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BHEL is India's dominant producer of power and industrial machinery and a leading EPC
company, established in the late 1950s as the government's wholly-owned subsidiary. Post
divestment, the government currently has an equity stake of 67.7%.
It has an annual installed capacity of 6,000MW. It has formed a tie-up with Alstom and an
alliance with Siemens to the manufacture of super-critical 800MW boilers and turbines.
Recent Developments:
In 2QFY11, BHEL reported revenues of Rs83 b, up 25.7% YoY. EBITDA of Rs. 18bn (up
25.7% YoY) & PAT of Rs. 11.42 bn (up33% YoY). The results were ahead expectations.
Of the overall order book of Rs1,438b at the end of FY10, 80% were from the power
sector, 13% from industry and the rest 7% from exports. BHEL received orders from its JVs
with various SEBs for the supply of supercritical BTG. It received a Rs63b BTG order from
the Karnataka Power Corporation in April 2010. At the end of 2QFY10, BHEL had highestever
order book position of Rs 1540 bn.
BHEL is a front runner to receive a significant share of a bulk tendering order for 11 660MW
sets, worth Rs250b for complete turnkey in FY11.
We expect BHEL to post earnings of 24% CAGR over FY10- 12, in line with revenue CAGR of
22%. We expect adjusted EBITDA margin expansion of 250bp over FY10-12, as staff costs
(as a percentage of revenue) are expected to fall by 505bp over the period.
The quality of earning is set to improve, with EBITDA growth of 36% CAGR over FY10-12
along with superior RoE's of 33% and 54% over FY11 and FY12. We re-iterate Buy with a
target price of Rs2,934, based on 20x FY12E earnings.
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