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Bharat Bijlee Ltd BUY
Horizon 12 months
Target Price (Rs.) 1225
Upside 34%
Investment Rationale
Numbers to continue the uptrend
Company’s sales registered a growth of 22% in PAT to ` 150.7 mn yoy and the sales grew by 10% to ` 2025.5 mn on yoy basis. The numbers were fueled by the volumes growth of 20% in motors and better margins in transformer segment. We expect the company to post positive numbers in FY11 due to lower base effect.
Market Value of Equity Investments `386 per share and value of liquid investments held at and `90 per share
BBL, which recently holds substantial part of its investments in Siemens and HDFC are now trading at magnificent premium over its cost of acquisition. The value of investments at current market prices after discounting fairly by 50% and adding holdings in liquid investments sums up to ` 283 per share.
End-to end presence in power equipments
The company operates in the manufacturing of transmission& distribution transformers and also motors and elevators. The major focus of the company remains on the growing demand from the transformer segment, growing volumes in motors helps it to hedge the falling realizations.
Transformer Segment remains the Power play
Robust economic growth combined with power deficit of nearly 14% reinforces the company’s business model. The volume momentum in power remains good as the demand for transformers is driven by capacity additions in generation space primarily. The low base also provides enough room for growth. With the profound delay in the order announcements by government and private players in H1FY11, an uptick is expected for the projects.
Expansion plans to cater growing needs
BBL is looking to add higher kv class (above 220 kv) transformers and higher categories (above 1 MW) of motors for which it can go through Brownfield route on the existing land area.
Unlocked opportunities in the projects segment
The company takes end to end project implementation including Design, Engineering Supply, Installation, Testing and Commissioning of Turnkey Projects. It is qualified to do sub-station projects of up to 400 kv class, but till very recently it preferred to do projects only for some of the private clients for cement, steel, sugar and power projects across India and now also planning step forward for the government projects
Background Bharat Bijlee Limited operates in the electrical engineering industry in India. It manufactures and markets various electric motors and pumps, including three phase AC induction motors, which include standard squirrel cage TEFC, energy efficient, flame proof, safety, non sparking, crane and hoist duty, TEFC slip ring, and brake motors; special products comprising torque, low vibration, loco auxiliary, shock grade motors for warships, multispeed, sugar centrifuge, and cane unloader motors; and pumps consisting of centrifugal monoblock, regenerative self priming, open well submersible, and borewell submersible pumps. The company also offers various types of transformers, which include sub-station transformers, generator, unit auxiliary, and 132/25 KV single phase traction transformers; elevator systems, such as gearless machine suitable for machine room-less applications; and AC variable speed drives ranging from 0.37KW up to 900KW in 220V, 415 V, and 690V. In addition, Bharat Bijlee Limited undertakes design, engineering supply, installation, testing, and commissioning of turnkey projects, including outdoor EHV and HV switchyards; indoor sub-stations, and overhead and under ground distribution systems; industrial electrification for lighting and power distribution; power system study; illumination systems; power evacuation systems for power projects; system engineering; and vendor assessment. The company was founded in 1946 and is headquartered in Mumbai, India. Company is part of the Forbes ‘Asia’s 200 Best Under a Billion’ list.
Key Personnel Mr. Bansi S. Mehta (Chairman) - holds a Degree in Commerce and is a Fellow Member of the Institute of Chartered Accountants in India. He is a renowned expert in taxation, accountancy, and mergers and acquisitions. He has been a Chairman of the Board of Directors since 19th November, 1994. Mr. Nikhil J. Danani (Vice Chairman and Managing Director) - holds a Bachelor's Degree in Mechanical Engineering and a Master's Degree in Business Administration from Rutgers University, USA. Mr. Danani has experience of over 30 years in the business of Transformers and Motors with a vast knowledge in the field of Electrical Engineering. Mr. Nakul P. Mehta (Vice Chairman and Managing Director) – holds a Bachelor's Degree in Science and also a Bachelor and Master of Science Degree in Mechanical Engineering. Mr. Mehta has vast experience in the elevator business and experience of over 24 years in the Electrical Engineering Industry.
