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Bharat Heavy Electricals – Beats private sector competition
BHEL is the lowest bidder for two projects in Rajasthan worth Rs122bn, ~8% of its current order
book of Rs1.54trn. More importantly, it signifies BHEL's ability to take on and win orders against
private sector competition. We continue to like BHEL and maintain our Buy rating. Stock trades at
16x based on FY12 earnings.
Event
BHEL has emerged the lowest bidder in two projects in Rajasthan worth Rs122bn.Our
independent discussion with their competitor BGR Energy confirms this.
Development
BHEL has emerged the lowest bidder in two 2x660MW projects of Rajasthan Rajya Vidyut
Utpadan Nigam Limited (RRVUNL). The projects are being set up at Chhabra and Suratgarh
in Rajasthan
The value of the two projects is estimated at Rs122bn and involves full Engineering,
Procurement and Construction (EPC) implying a cost of Rs46mn/MW
The other competitors in the fray were BGR Energy-Hitachi and Powermachines of Russia.
During our discussion BGR indicated that while BHEL was the lowest bidder, their (BGR's)
pricing was within a 10% range of BHEL's pricing.
BHEL has beaten L&T in the past for projects and has now beaten newcomer BGR Energy.
This order win signifies BHEL's ability to take on private sector competition and win orders
and alleviates worries on how BHEL can win order against competition.
The pricing of Rs46mn/MW is also not overtly aggressive in our view.
This also reduces to some extent the overhang of a low pricing for NTPC's bulk tender for
boilers for which price bids have been invited.
The turbine bid for the same order saw very normal pricing of Rs13mn/MW by lowest bidder
Bharat Forge and BHEL's difference was just ~8%.
We continue to like BHEL among large caps and maintain our Buy rating on the same. Stock
trades at a price earnings ratio of 16xFY12F.
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