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Industrials
India
Cethar Vessels: Challenging competition – Thermax now and possibly BHEL later.
We visited Cethar Vessels in Trichy, a subcontractor for BHEL that we view as a potential
challenger for entrenched players in power generation equipment. The company is already
competing head-on with players like Thermax (won both Meenakshi as well as SKS) and is
targeting market leadership in supercritical boilers as well with its edge in cost (Chinese sourcing,
low technology costs, scale) and delivery (large manufacturing capacity, project management
system). Cethar’s subcritical order book, delivery record, FY2011E P&L, Barings investment make
it a strong contender. Cethar has tied up a portion (evaporator) of supercritical boiler (Siemens
through Riley) and sees no barriers in putting the rest of the inputs place.
Cethar Vessels –challenger in power generation equipment; Thermax now, BHEL later
Cethar vessels with 8,000 MW capacity is likely to challenge established players (such as Thermax
and BHEL) in the boiler manufacturing space. The company is aiming at significantly lower prices
(25%) based on low technology sourcing costs, Chinese component sourcing (tubes, plates etc.)
and automation in design and project management. The company has already won two large
orders from SKS (4X 300 MW) and Meenakshi (2X 300 MW) for which Thermax was a key
contender. Cethar is looking to win the first few supercritical orders from entrepreneurial utilities
(based on price and delivery offering) and then aim at leadership in supercritical boilers with 20%
market share (3-4 GW pa).
Supercritical technology is not difficult; build a home brand rather than tie up
Cethar management maintains that supercritical technology is not very different from subcritical
technology, apart from the evaporator stage. For this stage, Cethar has procured a license from
Siemens through Riley Power Inc and Siemens will review its evaporator design. The company
believes the rest of the boiler design to be commonplace and aims to manage it with the help of
Riley. Cethar wanted to lower the cost of sourcing technology and build a brand of its own rather
than rely on a technology partner.
Proud of knowledge, people, systems, manufacturing capabilities
Cethar takes pride in its (1) knowledge (Chairman, Mr. Subburaj is directly involved with aspects
such as design, production etc.), (2) people (3,100 employees, several people with more than 25
years experience in BHEL etc + some of those were instrumental in many firsts at BHEL such as 500
MW), (3) systems (manufacturing, R&D, safety is supervised by experienced people), impressive ERP
system which tracks about 40,000 components of a boiler and provides direct project progress
interface to customer and (4) manufacturing capabilities (100,000 MT pressure parts p.a.).
Subcritical order book (3.5 GW), FY11E P&L (Rs25 bn), Barings investment; certifications are proofs
Early evidence of reasonable delivery versus promise are (1) Cethar already has a sizeable order
book of about Rs80-90 bn (3.5 GW under execution), having won order from SKS power (4X 300
MW) and Meenakshi (2X 300 MW) and Ind Bharath (2X 350 MW), (2) likely revenues of Rs25 bn
in FY2011E, (3) Barings investment of Rs4 bn (about Rs23 bn pre-money equity valuation) has
strengthened its balance sheet and (4) the company has certifications in the field of safety,
manufacturing etc.. Gross block is Rs6 bn (reasonable considering the Thermax B&W JV capex) and
is profitable on existing orders, giving the company the comfort of selling at its price (25% discount).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Cethar Vessels: Challenging competition – Thermax now and possibly BHEL later.
We visited Cethar Vessels in Trichy, a subcontractor for BHEL that we view as a potential
challenger for entrenched players in power generation equipment. The company is already
competing head-on with players like Thermax (won both Meenakshi as well as SKS) and is
targeting market leadership in supercritical boilers as well with its edge in cost (Chinese sourcing,
low technology costs, scale) and delivery (large manufacturing capacity, project management
system). Cethar’s subcritical order book, delivery record, FY2011E P&L, Barings investment make
it a strong contender. Cethar has tied up a portion (evaporator) of supercritical boiler (Siemens
through Riley) and sees no barriers in putting the rest of the inputs place.
Cethar Vessels –challenger in power generation equipment; Thermax now, BHEL later
Cethar vessels with 8,000 MW capacity is likely to challenge established players (such as Thermax
and BHEL) in the boiler manufacturing space. The company is aiming at significantly lower prices
(25%) based on low technology sourcing costs, Chinese component sourcing (tubes, plates etc.)
and automation in design and project management. The company has already won two large
orders from SKS (4X 300 MW) and Meenakshi (2X 300 MW) for which Thermax was a key
contender. Cethar is looking to win the first few supercritical orders from entrepreneurial utilities
(based on price and delivery offering) and then aim at leadership in supercritical boilers with 20%
market share (3-4 GW pa).
Supercritical technology is not difficult; build a home brand rather than tie up
Cethar management maintains that supercritical technology is not very different from subcritical
technology, apart from the evaporator stage. For this stage, Cethar has procured a license from
Siemens through Riley Power Inc and Siemens will review its evaporator design. The company
believes the rest of the boiler design to be commonplace and aims to manage it with the help of
Riley. Cethar wanted to lower the cost of sourcing technology and build a brand of its own rather
than rely on a technology partner.
Proud of knowledge, people, systems, manufacturing capabilities
Cethar takes pride in its (1) knowledge (Chairman, Mr. Subburaj is directly involved with aspects
such as design, production etc.), (2) people (3,100 employees, several people with more than 25
years experience in BHEL etc + some of those were instrumental in many firsts at BHEL such as 500
MW), (3) systems (manufacturing, R&D, safety is supervised by experienced people), impressive ERP
system which tracks about 40,000 components of a boiler and provides direct project progress
interface to customer and (4) manufacturing capabilities (100,000 MT pressure parts p.a.).
Subcritical order book (3.5 GW), FY11E P&L (Rs25 bn), Barings investment; certifications are proofs
Early evidence of reasonable delivery versus promise are (1) Cethar already has a sizeable order
book of about Rs80-90 bn (3.5 GW under execution), having won order from SKS power (4X 300
MW) and Meenakshi (2X 300 MW) and Ind Bharath (2X 350 MW), (2) likely revenues of Rs25 bn
in FY2011E, (3) Barings investment of Rs4 bn (about Rs23 bn pre-money equity valuation) has
strengthened its balance sheet and (4) the company has certifications in the field of safety,
manufacturing etc.. Gross block is Rs6 bn (reasonable considering the Thermax B&W JV capex) and
is profitable on existing orders, giving the company the comfort of selling at its price (25% discount).
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