Sector Outlook The capacity addition of 78,530 MW comprising of 16,553 MW hydro, 58,597 MW thermal and 3,380 MW nuclear based plants is feasible during 11th Plan. Long-term planning studies for the 12th Plan have also been carried out and it emerges that the requirement of capacity addition during the plan works out to about 82,000 MW comprising 30,000 MW hydro, 40,000 MW thermal and 11,000 – 13,000 MW nuclear plants. The Government of India has an ambitious mission of POWER FOR ALL BY 2012’. This mission would require that our installed generation capacity should be at least 2,00,000 MW by 2012. The promotion of inclusive growth and infrastructure development remain the government’s key focus areas, with over 46% of the plan allocation being devoted to the infrastructure sector equivalent to Rs 1,735.52 billion. It provides a significant thrust to the power sector with a particular focus on RENEWABLE ENERGY. The allocation for the power sector has more than doubled to Rs. 51.3 billion for 2010‐11 from Rs. 22.3 billion in 2009‐10.
The company is attractively priced at a P/E of 11.25 also has the highest TTM EPS as compared to peers. The returns would be improving with the boost in top line in coming years. Also there is significant headroom for the company for expansion to capitalize on growing demand.
Outlook & Valuation The company is well placed to benefit from the spending in the power sector due to its expertise in the transformer segment. Also the government’s thrust to capacity additions, substantial delays in order announcements in H1FY11 and pickup in the overall business environment are factors which can boost earnings. We initiate coverage on Bharat Bijlee Ltd. (CMP `910) with Buy recommendation with the target price of ` 1225 which is 34% upside from current level (time horizon of 12 months). The stock at ex-investment value is currently trading at 7.31x & 5.9x it’s FY11E & FY12E with the EPS of ` 85.73 & ` 105 respectively. We value the company on EV/EBITDA basis with a multiple of 4x FY12E EBITDA `1023 mn which is valued at `784 and through P/E model at `1050 per share. The target price is achieved by adding the investment value per share of ` 283 and adjusting for the average price over last twelve months, which sums up to ` 1225 per share. We are fundamentally positive on sector and believe that the transformer companies would benefit from power capacity additions.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Bijlee Ltd BUY
Horizon 12 months
Target Price (Rs.) 1225
Upside 34%
Investment Rationale
Numbers to continue the uptrend
Company’s sales registered a growth of 22% in PAT to ` 150.7 mn yoy and the sales grew by 10% to ` 2025.5 mn on yoy basis. The numbers were fueled by the volumes growth of 20% in motors and better margins in transformer segment. We expect the company to post positive numbers in FY11 due to lower base effect.
Market Value of Equity Investments `386 per share and value of liquid investments held at and `90 per share
BBL, which recently holds substantial part of its investments in Siemens and HDFC are now trading at magnificent premium over its cost of acquisition. The value of investments at current market prices after discounting fairly by 50% and adding holdings in liquid investments sums up to ` 283 per share.
End-to end presence in power equipments
The company operates in the manufacturing of transmission& distribution transformers and also motors and elevators. The major focus of the company remains on the growing demand from the transformer segment, growing volumes in motors helps it to hedge the falling realizations.
Transformer Segment remains the Power play
Robust economic growth combined with power deficit of nearly 14% reinforces the company’s business model. The volume momentum in power remains good as the demand for transformers is driven by capacity additions in generation space primarily. The low base also provides enough room for growth. With the profound delay in the order announcements by government and private players in H1FY11, an uptick is expected for the projects.
Expansion plans to cater growing needs
BBL is looking to add higher kv class (above 220 kv) transformers and higher categories (above 1 MW) of motors for which it can go through Brownfield route on the existing land area.
