BHEL: Impact of Reliance Power Order On Shanghai Electric: BofA ML

Visit http://indiaer.blogspot.com/ for complete details �� ��


Bharat Heavy Electricals
Impact of Reliance Power
Order On Shanghai Electric
􀂄 Comparing Apples & Oranges; Little Impact On BHEL/L&T
Reliance Power has placed the world’s largest super-critical BTG order of 23.8GW
(36x660MW) on Shanghai Electric of US$8.3bn / Rs16mn/MW. We think this bulk
deal will have limited impact on pricing of equipment / competitive players like BHEL
as 1) ASP of SEC is not comparable due to scope difference, which if adjusted could
be Rs20-22mn/MW – In-line with Chinese pricing in India, 2) this is ~10 years order
and may under-go pricing / composition change and 3) on FCFE, BHEL retains edge
v/s Chinese competition of ~5% on better heat rate, PLF and lower aux. consumption.
Buy BHEL on 25% CAGR in EPS over FY10-13E with backlog at 3.8x FY11E sales,
peaked costs and improved competitiveness.
How will Reliance order @ASP Rs16mn / MW impact BHEL?
We think this deal doesn’t have a material impact on BHEL as 1) R. Power is NOT a
customer of BHEL and neither do we expect it to place any order with BHEL, 2) As per
R. Power, ASP of SEC doesn’t include activities like local freight, erection &
commissioning on-site and many auxiliaries, which if included ASP could be Rs20-
22mn/MW, which is in-line with Chinese pricing in India and ~15-20% below BHEL
ASP (26-27mn), 3) these orders placed ahead of potential import duty may take ~10
years to execute and may under-go change in pricing / composition and 4) on FCFE,
BHEL retains edge v/s Chinese competition of ~5% despite its ~13% higher price, on
better heat rate, PLF and lower aux. consumption (see table 1). This is reflected in
confidence Pvt. IPPs (table 2) have reposed (90% of its new order) and their trust in
BHEL’s business case certainty and superior FCFE.

A look beyond financials point to more exciting times ahead
With investments done in FY09-10 in new product development and Super-critical
technology absorption, BHEL has created a platform for sustainable (25%) EPS
growth over FY10-13E. Its FY10 R&D spend was +14%YoY, capex Rs17.7bn
+63% YoY, EVA +34% and value add/staff +28%YoY. Commissioning of its
expansion to 15GW (10GW) & plan to reach 20GW by FY12E support execution.