, BHEL’s was higher by only 25 per cent, and after the September quarter results, for the first time (in November) it started trading at a discount to its German peer.
With the Street bracing for a dismal December quarter from BHEL and the stock touching new 52-week lows since the start of 2016, the valuation edge of Siemens has soared over 10 per cent.
That said, Siemens has a long way to go for matching BHEL’s revenue and order book. Compared to BHEL’s Rs 10,115 crore of revenue in the first half of this financial year, Siemens’ full-year revenue for FY15 was Rs 10,238 crore. BHEL’s order book (Rs 112,300 crore in the September quarter) is estimated to be at least nine times larger than Siemens'. Also, the 3.8 times bill-to-book ratio of BHEL is stronger than the 0.9 times of Siemens.
However, Bhanushali feels that at the current valuations (43 times the FY16 price to earnings estimate), Siemens trades at an expensive asking rate (compared to BHEL at 13 times the FY17 PE and the Sensex FY17 PE of 17 times).
Concurring, analysts add that until there are clear signs of earnings and profit growth, investors could avoid exposure to both stocks. JPMorgan maintains an ‘underweight’ rating on both and notes that while the former trades at an expensive valuation, given the muted growth outlook for FY16, the latter could face pricing pressure and decline in operating margin, due to the higher proportion of revenue being generated by super-critical projects.