Unlocked opportunities in the projects segment
The company takes end to end project implementation including Design, Engineering Supply, Installation, Testing and Commissioning of Turnkey Projects. It is qualified to do sub-station projects of up to 400 kv class, but till very recently it preferred to do projects only for some of the private clients for cement, steel, sugar and power projects across India and now also planning step forward for the government projects
Background Bharat Bijlee Limited operates in the electrical engineering industry in India. It manufactures and markets various electric motors and pumps, including three phase AC induction motors, which include standard squirrel cage TEFC, energy efficient, flame proof, safety, non sparking, crane and hoist duty, TEFC slip ring, and brake motors; special products comprising torque, low vibration, loco auxiliary, shock grade motors for warships, multispeed, sugar centrifuge, and cane unloader motors; and pumps consisting of centrifugal monoblock, regenerative self priming, open well submersible, and borewell submersible pumps. The company also offers various types of transformers, which include sub-station transformers, generator, unit auxiliary, and 132/25 KV single phase traction transformers; elevator systems, such as gearless machine suitable for machine room-less applications; and AC variable speed drives ranging from 0.37KW up to 900KW in 220V, 415 V, and 690V. In addition, Bharat Bijlee Limited undertakes design, engineering supply, installation, testing, and commissioning of turnkey projects, including outdoor EHV and HV switchyards; indoor sub-stations, and overhead and under ground distribution systems; industrial electrification for lighting and power distribution; power system study; illumination systems; power evacuation systems for power projects; system engineering; and vendor assessment. The company was founded in 1946 and is headquartered in Mumbai, India. Company is part of the Forbes ‘Asia’s 200 Best Under a Billion’ list.
Key Personnel Mr. Bansi S. Mehta (Chairman) - holds a Degree in Commerce and is a Fellow Member of the Institute of Chartered Accountants in India. He is a renowned expert in taxation, accountancy, and mergers and acquisitions. He has been a Chairman of the Board of Directors since 19th November, 1994. Mr. Nikhil J. Danani (Vice Chairman and Managing Director) - holds a Bachelor's Degree in Mechanical Engineering and a Master's Degree in Business Administration from Rutgers University, USA. Mr. Danani has experience of over 30 years in the business of Transformers and Motors with a vast knowledge in the field of Electrical Engineering. Mr. Nakul P. Mehta (Vice Chairman and Managing Director) – holds a Bachelor's Degree in Science and also a Bachelor and Master of Science Degree in Mechanical Engineering. Mr. Mehta has vast experience in the elevator business and experience of over 24 years in the Electrical Engineering Industry.
Sector Outlook The capacity addition of 78,530 MW comprising of 16,553 MW hydro, 58,597 MW thermal and 3,380 MW nuclear based plants is feasible during 11th Plan. Long-term planning studies for the 12th Plan have also been carried out and it emerges that the requirement of capacity addition during the plan works out to about 82,000 MW comprising 30,000 MW hydro, 40,000 MW thermal and 11,000 – 13,000 MW nuclear plants. The Government of India has an ambitious mission of POWER FOR ALL BY 2012’. This mission would require that our installed generation capacity should be at least 2,00,000 MW by 2012. The promotion of inclusive growth and infrastructure development remain the government’s key focus areas, with over 46% of the plan allocation being devoted to the infrastructure sector equivalent to Rs 1,735.52 billion. It provides a significant thrust to the power sector with a particular focus on RENEWABLE ENERGY. The allocation for the power sector has more than doubled to Rs. 51.3 billion for 2010‐11 from Rs. 22.3 billion in 2009‐10.
The company is attractively priced at a P/E of 11.25 also has the highest TTM EPS as compared to peers. The returns would be improving with the boost in top line in coming years. Also there is significant headroom for the company for expansion to capitalize on growing demand.
Outlook & Valuation The company is well placed to benefit from the spending in the power sector due to its expertise in the transformer segment. Also the government’s thrust to capacity additions, substantial delays in order announcements in H1FY11 and pickup in the overall business environment are factors which can boost earnings. We initiate coverage on Bharat Bijlee Ltd. (CMP `910) with Buy recommendation with the target price of ` 1225 which is 34% upside from current level (time horizon of 12 months). The stock at ex-investment value is currently trading at 7.31x & 5.9x it’s FY11E & FY12E with the EPS of ` 85.73 & ` 105 respectively. We value the company on EV/EBITDA basis with a multiple of 4x FY12E EBITDA `1023 mn which is valued at `784 and through P/E model at `1050 per share. The target price is achieved by adding the investment value per share of ` 283 and adjusting for the average price over last twelve months, which sums up to ` 1225 per share. We are fundamentally positive on sector and believe that the transformer companies would benefit from power capacity additions.
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