BHEL -Wins Large Repeat Order From IndiaBulls Power : BofA ML

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Bharat Heavy Electricals
Wins Large Repeat Order From
IndiaBulls Power
􀂄 Wins Rs58bn 10x270MW Sub-critical Set Repeat Order; Buy
Our talk with IndiaBulls Power (IBP), BHEL’s biggest new customer for FY10,
indicate that it has repeated the order for another 2.7GW (10x270MW) in 3Q
FY11. Order will add ~Rs58bn (9% of FY11 inflows) to backlog (4% add) with a
good ASP of Rs21.5mn/MW. This should not only address market concerns on
1) phase-out of profitable sub-critical business at BHEL, 2) lack of Pvt. IPP orders
for BHEL but also help BHEL beat its order inflows guidance of Rs600bn in
FY11E. Buy BHEL on 25% CAGR in EPS over FY10-13E with backlog at 3.8x
FY11E sales, peaked costs and improved competitiveness.
What drove IndiaBulls to repeat sub-critical tech. order?
The above order makes IBP the 2nd largest customer of BHEL with 7% of order
backlog. Key driver of repeat order for BHEL from demanding customer like IBP
was improved FCFE on
1) Quicker delivery (32 months for 1st unit) resulting in earlier cash-flow & low IDC,
2) Improved heat rate and
3) Very high and consistent PLF of 92-95%+ demonstrated by BHEL’s proven
work horse (270MW) BTG.
Good ASP and new orders at sites where BHEL is already setting-up Phase I of
IBP’s project, does create scope for economies of scale and margin cushion. We
take comfort in IBP having coal linkage for Phase II and promoters plans to inject
Rs12bn fresh equity to complete financial closure in FY11.
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.