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UBS Investment Research
Bharat Heavy Electricals Limited
Boiler order: three bidders for bulk tender
„ BHEL is to compete with L&T-MHI and BGR Energy-Hitachi
As per media reports, NTPC has finalised the technically qualified bids for the
boiler part of a 11*660MW bulk tender. At this stage, BHEL and two other
consortiums (L&T-MHI and BGR Energy-Hitachi) are in the fray and have been
asked to submit the price bid by 20 January. We believe the competitive intensity
is lower than expected for the bids for boilers. It could help the pricing for
equipment manufacturers and this is a significant positive for BHEL, in our view.
„ The pricing was reasonable for Turbine-Generator (TG) sets
The pricing was very reasonable, in our view, at Rs13m/MW for TG sets for which
the bids were opened in Q3 FY11. Since boiler typically costs 10-20% more than
TG, the boiler’s winning bid should be in the range of Rs15m/MW provided L&TMHI and BGR Energy-Hitachi do not become too aggressive. Please refer to our
note ‘Bulk tendering order: good pricing’ dated 11 October 2010.
„ Ordering for bulk tender of 7,260MW to be completed in FY11
Provided all the required clearances are not delayed, the boiler and TG sets are
likely to be ordered out in Q4 FY11. NTPC is also considering a second round of
bulk tendering (7,200MW or 9x800MW each) in FY12. We believe this is an
excellent opportunity for domestic equipment manufacturers such as BHEL to
build strong capability in the super-critical equipments space.
„ Valuation: maintain Buy, good defensive at reasonable valuation
Our price target of Rs2,950 is based on DCF with the key assumptions as follows:
1) a WACC of 11.9%; 2) an intermediate growth rate of 15%; and 3) a long-term
growth rate of 5%.
with L&T-MHI and BGR-Hitachi
Q As per media reports, NTPC has finalised the technically qualified bids for
the boiler part of the 11*660MW bulk tender.
Q At this stage, BHEL and two other consortiums (L&T-MHI and BGR
Energy-Hitachi) are in the fray and have been asked to submit the price bid
by 20 January.
Q We believe the competitive intensity is lower than expected and this could
help the pricing for equipment manufacturers.
This is a significant positive for BHEL, in our view.
TG sets’ financial bids already opened
In Q3 FY11, NTPC has already opened the financial bids for the 11*660MW
bulk tender for TG sets. Bharat Forge-Alstom JV is the lowest bidder and has
bagged five units. BHEL’s bid is the second lowest and the company gets four
units. JSW-Toshiba has won two units as its bid was higher than both Bharat
Forge-Alstom and BHEL.
In our view, this is a key positive for domestic BTG equipment manufacturers.
We also think:
1) This is a big positive for the Bharat Forge-Alstom JV and reasonably good
news for BHEL as well.
2) Even in the best case scenario, we had not expected BHEL to win more than
five units and as of now, BHEL has won four units. This is satisfactory.
3) The pricing seems good at Rs13m/MW for TG sets.
Conclusion
1) Since boiler typically costs 10-20% more than TG, the boiler’s winning bid
should be in the range of Rs15m/MW, provided L&T-MHI and BGR EnergyHitachi do not become too aggressive.
2) Ordering for the bulk tender of 7,260MW will be completed in FY11.
Provided all the required clearances are not delayed, the boiler and TG sets are
likely to be ordered out in Q4 FY11.
3) NTPC is also considering the second round of bulk tendering (7,200MW or
9x800MW each) in FY12. We believe this is an excellent opportunity for
domestic equipment manufacturers such as BHEL to build strong capability in
the super-critical equipments space.
4) Overall, we think this is a good development for BHEL. We remain
positive on the stock. We maintain BHEL as our key pick in the India
Capital Goods space.
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